Dr Boreham’s Crucible: IDT Australia

Small Caps | Aug 14 2023

Tim Boreham outlines the rise and fall of IDT Australia, and its potential revival in the cannabis and psychedelic drug market.

by Tim Boreham

ASX Code: ((IDT))

Share price: 6.7 cents

Shares on issue: 351,337,149

Market cap: $23.5m

Chief executive officer: Paul McDonald

Board: Mark Simari (chair), Geoff Sam, Dr Jan Ryan

Financials (Half year to December 31 2022): revenue $2.435 million (down 72%), net loss $5.8 million (previous $1.2 million profit), cash of $4.3 million (down 53%) with $7 million raised in June and July 2023

Major identifiable shareholders: Sandon Capital 16.6%, Regal Funds Management 12.99%

Two years ago, drug manufacturing stalwart IDT Australia was in as good a position as it had ever been over a corporate lifetime spanning almost five decades.

With the nation engulfed in the pandemic, IDT seemed a shoo-in to host the first local production facility for messenger ribonucleic acid (mRNA) vaccines, which have a different mechanism of action to traditional prophylactics.

On the back of Victorian government support for developing a local mRNA vaccine, the Federal Health Department accorded readiness status to IDTs mainstay facility at Boronia, in Melbournes east.

Well, guess what? A flow-on contract never eventuated and the pandemic subsided (or, more accurately, politicians and the populace lost interest in the whole Covid thang).

Not for the first time, IDT has had to reinvent itself and under refreshed management it is targeting the emerging fields of mRNA and antibody drug conjugates, or ADCs, especially in oncology.

In the shorter term, IDT has deployed its Australian Therapeutics Goods Administration (TGA) -approved facility to prepare medical cannabis products, while it is also tapping the burgeoning demand for psychedelic drugs for research purposes.

Much of the revenue focus is on IDTs $30m sterile plant, which is suitable for making injectable drugs.

The facility had been mothballed, but has a new lease of life.

IDT history

Remember the 1960s?

Superannuated hippies researching psychedelics at the time probably wont recall that IDT as in Institute of Drug Technology - was founded in 1965 as a Victorian College of Pharmacy offshoot.

The entity became independent in October 1975 and developed a reputation for contract drug making and consulting work.

Under the renowned Dr Graeme Blackman, the company became private in 1982 and listed on the ASX in 1988.

In the 1990s, IDT moved to cytotoxic oncologic drugs. While this worked a treat for a while, generic versions took over and much of the production moved to China.

In 2014, IDT itself entered the US generics game, paying $US18m for a package of 23 drugs. A generics price war erupted and in 2018 IDT sold most of those assets for ... not much.

A specialist in aseptically processed parenteral pharmaceuticals, Mr McDonald joined IDT two and a half years ago, having spent most of his career at Pfizer.

He replaced Dr David Dr Sparling, who in turn had taken over from bioman-about-town Dr Paul MacLeman in February 2018.

A board revamp in late 2022 saw the departure of chair Alan Fisher and directors Hugh Burrill, Mary Sontrop and Acrux CEO Michael Kotsanis.

The current chair is Mark Simari, the founder of the listed Paragon Care and chair of the listed Careteq and Tali Digital.

Rising to the challenge

Mr McDonald says his first task as CEO was to increase throughput at the Boronia plant, which was running well below capacity.

Low volumes meant the facility only had one function on the go at any one time. Now, the facility can run three to four activities concurrently.

Volumes have increased, he says. Some clients left early in the stage but we convinced them to come back. We are also adding new clients.

The Covid vaccine disappointment had a silver lining, in that IDT was awarded a $13.9m Federal grant. These funds were used to replace, or requalify, every piece of equipment in the sterile operation.

For example, we didnt have formulation capability or parenteral level inspection, Mr McDonald says. Its not easy to get a TGA licence in sterile manufacturing and we now have that.

Truly unique

The Boronias facility is the only vertically integrated aseptic plant in Australia, which means it can synthesise active pharmaceutical ingredients (APIs) at scale.

A sterile facility must meet strict standards on access, air quality and such. Aseptic goes a step further and requires totally sterile vials, stoppers and other equipment.

There are other facilities that do aseptic fill-and-finish, but we are the only company that can synthesise a novel API in the laboratory from design and scale it up to a [good manufacturing practice] facility, Mr McDonald says.

We can then convert that into a finished product, being a sterile injectable, a tablet or capsule.

IDTs refreshed strategy involves the developing and production of novel mRNA and antibody drug conjugate therapies.

Mr McDonald says theres no shortage of funding for mRNA work from governments, start-ups and big pharma.

That has proved to be really successful and we are starting to grow our pipeline, he says.

The ABC of ADCs

In essence, antibody drug conjugates (ADCs) are about replacing traditional chemotherapy with smart chemo.

An ADC is made up of an antibody, with a linker to a highly toxic and potent compound.

The antibody binds to the tumour receptor and the potent compound does its job.

Tapping its long experience handling cytotoxic drugs, IDT has started a pilot facility to make ADCs at small scale.

Broker Morgan Stanley estimates a current global spend of around $US30bn on ADCs, but this is likely to soar to $US140bn as they become standard for first and second-line regimens (as opposed to last-resort therapy).

While most ADCs pertain to breast cancer, Morgan Stanley sees applications in hard-to-treat cancers including lung, colorectal, pancreatic and glioblastoma.

Mr McDonald says the early ADC adopters are likely to run out of manufacturing capacity, with IDT poised to provide spillover capacity.

While IDT cannot make the actual antibody, it can synthesise the linkers and the payload and fill-and-finish the final product as an injectable.

We have a few different shots at goal, he says. We think they will all produce revenues at different times and at different values.

Pass the pot

IDT is well placed in the medical cannabis sector because suppliers are gravitating to quality manufacturers. The company has the capacity to extract the oils from the cannabis flowers and reformulate and bottle material in various strengths.


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