Government cash in $20m drug venture

By SIMON COLLINS

The Government has agreed to top up a $20 million investment in an Auckland company which aims to cure diabetes.

Trade and Enterprise New Zealand's Investment NZ arm will underwrite $2 million, and 38 private investors will add $18 million, for Professor Garth Cooper's company Protemix at Auckland University.

The money will fund trials of a new drug called Laszarin, which aims to save the lives of people with diabetic heart disease.

The company is also working on other drugs to suppress the body's resistance to insulin, which regulates glucose levels in the blood, and to stop degeneration of the islet beta-cells which produce insulin.

"If we can break insulin resistance and beta-cell degeneration, we can cure diabetes. We are going for the lot," Cooper said.

A memorandum prepared by Birnie Capital Partners says Laszarin alone "has the potential to exceed annual sales of US$1.2 billion ($2.1 billion) after five years".

Trade and Enterprise biotechnology manager Peter Lennox said the $20 million fundraising was the biggest private equity placement in a New Zealand biotechnology company to date. The nearest equivalent was a public float by Genesis Research and Development in 2000, which raised $48 million.

"What it will do is make investors, both in New Zealand and external investors, aware of some of the exciting things we have in New Zealand," he said.

"Once you get the first investment of this level and calibre, other venture capitalists start to look seriously at the science and opportunities in the country."

But Act MP Rodney Hide, who has campaigned against state handouts for expanding businesses, said: "I feel a bit sorry for this business."

"[Economic Development Minister] Jim Anderton has an uncanny ability to pick losers, so things that he has tended to invest in have typically done poorly," he said.

The company has stumbled once over the appointment of entrepreneur Neville Jordan as its chairman and chief executive in 2001. Jordan later sued the company for unpaid salary and unjustifiable dismissal.

Cooper has been acting chief executive for the past year and co-founder Dr John Baker, head of diabetes services at South Auckland Health, is acting chairman.

The memorandum to investors says the company will search for a fulltime chief executive when the capital raising is complete.

"It is highly likely that the individual will be a United States citizen, with previous experience in the US biopharmaceutical industry," it says.

"The chief executive would spend a period in New Zealand becoming familiar with the operation of the company and its compounds, but would thereafter spend time in both New Zealand and in particular the United States, to establish the required presence in the US market for both a large pharma transaction and potential Nasdaq listing."

Laszarin has already been tested in phase 2 trials on 30 diabetic patients at Middlemore Hospital with enlarged hearts and abnormal heart function. The patients' hearts were 10 per cent smaller after a year than the hearts of other patients who did not receive the drug.

Further Stage 2B trials in 210 patients with Type 2 diabetes and heart failure are planned during the next year at Middlemore, other Auckland hospitals, Hamilton and Christchurch and in Australia.

The drug will be made by a Swiss company, but Protemix is talking to crown-owned Industrial Research about using its new Lower Hutt drug development facility to make drugs for future clinical trials here.

However, Phase 3 trials in multiple countries, which can cost about $100 million, are likely to require a deal with a multinational drug company.

Cooper said he had had an offer from a US organisation to invest $50 million in the business a few months ago, but he turned it down when Birnie Capital Partners said it could raise the money locally.

"We perceived that we could create more value by going with Birnie Capital," he said. "It's not just a sentimental decision. There are also significant efficiencies we can get with the New Zealand space."

Cooper founded another diabetes company, Amylin Pharmaceuticals, in the United States in 1987. It is now listed on Nasdaq and is valued at just over US$2 billion ($3.4 billion).

The Government investment will be in the form of a grant by the Foundation for Research, Science and Technology which has yet to be approved. If it is for less than $2 million, Investment NZ will make up the difference.

The 38 new private investors are largely NZ-based individuals, but include a few institutions. Five per cent are US residents.

They have invested in a new vehicle called Pharmaceutical Innovations, which will have an initial 25 per cent stake in Protemix, rising to 49 per cent later through rights issues.

Other major shareholders in Protemix are a trust formed by Cooper and his wife, whose earnings are assigned to Auckland University (21 per cent), Jordan (19 per cent), Baker (18 per cent) and Auckland University itself (1 per cent).