No more Alchemistry….

I had a fairly sleepless night last night. It wasn’t just that my 3 year-old woke up at 2am with a night terror, or the periodic squawk across the corridor from the newborn. It wasn’t the ill-advised double-expresso I had after dinner, or even the premonition of a 4am wake-up for a day of business travel.

No, what kept me awake was the Alchemia Annual General Meeting (AGM) that took place yesterday afternoon in Melbourne.

Although I have commented several times on AGMs in this forum, and although the AGM is a public meeting, I don’t really feel that it is my role to be a “reporter” of events at such meetings. I did ask around the traps whether or not there were any media commentators planning on attending the AGM, given that it is probably one of Australia’s most notable biotech demises. Unfortunately, nobody seemed interested.

Fair enough. But for those shareholders that couldn’t attend, I thought I would write a few comments.

I’d like to firstly reiterate a statement that I made during the AGM*, and that is it’s always a shame when a biotech fails like this. It’s not the first time it has happened and it won’t be the last. Although shareholders ultimately suffer, there is no doubt that management also suffers too.  It’s a tiring and heart-breaking process to watch something that you believe in fail – I have been there, I know what it is like, and it’s stressful. It’s also very easy to throw rocks, but in fact the basic reality is that biotech is risky, and biotech often fails. Hopefully not in Phase III, and hopefully not because of a poorly-managed clinical trial, but it happens.

What really matters is what you do after you have failed. And therein lies the rub with Alchemia. During the Q&A session, a number of fairly pointed questions were asked of the 3-person board (Ramsdale, Drona, Poutakidis) and some of the answers left me scratching my head. Although the HyACT Phase III failure gets the most airplay, there are at least 4 other significant failures by the company in the last 18 months or so.

  • The HyACT deal with Panther was extremely poorly executed, at so many different levels. I appreciate that when an asset fails badly that there might not be a long queue of people lined up to take the asset on, but even the most cursory level of diligence – publicly available diligence no less – would have led management to the conclusion that a deal was unlikely to be viable. Inevitably, this proved to be the case and Panther is in default of the agreement.
  • The FAK inhibitors that were in-licensed in March last year have, somehow, quietly disappeared into the ether. Actually these molecules are pretty interesting, albeit early stage. However, with the right leadership, these assets are an example of technology that could have given shareholders some continuity of operations and perhaps additional opportunity in the future. Where did they go?
  • The back-dooring of the VAST assets is a crying shame. Well done to the few Alchemia shareholders that managed to do a sneaky deal and extract those assets for a pittance. I don’t know whether ultimately anything will come of this technology, but when assets that were spruiked as having $100m+ short-term potential goes out the door for a hundred grand, nobody was trying real hard to protect the family jewels, were they?
  • The Fondaparinux deal ($17m USD) is touted as a good outcome, but I don’t think it is. I am not privy to any sort of internal information, but if you just do the math, this is a deal pretty much looks like a baseline case to me. My gut feeling – and I challenge anyone to inform me otherwise – that this deal was probably always on the table. I don’t reckon there were too many board members or execs (mainly because there aren’t really any left) hoofing it over to Hyderabad to try and get a better deal. But hey, I probably shouldn’t just throw rocks for the sake of it.

At the AGM it was fairly evident – at least to me – that the board is just going through the motions of managing asset disposal. I don’t think there is a whole lot of future planning going on right now, and maybe that’s reasonable and appropriate given the circumstances. However, given that the ATO hasn’t even been consulted for a (non-binding) opinion on how the company’s $140m in tax losses might be “purposed” perhaps suggests that the Board only has half an eye on the ball.

To the Board’s credit, they answered some fairly direct questions with a respectful degree of detail and accountability. I think Nathan Drona’s fairly candid acknowledgement that the Board is not functioning well as a team, and has made a lot of mistakes over the past year, was the correct answer given that there is plenty of public domain evidence that this is the case. For that he has my respect.

But if it is the case – and given the “asset disposal mode” of the company – why weren’t all the Directors up for re-election? Especially Tracie Ramsdale who has, as far as I am concerned, little to contribute to the company in its current mode of operation if science isn’t part of the go-forward plan. Frankly, the fact that she is still picking up a paycheck as an NED is already remarkable – thankfully at a slightly lower rate than the $200k/yr she was picking up as an “executive director”.

Alchemia is disappointing at so many levels – even down to shareholders getting this fairly meager end-of-life “cash out”, though from a long-term holder’s perspective it’s probably the correct outcome. The real message here is that the company has run out of ideas and shareholders don’t expect the company to do anything useful going forward. As such, the sale of the Fondaparinux asset and the acknowledged “zero dollar” value of the HyACT estate means that yesterday’s AGM represents the beginning of the end of a prominent Australian biotechnology story.

I find it sort of sad. Hopefully the lessons learned will strengthen the sector going forward.


*Which I attended as a shareholder, albeit a “token” one. Thank you to the many retail investors that offered me their proxy forms. That was kind.

 

4 thoughts on “No more Alchemistry….

  1. Here, here. RIP ACL! Of course we’ll never know what went on with Dreddy’s contract and the Russian trial – a sad end to my 8.5 year shareholding – luckily it hasn’t cost me too much – I feel for others who lost a lot.

    Like

  2. Thanks for this post Chris. Indeed this is a sad end for a company that promised so much over the years.
    What it highlights to me however is the inability of our industry (investors, analysts, company PR and IR folk) to really appreciate the difficulty and complexity in drug discovery and development. Its a long road and there will be bumps. Take the HyAct story where CSO Tracy Brown has claimed publicly that further analysis od clinical data has identified benefit with the treatment for some patients. Was this discussed? Surely this is worth investigating further. Similarly the FAK assets: Verastem has generated some very interesting preclinical data with their FAK compound – including in immuno-oncology (http://www.businesswire.com/news/home/20150924006271/en/Verastem-Announces-Research-Published-Journal-Cell-Highlights ) and while they have hit a bump recently (albeit in a difficult Ph II trial as a single agent) there appears to be real potential in this story.
    Rather than the remaining team at Alchemia running out of ideas, I think they have given up. A shame that they didn’t realise this and pass the baton on to others with greater vision and enthusiasm.

    Like

    • Agreed. I am not trying to wallow too much in the misery of the situation, or throw rocks. As you say, it happens. But this is the problem with so many ASX-list bioscience companies, it’s not just the intrinsic risk of the science, it’s often the weak boards and poor governance that lets the company down as much as anything else.

      Like

  3. As another long term investor in Alchemia, I have also had something of a turbulent time since late 2008. I do however think Hy-Act has something slightly better than zero value but I wouldn’t want the board to try to prove that themselves. The cost of running the company now it has no income stream would quickly swallow up the $34.5m they currently have. I expect most of that to be distributed, but I would like to see some effort go into finding some entity to pick up that asset. There was also a few conditions on the “sale” of VAST being from memory that 10% of any future revenue would be returned to Alchemia. I’m not sure how this could be dealt with if the company gets wound up? I’m presuming it will all be over this financial year though. A sad story for my first investment in biotechnology. Luckily some of my more recent ones have been more successful, but it’s certainly a wild sector of the exchange to be investing in.

    Like

Say something useful (or at least interesting)...

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s