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Bigger
Is Better
A
series of acquisitions has transformed
Commonwealth Biotechnologies into a
larger company with a global presence in
contract biotech research.
by Peter Galuszka
Since
1992, Commonwealth Biotechnologies, Inc.
has ridden the wild, wild surf of the
biotechnology sector. Founded by three Virginia Commonwealth
University professors, the small, publicly held
firm has alternately prospered and struggled as
a provider of contract biotech research
services.
Like
many biotech outfits, CBI has reinvented
itself more than once, experiencing both
exhilarating growth and
stomach-wrenching decline. In recent
years, its stock price slid
to near $1-per-share levels, even as it
gained footholds in such
fast-growing sectors as forensic DNA
research and DNA sequencing for use in
thwarting bio warfare threats from
terrorists.
This
year, however, CBI may have broken out
of its pattern of moving one step
forward and one step backward.
Engineering the purchase of biotech labs in Australia
and Great Britain, the Chesterfield
County-based company is positioning
itself as a global player in the fields
of peptide, DNA
and protein sequencing and monoclonal
antibody production. The
company expects the mergers will
give it enough scale to persuade major
biotech and pharmaceutical players to
let it take on some of their research
projects. So confident is the company in
its prospects that Dr. Paul D’Sylva, CBI’s new CEO,
works out
of San Diego with the goal of breaking into
California’s burgeoning biotech
markets.
For
all its global ambitions, CBI remains committed to
the Greater Richmond region. The
headquarters is located in a
state-of-the-art, super-secure office-laboratory compound in suburban
Chesterfield County. “We have no
intention of leaving Richmond,” says
D’Sylva. “The reality is that I had
very little value walking up and down
the halls [in Richmond] telling people
what to do. I’m better driving mergers
and acquisitions on the West Coast.”
Sometimes-skeptical
stock analysts have taken notice of the
changes. In recent months, CBI’s stock
price has climbed more than 25 percent
to more than $3 per share. Some analysts
have improved their outlook, upgrading
to a “hold” from a “sell”
rating.
Key
to the new success, says D’Sylva, is
the spate of mergers that CBI began
about a year ago. CBI purchased
Australian biochemistry firm Mimotopes
Pty Ltd. from owner PharmAust Ltd.,
which took a 39.5 percent ownership
stake in CBI in the transaction.
D’Sylva, an Australian who has a PhD
in finance from the University of
Arizona and has spent his career in the
biotech and pharmaceutical industries,
had been managing director of Welshpool-based
PharmAust.
The
second acquisition involves Tripos
Discovery Research (TDR), formerly owned
by Tripos, Inc. of Bude, in the Cornwall
area of southwestern England. Tripos
Discovery specializes in applying novel
approaches to discover drugs by using
computational design and therapeutic
medicinal chemistry tools.
As
D’Sylva explains it, the addition of
TDR and Mimotopes means that CBI now
covers all classes of important
research, including peptide-based work,
biologicals and small molecular drugs.
“We have in the group all of the three
drug classes,” he says.
To
enhance shareholder value, he says, the
firm is taking new approaches to improve
revenues, margins, build net tangible
assets and to increase its understanding
of markets. The new additions will help
“migrate drug discovery services into
CBI,” says D’Sylva.
Giving
more muscle to CBI’s sales and
marketing efforts is another positive.
CBI, founded by former VCU professors
Richard Freer, Robert Harris and Thomas
Reynolds, had made strong inroads in
such areas as unique assay and detection
methods and can analyze proteins,
peptides and oligonucleotides, which can
be used as probes to detect DNA or RNA.
Yet, the old CBI was very
laboratory-focused.
“Prior
to Mimotopes, CBI had very limited sales
and marketing,” says D’Sylva. The
reality,” he adds, “is that today,
CBI is a radically different company.
CBI knew that more of the same was not
an option.”
The
start of the company’s metamorphosis
was happenstance. Last year, D’Sylva
was attending a biotechnology convention
in Philadelphia when he happened by
CBI’s booth. There, he ran into CBI
co-founder Dick Freer. Their spirited,
off-the-cuff conversation launched the
wave of mergers. Freer is now chairman and chief
operating officer of CBI, and co-founder
Robert Harris is president.
D’Sylva
won’t say what his growth expectations
are. Last year, pre-merger CBI had sales
of $6.5 million, down
16.3 percent from the previous year. Income dropped more than
$1 million. With the acquisitions,
revenues are now in the range of $16
million. Stock was about $2 a share when
the Mimotopes merger was finalized in
February and now is better than $3 a
share. “We’ve had a little bit of
success,” says D’Sylva.
Analysts
are sanguine but more positive. Weiss
Ratings, an analytical firm associated
with TheStreet.Com, rated the firm as a
“sell” in March. A report at the
time noted that “the company’s
weaknesses can be seen in multiple
areas, such as its feeble growth in its
earnings per share, deteriorating net
income, poor profit margins and
generally disappointing historical
performance of the stock itself.”
In
July, after the mergers went through,
Weiss was somewhat more upbeat. It had
changed its rating to a “hold.”
Although weaknesses were still noted,
CBI was praised for better performance
in gross profit margins and for being
”extremely liquid” and “very
unlikely to face financial difficulties
in the near future.” Its stock trades
at a discount to alternative
investments, Weiss noted. D’Sylva
describes the company’s stock price as
“grossly undervalued.”
CBI
has some other successes that it might
build upon. In June, it announced that
it had been approved by the U.S.
Department of Health and Human Services
to work on avian flu virus. To gain
permission to process and use the virus,
CBI had to undergo a rigorous safety
review. Dr. Freer was quoted as saying,
“This approval will now allow CBI to
offer a world class facility to the
myriad number of companies working in
this area but not ... able to develop
and test their products against the
actual virus.” D’Sylva believes the
addition of vaccine development brought
about by the Mimotopes acquisitions
helped facilitate the approval.
CBI’s
success will depend on how well it pulls
together its newly merged entities and
energizes its sales and marketing on the
West Coast. “We are always on the lookout
for merger possibilities,” says the
upbeat, new CEO.
--
August 2007
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