Meet the biotech that will fund its drug development – by buying into a coal mine

For biotechnology companies, the path towards commercialising a drug is torturously long and extraordinarily expensive. And while drug company executives are typically blessed with patience, securing funding to get through the multiple rounds of drug development is no easy task.

Melbourne-based biotech Avexa is one of many companies facing an uphill battle to get the cash it needs to bring its developments to market. The company, which is developing a HIV drug called ATC, needs a conservative $30-40 million to take its drug through trials and towards commercialisation.

It’s money that the company doesn’t have and is apparently unlikely to get through normal channels. So chairman Iain Kirkwood has taken a highly unusual approach to funding Avexa’s drug development – he’s invested $US4 million in a coal mine in the US state of Alabama.

Avexa will get a 25.5% stake in Coal Holdings USA, which has the rights to develop the mine, which is just outside the town of Birmingham.

In addition, the Melbourne-based company will loan the Coal Holdings $US6 million at 6% per annum.

While conceding that it is a “bold strategy”, Kirkwood says his board has examined a range of proposals and merger opportunities “many of which attributed no value to Avexa’s portfolio of anti-infective projects”.

“This opportunity stands out. We believe the model will change the paradigm for funding biotechnology, which previously has been done via multiple equity raisings and federal and state government grants including the R&D tax rebate concession,” he told the market yesterday.

“Many biotechs also look to big pharma to support or buy into their projects. However, since the global financial crisis both big pharma and shareholders have become much more risk averse and reluctant to support even late stage drug developments. Avexa shareholders have already invested over $160 million in the company since listing on ASX in 2004.”

Kirkwood was introduced to the deal by Singaporean investor Jonathan Lim, who owns a 17% stake in Avexa and will take a 25.5% stake in Coal Holdings alongside the biotech.

What Lim and Avexa are most focused on are the economics of the plan. With production costs expected to be around $US50 a ton and metallurgical coal tipped to sell for around $US130 a ton, the mine could generate $US50 million a year in earnings before interest and tax.

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