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Share price chart: PGL
CompanyUpdate
Date of issue
18.07.07
Lining up all the ducks
PGL recently presented to Bell Potter. Following this presentation, we have come to the
view that PGL is resolving a number of key commercial issues before progressing towards a
more formal commercialisation strategy that would potentially involve a regional licensing
or co-development deal.
Over the past six months, PGL has delivered excellent Phase 2b clinical trial data and is on
track in terms of building up manufacturing capabilities for Phase 3 trials and initial
commercial sales. Earlier this year, the company also bought back Medigen’s 15% royalty
stream. PGL is yet to lock down the Phase 3 clinical trial design with the US FDA and
appoint a contract research organise (CRO).
Partnership potential
Going it alone was described by PGL management as a “default strategy”. We believe this
indicates that PGL may undergo Phase 3 trials with the help of a partner. We reviewed the
FDA database of current FDA-approved ongoing clinical trials for liver cancer and concluded
that studies with more than 250 patients were conducted by large industry players. In our
view, PGL is likely to complete the commercialisation of PI-88 with a larger partner. This
could range from companies similar to Bayer Pharmaceuticals (who own liver cancer drug
Nexavar) through to lesser known companies but ones who have significant distribution
capacity into Asia.
Earnings estimates unchanged
Our conversations with the company over the last month have focussed on PI-88’s clinical
development strategy. At this stage, we are uncertain about how PGL will market and
distribute PI-88 worldwide. Our current assumptions are based on PGL marketing the drug
without a partner but gaining relatively slow uptake and minimal market share (5-25% over
five years in the US and Europe, 5-15% over five years in Asia-Pacific and 0.5%-1.5% over
five years in China). We remain confident that PGL will start Phase 3 clinical trials before
the end of the year and, as a result, our earnings estimates remain unchanged.
We maintain a “Buy 2” but why does the market think otherwise?
We reiterate our Buy 2 rating based on our probability-weighted valuation of $14.64. We
expect PGL to deliver on a number of milestones over the next 3-6 months. This will place
the company in a prime position to negotiate a licensing deal for PI-88 in various
geographical regions. We believe the company has intentionally not committed to a
particular development strategy given it has previously (2005) been burnt by announcing
partnership plans that were never consummated.
INVESTMENT DATA
Share Price $4.310
Issued Capital
Ordinary Shares 59.3m
Options 3.0m
Fully Diluted 62.3m
Market Capitalisation $268.5m
52 Week Low/High $2.51 / $9.45
Valuation $14.64
Top 20 shareholders as at 30 June 2006 own
63% of total shares on issue

Waiting for all the ducks to line up
We believe PGL has lined up and contines to line up a number of key affairs before
progressing towards a more formal commercialisation strategy that would potentially
involve a regional licensing or co-development deal. In our view, PGL needs to deliver on a
few more clinical development milestones to ensure the company is in a more robust
position to negotiate potentially better deal terms.
Delivered on successful Phase 2b clinical trial results
In Dec 2006 and April 2007, PGL announced positive clinical trial results for PI-88 as a
treatment for post-resection liver cancer. The results showed that PI-88 increased the
disease-free rate by approximately 25%, i.e. patients on PI-88 had a one in three chance
of tumour recurrence versus patients not on PI-88 who had a higher chance (one in two)
of tumour recurrence. Importantly, PI-88 extended patient survival by 78% or 5.3 months.
Royalty buy back from Medigen
In Jan 2007, PGL agreed to pay Medigen approximately $15m in cash and scrip over the
next 3 years in return for keeping the 15% royalty stream on PI-88 sales. Our previous
research coverage (dated 19 Jan 2007) highlighted that PGL now had more freedom to
negotiate deal terms with other potential licensees and retain a much larger share of sales.
We continue to believe PGL did this deal to potentially enhance its negotiating power for a
licensing deal.
Finalising clinical trial design with US FDA
PGL recently announced preliminary details for the design of the Phase 3 trial. The trial
will enroll up to 800 patients in 14 countries across North America, Europe and Asia. The
primary goal is to increase disease-free survival (DFS), i.e. reduce the time to tumour
recurrence. We believe this should reduce the overall cost and timeline of the trial. The
trial will involve 400 patients on placebo, i.e. not receiving treatment with PI-88 and based
on the Phase 2b data, we expect these patients to experience tumour recurrence much
more rapidly than those on PI-88. As the trial progresses, an independent data safety
monitoring board could interrupt the trial and accelerate drug approval if patients on PI-88
are experiencing a significant benefit over those not on PI-88. Alternatively, PGL may have
a pre-planned interim analysis built into the design of the clinical trial allowing access to
the results before the actual completion of the trial.
Although PGL has outlined the timing for trial design approval to be uncertain, we expect
the current trial details have been finalised and the trial design will ultimately be approved
before the end 3Q 2007. This ultimately de-risks the regulatory path to market for PI-88
and mitigate any risk on behalf of a potential partner.
Manufacturing near completion for Phase 3 and initial years of commercial sales
The recent company presentation also highlighted PGL’s manufacturing capabilities. PGL’s
current capacity is sufficient for the 800 doses required for Phase 3, as well as the first few
years of commercial sales. We believe the manufacturing capability is especially attractive
to a potential partner given PGL has established the facility and know-how behind
synthesis and scale-up of the drug.
CRO appointment imminent
PGL also recently reiterated that it was finalising the engagement of a leading contract
research organization (CRO) to support the execution of the Phase 3 clinical trial. We
believe the timing on this appointment is imminent given PGL has been working closely
with its preferred partner to initiate various hospital sites around the world.
