Monday 3rd December 2001
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Jim Watson: PVACTM, our treatment for Psoriasis, is currently under trial in Brazil and the Philippines. These trials are proceeding well although enrollment has been slower than expected. The trial clinicians follow the protocols that have been agreed with the FDA and we have to wait for the enrollment and assessment periods to be completed. At this stage results are likely in the second quarter next year.
Because the trials are double blinded i.e. the patients do not know what treatment they are receiving, Placebo or PVACTM, and the doctors do not know which treatment they are administering, we are unable to assess the results of the trial until it is completed and the blinded codes are broken. We then carry out the statistical calculations on the improvement achieved by the treatment group in comparison to the Placebo group. The important aspect of the trial results is the degree to which greater improvement has been achieved by the treatment group in comparison to the Placebo group
We have also been busy planning a further Phase II trial in the USA. The FDA have been involved in reviewing the planned protocol and we are happy with the progress that has been made in agreeing the terms of the trial with them. We will make a public announcement when the trial commences.
Jim Watson: We have had discussions with a number of companies regarding licenses for the sale of PVACTM in certain territories that are not yet licensed. We expect that it will be better to delay any further licenses until the results of current clinical trials results are available.
Jim Watson: Genesis currently has over 2,200 shareholders and we are pleased with this increase in the number of shareholders. 97% of them (2,158) hold less than 50,000 shares.
Jim Watson: We have not noticed any significant change in the balance of the Institutional or private shareholders. We certainly value both shareholding groups and aim to keep an informed market available for any shareholder.
Jim Watson: The Genesis share price declined after the release of the Phase II PVACTM Psoriasis trial results which were adversely affected by the inclusion of patients who had previously been treated by significant immunosuppressive drugs such as methotrexate and cyclosporin. These trial results did not change our belief that Psoriasis can be treated very effectively by PVACTM but there is an apparent message from the market that further trial results are needed to support this belief.
Genesis currently has approximately $50 million cash ($1.93 per share), which means that the market is only valuing the intellectual property and future cash flows at less than $30 million or $1.14 per share. We believe that this is unduly conservative if you consider the portfolio of products that Genesis is developing including PVACTM for Psoriasis AVACTM for atopic dermatitis and asthma, YB-1, Epigen and FGFR5 early stage molecules for cancer and other indications, BioStore storage solution, and AgBio programmes investigating key plant regulators, promoters and hormones, and supporting our forestry interests in ArborGen LLC.
Jim Watson: Genesis is not a complicated company; it has a portfolio of products in development for human therapeutics and a complementary pipeline of products in the AgBio field. While the Genesis products may appear diverse, the technology, which underpins development, is common to both areas. The genomics pipeline provides virtually identical technologies for gene discovery in Therapeutics and AgBio. The product diversity appears after initial targets are identified. The model we use is to partner our products with organizations who have the expertise in that product.
Jim Watson: Many commentators have focused on PVACTM for Psoriasis, as that is our most advanced product for commercial release. However a number of other products have similar market potential including AVACTM for atopic dermatitis, BioStore storage solution and other earlier stage developments.
Our business model is to develop our discoveries to the stage where sublicensing can achieve significant milestone payments together with ongoing royalties from commercial sale of product. We do not intend to develop our own manufacturing or selling and distribution infrastructure.
Jim Watson: We have not had any indication from Rubicon as to whether they intend to increase their shareholding in Genesis. We work closely with them on our common shareholding in ArborGen LLC.
Jim Watson: In our last Annual Report we noted that staff numbers and Research & Development investment would increase in 2001, resulting in a Net Deficit for the 2001 financial year. Genesis will continue to fund a large proportion of its Research & Development through research contracts and collaboration revenue, but a significant ongoing net surplus is only likely after PVACTM receives approval for commercial sale. Earnings per share is not very relevant to a discovery company such as Genesis until products reach the market.
Jim Watson: Genesis has a services agreement with ArborGen that provides for research to be undertaken over a period of 5 years at the level of approximately $6 million pa.
