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  1. #31
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    Default Comments on the Report...

    The directors report opines on the company's flagging share price that:
    The domestic capital markets appear not to recognize the commercial potential of these medical device stocks.
    Some responses:
    • Apart from not making their annual report freely available, the company seems not to have published an AGM speech last year or any other form of analyst presentation. If the market potential is to be recognised in the share price, then it is up to the company to explain it to the market.
    • Any company which anticipates raising new capital and yet does not attempt to make sure the market has a chance to fairly assess value is not acting in the best interests of existing shareholders. This additional risk factor only serves to further reduce any value attributed to existing shares.
    • Believability needs to be maintained and this means realistic/conservative timeframes being put forward. For instance in the 2006 report, the bladder cancer clinical trials were about to start and were expected to take 18 months; in 2007 the trials were supposedly underway and expected to be completed by the second quarter of 2008 and now the report says the the trial has begun and is expected to be completed by mid-2009. The lack of other updates or explanations for this slippage means that anything else the company writes can only be read with scepticism.
    • If the company is so cheap, where are the merger and takeover offers? No one shareholder appears to hold a blocking stake, although possibly there is some crossover of interests which protects the company?


    The company provides some great info in its annual report which continues to be encouraging in terms of products and potential. However, they also indicate that each programme will require one clinical trial at $1m per trial - suggesting further capital raising will likely be needed unless they obtain significant licensing fees in the near future. I would like to see them make more effort to communicate the potential to NZ investors.
    Last edited by Lizard; 03-08-2008 at 09:43 AM.

  2. #32
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    Quote Originally Posted by Steve View Post
    How does the PEB product differ from what Matritech did?
    Note that the 2008 annual report contains references to NMP22 which is the Matritech test. PEB claims early indications that their test will be 90% accurate for stage one bladder cancer compared to 47% for NMP22. They also intend to test against NMP22 in the clinical trial.

    I've also had a look at Genomic Health (Nasdaq GHDX) as a comparison raised by PEB for their breast cancer assay. It looks as though they raised over $53m in their float in 2005 to support commercialisation of their breast cancer assay. They use a 21 gene panel, so a little more complex than PEB's bladder cancer with 4 genes. In 2005, their revenue rose to $5m from $0.3m a year earlier, then $29m in 2006 and $64m in 2007. This seems to be nearly all on the back of their one commercial diagnostic. The most recent quarterly report shows revenues of $23m for three month period - however, the company still managed to report a $7m loss, with the cost of sales and marketing being a massive $12m. In fact, the annual losses have barely changed over the years, from a loss of $25m in 2004, through to a loss of $27m in 2008. While this can be largely attributed to the cost of sales and marketing and expensing of R&D, it is clearly not a rate of loss that a small NZ company could expect to maintain. Market cap of GHDX is currently $635m, with significant net cash.
    Last edited by Lizard; 03-08-2008 at 11:11 AM.

  3. #33
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    I think the comment that the capital markets don't understand PEB is incorrect. I think they do and is reflected in the share price. These guys have forgotten they are a business with the objective to make money, the sooner the better. I feel that this company is managed for the benefit of management and researchers rather than shareholders. When is all this research going to be commericialised and we see some revenue?

  4. #34
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    Dubdee,

    World-beating, valuable technology is rarely developed on a shoestring budget. And when it is, getting it to market ahead of emerging competitors is an even larger (financial) challenge. There is a negative feedback loop in NZ technology investment which is not helping. It goes like this:

    1. Investors are dubious about the odds of investment success on early-stage technology - therefore they apply a high risk premium in their valuations (lower valuation)
    2. Low valuation applied to company reduces the potential capital that can be raised and therefore limits the speed of development, increasing time till profitability and reducing the magnitude of forecast profits. It also increases the dilution of existing shareholders that occurs while the company is in capital-raising stage. Both these factors further reduce the underlying valuation of existing shares.
    3. Lower share valuation means next round of investment requires even more dilution and further slowing of speed to market. Share price goes down with each round of capital raising.
    4. Investors become even more dubious about their odds of making money on early-stage technology investments.


    There are other negative feedbacks in there as well - liquidity being one. Loss of (or inability to attract) good management due to lack of investor support may be another.

    While the excessive optimism of the dot.com era was not healthy, this "kill-it-off-before-it-dies" pessimism of the Australasian markets is self-fulfilling.

  5. #35
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    I tend to agree with your comments Lizard,especially in regards to PEB and the forcasts they have made concerning trial completion dates and capital raisings.

    I guess one positive is the fact that the largest shareholders have recently put more money in,including Peter Masfen who is now the biggest shareholder.

    To get some positive sentiment building towards the companies outlook they will actually have to meet some of the dates they have forcast for completion of trials and product developement as set out in the annual report.They will need to show that they have a product ready for market and that it can generate revenue.Untill then the shareprice won't move.

    I think the products they are developing have huge potential,especially the gastric cancer test.We may get a better idea of how things are progressing with the agm to be held this month.

  6. #36
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    Gone from 8cps to 13cps. Did we accidentally ramp this? :o

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    Early this year I remember, whilst trolling the internet,coming across a couple of lines in an article which quoted CEO David Darling.The article was talking about the difficulties of raising capital in NZ.From what I can remember there were a couple of lines where David Darling mentioned how difficult it was to raise capital in NZ and that PEB may look at listing on offshore markets such as London or in the US.I've tried to find the article but to no avail.

    When reading the annual report and coming across the line that Lizard mentioned re the capital markets not understanding the potential value of PEB I recalled the above mentioned article.Should they strike a licensing deal with a European or US company listing offshore may be someting they look at.It seems a slightly unusual thing to say in an annual report so maybe it's a hint to where they are looking.

    Trouble is not many NZ companies have covered themselves in glory by listing offshoe and it would be an expensive exercise for a small biotech.But then again if they had an offshore partner.

  8. #38
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    Hmmm. Years ago I posted advice that this was a company to avoid and someone shouted me down. My posting seems to have disappeared but my advice remains the same. I had been informed by someone whose advice I respect that, if my recollection is correct, the predictive model they were using tended to greatly overestimate the tests effectiveness.
    Empty kookaburras make the most sound.
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  9. #39
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    I see the Ludwig Institute have announced on their website the joint development with PEB of the prototype prognostic test for the progression of aggresive stage III melanoma.The test has 85% to 90% accuracy.

    It would appear that the initial validation tests have been completed.The next stage should be the clinical trial which was mentioned in the annual report.I guess there will be more detail at the agm.

  10. #40
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    Hi Barney, here's some more related links - the first to an article on Genome Web and the second to the (abstract from the) actual publication in Clinical Cancer Research:

    http://www.genomeweb.com/issues/news/148865-1.html
    http://clincancerres.aacrjournals.or...act/14/16/5173
    Last edited by Lizard; 18-08-2008 at 03:52 PM.

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