Opinion: Collapse of ICP Biotech a sorry saga

By NZPA

Friday 16th May 2008

The saga of ICP Biotechnology is a sorry tale.

Yesterday, receivers were called to the Henderson-based company after one creditor rejected a voluntary administration option.

Before a trading halt was called on Wednesday its shares were bumping along the bottom at a derisory 1.5 cents. Investors knew all was not well.

ICP seemed to be the kind of company New Zealand needs.

It extracts proteins from animal blood to make media, serum and biochemicals used by big pharmaceutical and biotechnology companies. It exported just about all it produces.

It created high quality jobs for skilled workers to take advantage of New Zealand processing of high numbers of largely disease-free animals.

Few other countries in the world have such clean herds, free of scourges such as mad cow disease, scrapie and foot and mouth.

The beauty of ICP's proposition, founder and former managing director Dr Earl Stevens told NZPA last year was that it was one step back from the risks taken by pharmaceutical companies developing drugs.

"As a country we can't afford $US800 million ($NZ1.2 billion) for a new drug. We can't afford that failure."

Some New Zealand biotech companies had spent hundreds of millions of dollars and got nothing, he said.

ICP wasn't taking that front-line discovery risk but would gradually move up the value chain to producer higher value molecules as sales built.

"This is more practical. We are making things and selling things and getting cash flow."

Stevens, who at one time owned 30% of the company, saw ICP as a leading global manufacturer of quality biological products that would become a hundred million dollar-plus company in short time.

The plan was plausible, but the execution was flawed.

ICP encountered many, if not all, the problems, small New Zealand exporters face.

These included lack of sufficient capital, inexperienced management, an over-hyped story, the high New Zealand dollar, not learning to crawl before running, and personality clashes and egos.

Possibly the greatest problem though, is lack of belief and faith from investors who were unwilling to take a long-term view.

ICP came to the public's attention as a back-door listing two years ago. Back-door listings have had an appalling track record in this country and ICP has proved no better.

The company raised $2 million at the back-door listing. It forecast $20m turnover and a staff of 50-100 within two years.

The shares rose ahead of the backdoor listing to an adjusted 38.5 cents, a height never again reached.

In August 2006, ICP announced plans to sell its veterinary products manufacturing unit for $3m.

The money was to go into building its fancy new sterile production factory in Henderson. For various reasons the sale failed to go through, exacerbating cash flow problems related to the building of its new factory equipped with state-of-the art driers.

In August, ICP got a capital injection when Brent King's investment company, newly listed investment company Viking Capital, took a 16% stake and he and colleague Grant Baker joined the board.

While King provided welcome capital, his relationship with Stevens was disastrous. The latter feared Messrs King and Baker, who made a killing from the sale of 42 Below, were taking over by stealth.

Stevens has had a somewhat chequered career -- he was chief executive of Eric Watson's Excell Corp, a large maintenance contractor that imploded when its half owner Hartner Construction collapsed in the early 2000s.

A rights issue was announced in November. Sales of $25m and a trading profit of $6m in 2007 were forecast. The issue turned into something of a fiasco when Stevens was unable to find the funds to finance his share.

Only 60% of the planned $10m was raised.

As late as February last year, the company maintained it was on track to meet its ambitious forecasts -- but in May last year came the announcement sales targets would not be met and a loss of $8m was forecast.

The share price slumped to single digits and they never recovered.

A couple of weeks later Stevens was put on three months' gardening leave. In July, the company recruited a new CEO -- Sannes Melles, a young high flier who had been working with large Dutch biotech Crucell.

Things appeared to be looking up from the low point in May.

At the end of July 31, ICP also announced it had secured an important distribution deal with giant US company VWR, which King personally negotiated in Boston.

In September ICP bought two freeze dryers it had been leasing from Viking, for $1.41m.

In November, Waitakere-based Waipareira Trust announced it had invested an undisclosed sum in ICP and it wanted to develop a relationship.

"We see this as a strategic investment for the Waipareira Trust as biotechnology is one of the keys to New Zealand's future growth, as recognised by the Government's Growth and Innovation Framework," chief executive and former Labour MP John Tamihere said.

He saw the company as providing opportunities for Waitakere's science graduates "and the opportunity to introduce our young people to the excitement of biotechnology and science in general.

"We ... like the fact that the company's protein biologicals business adds significant value to the New Zealand agricultural industry."

Tamihere noted ICP had over 18 months attracted nearly $1m in government grants.

In its February results, ICP announced it had increased income by 165% and the net loss had halved to $3.2m.

Chairman Roger Gower said the result was in line with budget and he was sticking to a forecast of a surplus by the last quarter of the year.

While overheads were cut by 20%, the cash flow looked ugly -- negative $8.85m from negative $5.95m a year earlier.

Gower blamed restructuring costs and efforts to revive the veterinary products business following the board's decision not to sell.

Then there was radio silence until Wednesday, when the company announced it was going into voluntary administration. It expressed hopes it would trade its way out. However, next day finance company East Factors appointed receivers.

King, whose Viking Capital has lost over $6m on ICP, still expressed hope ICP could be salvaged.

"The problem has been breaking into the international markets to get the sales, and that has extended the time frame between cost and revenue, and that's been the fundamental challenge," he said.

Gower at the time of publication was not commenting.

The assets, the idea and the raw material are still all there, let's hope ICP, or some new company, can pick up the pieces and deliver on the promise.

By Simon Louisson of NZPA

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