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Phylogica Limited May 2007
See “Important Information” on the back page for Disclosures
Phylomers; Beyond Antibodies PRreiccoe mmendation Spec$ 0B.u41y
Stock Code PYC
STOCK SUMMARY
Market Capitalisation (fully diluted) $61.8m
12 Month Price Range 28¢–86¢
Monthly Share Turnover 1.5m
Issued Shares 121.6m
Listed Options @ 25¢ 21.9m
Unlisted Options @ weighted 26.95¢ 7.2m
DIRECTORS
Joachim (Aki) von Roy Chairman
Stewart James Washer CEO / MD
Mark Pierce Non Exec Director
Harry Karelis Non Exec Director
Bruce Fielding McHarrie Non Exec Director
Paul Michael Watt CSO
SHAREHOLDERS @ June 06 %
BioTech Capital 26.9
Telethon Institute 19.0
Sassine & Associates Pty Ltd 4.9
Dr Paul Watt 4.1
ANZ Nominees Limited 2.6
Mal Washer Nominees Pty Ltd 2.4
Mr Bruce McHarrie 1.7
Prof Wayne Thomas 1.7
Aust.Heritage Group P/L–Strat. Cap. 1.2
Business Overview:
Phylogica is a drug discovery company, using its proprietary phylomer technology to
develop peptide therapeutics, which has advantages over therapeutic antibodies.
The phylomer technology is composed of naturally occurring protein fragments, derived
from various genera of organisms. Some of these 15 to 80 amino acid peptides can bind
proteins in a similar manner to therapeutic antibodies. Yet unlike therapeutic antibodies
phylomers 1) can be agonists or antagonists for drug targets inside or outside cells, 2) no
antibody associated royalty stacking effecting cost of goods, 3) high stability and structural
diversity resulting in a faster hit rate, 4) low immunogenicity, 5) ease of manufacture by
synthetic means and 6) phylomers could be developed into non-injectable drugs.
The company also has a proprietary protein interaction technology allowing timely and
accurate identification of therapeutic phylomers. The Blocker Trap screening platform is
based on yeast genetics, similar to the yeast two hybrid assays and designed to find
blockers of protein interactions.
These attributes have allowed the company to sign agreements with Johnson & Johnson,
Opsona Therapeutics, Axela Biosensors; as well as various Universities and Research
Institutions.
Internally, Phylogica has a suite of compounds in preclinical and discovery development.
The internal programmes are PYC36S targeting stroke, PYC35B targeting burn injury,
cardiac ischemia, rheumatoid arthritis and other inflammatory diseases.
2007 Outlook:
• Deliver further technical milestones under the Opsona and Johnson and Johnson
Research (JJR) agreement. This involves the development of new drugs for
asthma and atherosclerosis,
• Out license clinical development of PYC36S and PYC35B Aust.Heritage Group P/L-New Cap.Fund 0.9
• Further advancements in the internal programmes and identification of new drug candidates. This will be accelerated by
the new staff employed by the company,
• More partnering deals with interested parties from the large biotech, big Pharma sector
Recommendation:
As with many early stage biotechnology companies, Phylogica cannot be accurately valued because of the embryonic nature of
the programmes. Nevertheless, we have a SPECULATIVE BUY on the company because of the current dynamics of the antibody
production and discovery platform sectors. In recent times, antibody platforms have been acquired by larger drug discovery
companies because the number of new technologies is limited and novel platforms provide a competitive advantage that allows
the generation of novel therapeutics. Although Phylomers are not antibodies, they potentially have similar applications to
therapeutic antibodies, but also have additional innate advantages. Phylogica is well positioned to benefit from growth in the area
of antibody alternatives since it has discovered and patented an entire class of protein based peptide scaffolds.
FY05a FY06e FY07e FY08e
Revenue ($m) 0.05 0.49 1.23 1.30
Grants ($m) 0.05 0.49 0.63 0.50
NPBT ($m) (1.64) (4.23) (3.91) (4.19)
Operational Cash Flow ($m) (1.33) (2.81) (3.85) (3.92)
Investing Cash Flow ($m) (0.22) (0.05) (0.05) (0.10)
Financing Cash Flow ($m) 4.71 (2.87) 3.92 4.50
Cash ($m) 5.51 2.64 2.66 3.14
Assuming the company raises 4.5m in FY08e
2
INTERSUISSE RESEARCH
The Discovery Platform
As the name implies, Phylogica’s platform technology is a
drug discovery library derived from random natural peptide
sequences of a library derived from phylum of the
Archaean and Bacteria kingdoms. The library exploits the
rich diversity of protein folds in nature which potentially
interact with human proteins. As the library is of natural
origin, the library’s constitutions contain almost all protein
structures found in nature. Unlike small totally random
peptide library, the ability to house (and screen) natural
structures is more likely to increase the probability of
identifying a peptide that bind to mammalian proteins.
Focused on small gene fragments encoding peptides of 15
to 80 amino acids long, these fragments are often capable
of folding into at least one structural fold and some could
be expected to retain some secondary structure.
By basing these libraries solely on fully sequenced
microbial genomes, control can be exercised over the
libraries; eliminating biases that might arise from the
genomes of dominant species found in these libraries after
the gene have been amplified. It is also possible to
exercise choice over the range and quantity of input DNA
to account for genomes size and diversity.
The inclusion of the ancient kingdom of Archaean bacteria
has the advantage of increasing structural diversity and
selecting proteins that are highly thermodynamically stable.
This property is desirable for therapeutic proteins as it
putatively increases the usability or half-life of a protein
administered into the mammalian body. This property is
not held by most peptides in the eubacteria kingdom.
The company has constructed several libraries of several
kinds of Phylomers, containing up to 260 million clones1.
These libraries are;
• Phage display libraries for screening against
extracellular targets and for isolation of disulphide
constrained Phylomers,
• Yeast forward two-hybrid libraries for isolating
Phylomers without disulphide bonds which bind to
(normally intracellular) targets,
• Yeast reverse two-hybrid libraries for isolating
Phylomers without disulphide bonds with disrupt
(normally intracellular) target complexes,
• Mammalian expression libraries for phenotypic driven
screening,
• Bacterial expression libraries for bacterial two-hybrid
screening or in vitro transcription/translation for high
throughput expression.
From these libraries, the conventional structure / binding or
structure / function screening can be achieved, isolating
1 Protein silencing with Phylomers: A new tool for target validation and
generating lead biological targeting protein interactions. Expert Opinion in
Drug Discovery: 2006 1(5):491-502
peptides of interest. High affinity optimisation can be
achieved by conventional molecular engineering, if
required.
The hit-rate from this library has been high because of the
natural origin of the peptide structural complexes and
allowed the company to identify a large number of
putatively useful therapeutic peptides. These peptides are
in development in-house and with third parties.
Regarding the in-house developed peptides, the company
is taking development up to clinical evaluation at which a
development partner would be sought to take the
technology through clinical trials.
Compounds in Development
The company has identified a large number of potential
investigational drugs and taken six through into in-house
preclinical development.
PYC36S
The lead compound is in animal trials and targeting stroke.
The compound is designed to retard ischemic injury that
results in cellular death (apoptosis) after a stroke.
PYC35B
This compound is in animal trials and targeting burns.
Preclinical testing has commenced at the McComb
Foundation under the stewardship of Dr Fiona Wood.
Discovery Programmes
The company is progressing with very early stage
programmes targeting Rheumatoid Arthritis, Diabetes and
Cardiac Ischemia.