The last two years, 2003 and 2004, have seen generous returns for investors in the biotech sector across the board.Over $1 billion has been raised by Australian biotech companies for working capital requirements, and 38 companies havelisted on the ASX since the beginning of 2003 with two more planned to list shortly, Phylogica and Kryocor. However sentiment towards the sector has hit a two year low with blue sky potential currently being ascribed limited value for drug developers.This can be supported by share price movements of three drug development companies this month; Prana Biotechnology, which announced commencement of a Phase I trial in its second Alzheimer’s disease program, has seen its share price climb only 1 cent to 51 cents; Peplin’s share price has fallen 2 cents to 44 cents since it started its 180 patient Phase II trial in skin cancer; and Cytopia’s share price fell 4 cents to 54 cents after announcing to the market it had filed an IND withthe US FDA for its lead oncology product.
OnlyAgenix, whichis developing an in vivo diagnostic product for the detection blood clots, saw its share price climb (by 7 cents to 47 cents) after announcing it had started its Phase II trial in the US and Canada. Profitable companies within the sector, such as CSL, Cochlear,Promedicus, Arrow Pharmaceuticals and GroPep, are in strong demand by investors. Companies on the verge of generating good sales growth, such as Optiscan Imaging, Ventracor and Clinical Cell Culture, will be stocks to monitor closely over 2005, and drug development companies, particularly companies with compounds in clinical trials, will be the first to respond as positive sentiment returns to the sector. Just when that happens is unknown but it will be driven by an underperformance in industrial equities and major clinical success either in the international or local biotech sectors.
Biosignal listed on the ASX in April last year at 20 cents. It has isolated bacteria signalling compounds from seaweed found in Botany Bay. It is one company in the sector that is hitting its milestones and if it stays on track, will have two products on the market in 2007. The compounds isolated from this variety of seaweed are called furanones. Biosignal has developed synthetic analogues of these furanones that interrupt communication between bacteria. It’s a novel commercial approach to preventing bacteria build up. Rather than using harsh antibacterial compounds that kill bacteria, furanones simply stop the bacterial communication necessary for biofilm formation. Biofilm formation can lead to discharge of toxic by-products. There are hundreds of applications for this technology. The first two uses are in preventing bacteria build up on contact lenses and on marine aquaculture equipment. Contact lenses – priority application Over 100 million people in the world wear contact lenses and the aim is to prevent eye infections, initially in the 30-day contact lens products. Biosignal has now successfully bonded the furanones to the lenses. Animal safety trials started this month and are expected to finish next month. In June this year, Biosignal will begin a 30 patient safety trial which will be followed by a 250 patient trial in India beginning in July (active phase will begin in September). In January this year Biosignal gained support from a major global lens company to supply 20,000 lenses for this trial. Biosignal was awarded a $1.4 million Start grant in December last year and in January this year Biosignal negotiated an agreement with Dr Reddy’s Laboratories in India to manufacture the furanone compounds for this pivotal clinical trial.
Biosignal aims to enter into a commercial licensing agreement with a major lens manufacturer in 2006 ahead of the commercial launch in 2007. It is expected that only a 510K regulatory application will be required for the US. Biosignal is entitled to 50% of net royalty streams generated from the contact lens application, with the other 50% going to the development partner for the contact lens application, the Institute of Eye Research in NSW.
Marine anti-fouling paints
The first application of furanones in marine paints will be for the prevention of bacteria build-up on aquaculture netting. Field trials are expected to begin in Norway in June this year to select the most suitable furanone compound. Commercial scale trials are expected to begin next year and Biosignal is hopeful of generating commercial sales in 2007. The main challenge for the company will be to achieve low manufacture costs for this low margin product. The compounds have attractive point of difference with existing paints, which use toxic metal-based compounds.
Other uses for furanones
A recent article in the journal, Microbiology, indicated that furanone compounds could be effective in breaking up bacterial biofilms found in up to 80% of patients with cystic fibrosis. The compounds may also have a use in treating skin infections, and preventing urinary tract infections through coating catheters with these compounds. Another more immediate use, and perhaps the third key area for Biosignal, is in oral hygiene products such as toothpastes and mouthwashes. The toothpaste market is surprising large, valued in Australia alone at $225 million a year. Whilst it is dominated by Colgate-Palmolive which has 63% of this market, it’s an area that major pharmaceutical companies are looking to expand into. GlaxoSmithkine now has a 24% market share in Australia with its Macleans brand, and Pfizer has just entered the market with its Listerine toothpaste. A differentiating product with better ability to prevent bacteria build-up on teeth may appeal to the major players in this industry. Biosignal is now capitalised at $17 million with $3.3 million cash at the beginning of this year. Initial royalty streams from furanone-coated contact lens sales we estimate are in the order of $5 million. This program is hitting all of its milestones and the company is on target to achieve commercialisation in 2007. Biosignal is showing itself to be a quality biotech company commercialising a unique technology with multiple applications.
BOS Price at posting:
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