strong product pipeline

Peptech could best be described as an elder statesman of the Australian biotech industry. The company listed way back in 1985 when it raised $23M to focus on peptides and proteins for use in humans and animals. Since then the Peptech share price has been to both the penthouse and the basement on more than one occasion, at last count we had the stock trading at $1.40.

Over the past twenty years the company has gradually developed a valuable portfolio of intellectual property and carved out a unique biotech presence in the ASX/S&P 200 Index. It has also carved out significant cash reserves of $39.7 million, unusually large for a biotech.

After a number of ‘false dawns’ Peptech now looks like a stock with a lot of interesting value that’s beginning to emerge. With a strong and experienced management team, guaranteed multimillion-dollar licensing revenues for the next five years and a diverse portfolio of promising research, product and investment assets, the pep may well be back in Peptech.

Peptech’s core expertise lie in antibody and peptide research and development. Outside of its large cash reserves the company’s key assets are: - 1) A 36% stake in UK-based Domantis, which owns a next-generation platform technology for producing domain antibodies; 2) Patents related to antibodies against the inflammatory mediator Tumour Necrosis Factor (TNF), which will provide multimillion-dollar revenue streams up to 2010 (paid by global pharmaceutical majors Centocor, part of Johnson & Johnson, and Abbott); 3) Two proprietary anti-TNF products: one from Domantis and the other an in-house product (with freedom-to-operate); 4) A joint venture with Biosceptre to commercialise products directed to a novel cancer marker present in nearly all types of cancer cells and selective for cancer cells; and 5) Two marketed animal health products: Suprelorin for reproductive control in domestic pets; and Ovuplant, for use in the thoroughbred breeding industry.

Peptech Revenue Projections - 2006 to 2010 Source - http://www.peptech.com

FY05 saw Peptech invest a further $7.6m into Domantis, taking its stake in the Domain Antibodies company to 36.1% ($29.4 million). Domantis develops human domain antibodies (dAbs) – which are tiny proteins with antibody like functions. Domantis have more than a dozen proprietary Domain Antibody therapeutic programs, primarily in the fields of inflammation and oncology. Domantis is slated for a NASDAQ listing in 2008/09, with a targeted pre-IPO value of US$250 - $300 million. Such a listing price would indicate that Domantis is significantly undervalued by the market.

Peptech’s joint venture with Biosceptre’s in developing a cancer marker has shown great results. The crux of the joint venture is producing a test that detects cancers at an earlier stage than is currently available. A biopsy is taken from the suspect organ (skin, prostate, ovary, bowel, lung, breast) and antibodies are used to detect the presence of cancer. The antibodies bind to a target which is believed to be on the surface of cancer cells but not normal cells. Biosceptre’s scientists have confirmed the presence of the cancer marker-target in 90% of cancer types, an unprecedented coverage. The first commercial diagnostic products are due in 2006.

With a strong product pipeline, consolidated and recurring licensing revenues, cash in the bank and strong management Peptech may well be able to go to the next level of commericalisation and finally deliver on its potential. Being capped at approximately $200 million makes the stock suitable for some institutional investment whilst the royalty streams negate some of the potential ‘biotech risk.’