Jim Watson: Drugs with small market niches have the same regulatory requirements as drugs aimed for major market segments, so there is little to be gained by focusing on small targets.
The Genesis strategic plan does prioritise those products that have the earliest potential to achieve market success but we also need to ensure that our ongoing pipeline is identifying early stage molecules and targets for subsequent development.
Genesis has managed to develop substantial partnership revenues that significantly reduce our cash burn. By comparison with similar biotechnology companies we have a higher proportion of costs covered by revenue than many.
Jim Watson: Lignin and cellulose are two key components of wood. Increasing the amount of lignin would result in timber with improved structural strength; reducing lignin content would result in lower cost of producing pulp for paper manufacture. It may also be possible to improve the reactivity of lignin and accessibility of it for pulp manufacture. Pulp is a huge market with significant waste disposal issues and any possibility of improving the manufacturing process with the use of a fewer chemicals has significant potential commercial value.
Jim Watson: Genesis and Wrightson are now pursuing particular targets that we have identified, focusing on the area of improving grass nutrition to increase livestock productivity. We have a number of areas where we are developing patent claims and it is difficult to talk publicly of these until they have been lodged.
Jim Watson: Sublicensing is the process where contracts are agreed with another company, which wishes to be able to use and sell one of our products in a defined geographic area of the world. For instance we have licensed PVACTM to Medicis Corporation, a leading skin care company in the USA, which entitles them to sell PVACTM to patients in the USA, after we have received FDA approval. We will separately sell licenses for Europe, Asia and Australasia.
Licenses are typically negotiated to provide certain upfront payments on signing the license, subsequent milestone payments when certain activities are achieved and also royalty payments based on a percentage of the sales revenue when the product is finally sold to consumers.
Jim Watson: Genesis has taken particular care to only license technology to other companies on the basis of Genesis receiving a share of revenue of any developments that are based on the Genesis technology.
Jim Watson: Genesis supports the position taken by the government and the Royal Commission on Genetic Modification, to proceed with caution in this area. Some parties are concerned about Genetic Engineering but many other groups of New Zealanders strongly support it. Indeed for some groups such as diabetics, the use of genetic engineering technology to produce human insulin has provided a significantly enhanced quality of life. While it is entirely appropriate to proceed with caution, as the Royal Commission report noted, it is important to allow research to be undertaken so that New Zealand builds on its strong base of Agricultural production.
Jim Watson: The licensing payments received in respect of PVACTM licences are the biggest single item of revenue for Genesis to date. This reflects the future commercial value of PVACTM as a Psoriasis therapy.
PVACTM is probably also the most expensive product so far, due to the cost of undertaking extensive clinical trials. In Biotech there is not necessarily a direct relationship between cost to produce a product and commercial value.
Jim Watson: We are focusing on the commercial opportunities for BioStore that are most likely to be achievable in the short to medium term. One of these significant opportunities is the preservation of platelets, which currently are destroyed by the blood product laboratories after several days, as they cannot be stored for any long period.
The licensing agreement for a veterinary product in Australia is currently for a single product use but is expected to expand into further products in due course. We are only agreeing to non-exclusive licenses so we maintain the opportunity to develop multiple licenses.
Jim Watson: Any Biotech investment should be considered a long-term proposal as it can take a number of years to get a product to market, even without the requirements for FDA approval.
The requirements for clinical trials to achieve the standards that FDA requires involve long time periods of planning and execution but as we have seen with Psoriasis, commercial opportunities for gaining licensing income can arise long before the product actually reaches market.
Genesis balances the long-term revenues from sale of products with the revenues from research contracts, partnership programmes and license payments, which provide continuity of cash flow.
Jim Watson: We do monitor share transactions each month although a large number are carried out in the name of nominee companies, which are hard to trace in the short term. The Institutional shareholders we talk to continue to be very supportive of Genesis.
ShareChat thanks Dr Jim Watson for taking part in this Investor Interview.
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