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08 June 2004
Introduction SLIDE 1 This is the Tenth Genesis Annual Meeting. 10 years ago I did not for a moment dream that today I would be standing in front of shareholders addressing the one question on your minds, namely: “why continue to invest in Genesis?” Many of you here today have been shareholders in Genesis for much of its existence. Other shareholders purchased shares as a result of our IPO in 2000. Our shareholders, our Board, our management team, and our staff are all conscious of our poor sharemarket performance. We adopted a different approach when we wrote this years’ Annual Report because we wanted to respond to widespread concerns to provide as best we can, our own views of what makes this biotechnology company tick. The Market There is little doubt that our industry is at a crossroads. To be a sustainable industry, investors must believe it is an industry worth investing in. That does not appear to be the case at the moment. The New Zealand biotechnology industry, while in its infancy, has very little to show in the way of products in the market. There is no question that the Government has clearly identified biotechnology as one of the pillars that will underpin New Zealand’s economic growth. But it is the market, not the Government that sets our shareprice. SLIDE 2 And the market addresses two questions: “What do we have in our pipeline?” “When will we get revenues from product sales?” What Do We Have In Our Pipeline? When PVAC, our flagship product, was abandoned in late December, 2003, major questions from our shareholders were directed towards what else was in the Genesis portfolio. The failure of PVAC has also been difficult for the staff who have invested so much time and effort in its development and who also have interests as shareholders. To their great credit, the staff responded rapidly and with great energy to the challenge of bringing the next set of products through to the necessary trial processes and towards the market. I believe that as a result of a rigorous review of our strengths, our opportunities and our focus following the PVAC failure, our portfolio is stronger now than it has ever been. SLIDE 3 In 2000, when we listed, we had one product, PVAC in partnership with Corixa Corporation, just entering Phase II clinical trials. Today, we have two compounds – AVAC and SRP 299 in Phase II clinical trials in partnership with SR Pharma – AVAC in Auckland, and SRP 299 in Europe. We have strong pipeline candidates – leading these are Zyrogen and several novel RNAi therapeutics - developed to a stage where they are attracting significant licensing interest. Financial SLIDE 4 Our financial performance has been fully described in our Annual Report. In 2003, we had operating revenues of $10.0m, expenditure of $22.7m, a net deficit of $12.7m and a cash balance of $23m. SLIDE 5 Over the past 10 years Genesis has raised $68m from investing shareholders, and $112m from partnerships, licensing and milestones, a total of $180m. At the end of 2003 we had $23m in reserve, having spent $157m. Let me talk about the some of the use that this cash has been put to. SLIDE 6 Of the $157m, some $27m has been spent on facilities, equipment, rent and utilities, approximately $60m has been spent on developing our health portfolio and some $70m on developing our plant portfolio. Of the $60m cash spent on health, only $15m was spent on PVAC, some $5m has been spent on AVAC and some $40m on the health pipeline. Undoubtedly, the lower spend on AVAC was due to the considerable development work done on PVAC. Shareholders have asked how much funding did we raise for PVAC and how much has contributed to pipeline development? SLIDE 7 Of the $27m we raised for PVAC some $12m was spent on pipeline development. SLIDE 8 The Herald reported in February, that we had cash to survive for only two more years. That assumes we run the company like deliberately driving a car over a cliff. Our spend is always a balance between revenues and our bank balance. We have the cash reserves to continue ou business in an orderly manner, and our past record in partnering, combined with the response we have had to our portfolio, gives us confidence we will maintain sound financial stability. The Portfolio SLIDE 9 To begin with AVAC, and SRP 299, the results of these two trials in patients with atopic dermatitis are expected to be available in Q4 this year. While we have no way of predicting the results of these trials we can say that the trials have been managed well, and the clinical data from preceeding trials has been very positive. It is important for our shareholders to understand that AVAC is chemically quite different to PVAC. We know a lot about the mode of action of AVAC, it inhibits basic immunological processes underlying atopy, and as such it lines up well with the management of atopic disease. While a number of pharmaceutical companies are interested in these trials, further licensing will occur only when the results of successful trials are available. Zyrogen SLIDE 10 In the 10 years of our operations, we have built extensive gene databases and identified for further screening more than 400 genes and gene products as candidates for a therapeutic product or a diagnostic tool. As is standard in our industry, most potential candidates fall along the wayside. The screening is very rigorous and the competition through the industry internationally, is intense. Today our most promising pre-clinical candidate is a molecule we call Zyrogen. This is a molecule that we discovered, we patented and we own. We have found that it appears to be a key molecule in the development of autoimmune diseases such as lupus and also osteoporosis, the weakening of bone. It takes time to develop an in-depth data package for the purpose of forming new partnerships or licensing but Zyrogen is now at that stage and is the subject of extensive discussions with a number of companies. We seek to license Zyrogen as a disease target for both lupus and osteoporosis. Behind Zyrogen we have two other candidates in therapeutic