Viralytics on global pharma watch

Few junior biotechs ever make it to the big time. They either run out of cash in the grueling slog of taking an idea from the laboratory to commercial reality or are snapped up by a global major looking to acquire the next big thing on the cheap.

Sydney based oncology research group Viralytics (VLA) is under no illusion about the cost and time involved of taking its cancer treatment products to a full commercial stage and is hoping its recent success in Phase II trials in the US will attract the attention of global pharma giants.

Based on research from the Newcastle University in NSW - which holds a Viralytics stake and oversees ongoing research - the company has concentrated on treating melanoma using a common cold virus to attack cancer affected cells with a product called Cavatak.

The US Phase II studies delivered a promising 33% response with the company now embarking on expanded Phase II randomised study which it hopes will attract further "partnering" interest. It also has received UK regulatory approval to conduct intravenous trials of its product in the fourth quarter.

Despite a recent jump in its stock price to 38c from around 23c in June, the company is still only valued at a little over $30 million, around a third of its global peers who have successfully concluded Phase II trials.

Two years ago, US giant Amgen spent $1 billion acquiring Biovex - a research group in late stage Phase II trials using a herpes virus to attack cancer cells - and recently successfully completed Phase III trials. The purchase price included a $425 million upfront payment.

Embarking on Phase III trials - a much larger, randomised version of Phase II - would cost Viralytics upwards of $50 million.

The most recent accounts show Viralytics holding $5.1 million with cash burn anticipated at $1.2 million a quarter, more than enough to embark on its expanded trials. There is also the prospect of a Federal Government research and development grant, which last year delivered it $1.5 million.

But a capital raising, possibly between $10 million and $20 million, clearly would be required to fully fund an expanded Phase II trial.