4
Ready to progress but would benefit with a partner
In our view, PGL is likely to complete the commercialisation of PI-88 with a larger partner.
This could be a number of players from Bayer Pharmaceuticals (who owns the liver cancer
drug Nexavar) through to lesser known companies but ones who have significant
distribution capacity into Asia.
Who are the big Asian players?
We looked at a number of companies in the Asian region and highlighted a few that we
thought would benefit from a liver cancer drug like PI-88. PI-88 is attractive to a number
of companies in this region given the high incidence of liver cancer in China and Japan.
Worldwide, the American Cancer Society estimates 80% of liver cancer cases occur in
developing countries, with 55% of the total in China. Figure 2 highlights the large
pharmaceutical firms in China and Japan with distribution capacities and an interest in
building their cancer portfolios.
Figure 2 - Potential partners in Asia
Source: Bell Potter estimates
PI-88 fits Bayer’s sweet spot
We understand that PI-88 targets a niche cancer indication - post-resection liver cancer.
This may not appear immediately attractive to a large pharmaceutical or biotechnology
company, however we think a likely partner for PGL could be Bayer. As we understand,
Bayer’s Nexavar is the only other anti-angiogenic drug targeting post-resection liver cancer
but Phase 3 trials for this drug have not commenced. We believe Bayer may want to gain
a leading foothold in the liver cancer market with Nexavar and potentially PI-88. In
addition to Bayer’s Nexavar targeting liver cancer, Bayer’s interests in the Asian region have
grown steadily over the last decade. Bayer's Greater China Group operates in the market
encompassing Hong Kong, Taiwan, and China. In 2006, sales in this region were up a
significant 24.1% to €1.5b accounting for circa 5% of Bayer’s total worldwide sales. An
ideal way to build sales in this region would be to have the only two leading drugs
targeting both resectable and non-resectable liver cancer.
Country Company Comments
Japan Taiho
Pharmaceutical
Extensive experience in the clinical development of anticancer agents.
More than 50% of Taiho’s sales were from oncology products. Has
circa 25% market share of the Japanese anti-cancer market.
Japan Kyowa Hakko Services range from drug discovery and development through to
manufacturing and distribution. Has strong history of in-licensing
Asian development and marketing rights for cancer compounds from
the US and the EU.
Japan Banyu
Pharmaceuticals
Banyu's business development focus is to align with companies who
would like to license, co-develop, co-market or co-promote products in
the Japanese market, particularly late stage oncology products in
clinical development outside or inside of Japan as candidates for
licensing in Japan. Banyu is a wholly owned subsidiary of Merck.
China Yangtze River
Pharmacy
Cancer portfolio comprises 12 drugs (traditional chinese medicines and
chemotherapies) for the treatment of a range of cancer types.
China Jiangsu Hengrui
Medicine
Bulk (67%) of company’s sales revenue comprises generic
chemotherapy drugs with RMB856m in sales during 2006.
China Qilu
Pharmaceutical
Cancer portfolio comprises more than 20 chemotherapies for the
treatment of a range of cancer types.

5
Ready to progress but would benefit with a partner
PGL can’t fund development of the other cancer types
We remind investors that PI-88 is currently in mid-stage development for the potential
treatment of a range of cancers including non-small cell lung cancer (NSCLC), melanoma
and advanced prostate cancer. Our current valuation does not assume potential sales for
these cancer types given PGL’s funding capacity is not sufficient for further Phase 3
development outside of liver cancer. We strongly believe that PGL will out-license PI-88 to
various industry players for all cancer types. Our analysis indicates that deals would occur
on a regional basis.
Consider the stock’s history in licensing deals
A change in strategy...
In early 2004, PGL advised the investment market that it would out-license PI-88 to a large
pharmaceutical or biotechnology company. At the time, PI-88 was in early Phase 2 clinical
trials for the treatment of advanced melanoma. PGL expected the deal to be done within
12 to 18 months implying a due date in March 2005. PGL’s commercial strategy changed
as PI-88 delivered on new clinical data in liver cancer. PGL then advised the market that
more than 60 pharmaceutical and biotechnology companies had approached PGL but a
licensing deal was never signed. PGL then decided to retain development of PI-88
completely in-house. The biotechnology industry also turned in 2005-2006 and a number
of US companies also decided to retain their compounds for late-stage development in
order to enhance the value of the potential drug.
What’s changed now?
Given PI-88 targets liver cancer which has a high incidence in China and Japan, we
strongly believe that PGL would benefit with a partner in this region. A partner would
greatly assist PGL with marketing and distribution and more importantly, add value via
their experience in dealing with the regulatory agencies. Japan is known to have harsher
regulations as any drug that is approved for sale in Japan must have been trialled in
Japanese patients. PGL is currently preparing for this study which is expected to involve
approximately 30-40 patients.
Key drivers
Key risks
Risks to our valuation include (1) failure to successfully complete Phase 3 trials, (2) failure
to secure a regional licensing deal or co-development deal, (3) serious damage to
manufacturing facilities and (4) changes to the regulatory environment / delays in gaining
FDA approval.
Event Impact on
valuation
Expected
due date
CRO (contract research organisation) appointed Medium 3Q 2007
Phase 3 trial design FDA-approved via SPA Medium 2H 2007
Phase 3 trial commences Medium 2H 2007
NSCLC (non-small cell lung cancer) results High 3Q 2007
Potential licensing deal High 2007-2008