development involving a technology we call RNAi, or RNA interference. SLIDE 11 This technology, while new in the field of health, has been used extensively by us in the field of plant biotechnology and is an example of technology discovered in plants that we have transferred into health. The annual report includes further comment on our RNAi programme, but I would like to note that we believe that it provides an opportunity for the much more rapid development of products into clinical trials, and the market. Genesis RNAi discoveries and patents are focussed in two fields – allergy, targeting a protein known as IgE, and cancer – targeting YB-1. Next on our list are two product candidates which have long been in development. Med-1 has potential as an important component for a new TB vaccine and we are moving ahead with a company in California which will fund and conduct a new round of trials. BioStore is in the hands of CSL in Australia who continue to test the technology as a storage agent. The Licensing Process We are currently discussing with a number of major pharmaceutical companies their interest in licensing our product candidates. The stages where many licensing deals occur are either early – prior to Phase I trial initiation or after successful Phase II trials are completed. We seek new licensing deals that result in three new revenue streams which are staged over a time period – an upfront payment on signing, milestone payments at the time a product candidate passes developmental hurdles, such as each clinical trial and royalties when the product achieves sales in the market. SLIDE 12 Zyrogen and RNAi therapeutics are likely to be licensed at an early stage of development, while AVAC will only be licensed at the completion of successful Phase II clinical trials. View of Overall Portfolio SLIDE 13 My summary of our portfolio is the following: We responded to the PVAC failure by an intense re-evaluation of our product candidates. We have clear portfolio priorities – AVAC, Zyrogen, RNAi therapeutics for cancer and allergy heading the list. Each was selected because of their potential biological activity and their market potential as defined by clinical needs. We have had our portfolio credentials screened by key companies, often competitors in the field. We believe it is a sufficient portfolio for the size of our company and our spend. We are optimistic about new licensing revenues. SLIDE 14 To summarise, 2004 will be a better year than 2003. The Crossroads We are now at a crossroads for several reasons. Today we have three directors standing for re-election. Steve Gillis, Doug Williams and Jim McLean. You may well ask why should we re-elect these individuals? What have they done to contribute to the development of our business. Well the facts are reasonably simple. The biotechnology industry has significant risk due to the high cost and long time frames for development of products, some of which fail at an advanced stage, and as a result leads to cycles of investor confidence. These three directors are the core of the biotechnology expertise on our board and are needed as we progress forward. Our US directors are a benchmark of the very high standards and achievements of the biotechnology industry in North America. Jim McLean is one of New Zealand’s most experienced biotech business director. Each of these directors are able to open doors for us in potential partner companies that might, without their involvement, remain firmly closed to us. The Board continues to consider the appointment of new directors but has not found candidates better able to bring the skills we require. I strongly recommend that you vote in favour of their re-election. The Future I have had the privilege of working with Genesis since its inception, first as Research Director and now as Chief Executive. I believe that our portfolio is sound and will deliver revenues and that these revenues will sustain the company through a long period. I have great faith in the value of our portfolio and the ability of our staff to deliver. I also have goals left to achieve, and both involve Genesis. The most important obviously, is to see this company be successful. The other is to continue to do further research particularly in the field of cancer immunology. That said, I am now 60 years old, and conscious that I cannot, and I do not wish to remain in my current position indefinitely. I believe in sound succession planning and I would like shareholders to know that the Board and I have agreed that the new Board will initiate a search for someone to succeed me as CEO of Genesis. I am advising you of our intention today so that it will not come as a surprise to you. At the point a new CEO is in place in the future, I will return to the scientific ranks of the company as founder scientist. So while I am the CEO I want to take the opportunity to thank you, as shareholders, for the support you have given me, and this company. Together we have undertaken a considerable journey and while we have not yet reached our destination. Despite the market view, we should together take pride in this company in what it has and what it will achieve - and equally importantly in the massive contribution that it has made to the development of the biotechnology industry in New Zealand. Three of our former staff Paul Tan, Damian Camp and John Chang, are now CEOs of New Zealand Companies. Another five are Chief Scientific or Operating Officers of New Zealand or overseas companies. That shows the calibre of staff that we have been able to attract and I believe gives confidence about the potential for the future success of Genesis. Finally I would like to thank the Board for their work and support, and to David Irving a special thank you. It has not been easy as Chairman of a large Board and at a time when we have struggled in the market. You have cared for the company, the staff and its shareholders through a very difficult period. We sincerely thank you for it. Thank you! J.D. Watson Chief Executive June 8, 2004 Download the pdf version of the presentation files: Genesis and AgriGenesis |