By JAMIE LEE
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THE market has dealt a bitter pill to Japan's biotech group Transcu which puts its listing status in peril.
But the bigger concern is not that of losing its listing status - it's that of cash burnout, market watchers noted.
The company said yesterday that as it is still in the process of completing its compliance placement, share trading would remain suspended indefinitely given 'poor investors' sentiments in the current equity markets'.
The company, which had undergone a reverse takeover (RTO) of cinema operator Eng Wah Organization, needs to place out at least 15 per cent of the issued share capital to the public to retain its listing status. Trading of Transcu shares has been suspended since Nov 14 this year.
This came after the company terminated a placement deal with Lim & Tan Securities last month. The deal, announced in May 2007, was to raise $95 million through the placement of 250 million shares at 38 cents apiece.
To comply with placement requirements, it is now looking to raise as much as $74 million by placing out up to 148 million shares at up to 50 cents each.
While it is clear that the broad market selldown has kept investors away, the lack of interest also signals a natural sceptism about new technologies that, in Transcu's case, allow medicine to be transferred to the patient through the surface of the skin rather than orally or via injections.
Market watchers noted that investors here are not as familiar with such biotech businesses as there are few of these companies listed in Singapore.
As with many biotech businesses, the gestation period is long, said one market watcher, adding that it would take a few years before the company can successfully push out products and earn royalty fees. Research and development, as well as negotiations with pharmaceutical companies, take time. This puts pressure on its bottom line.
While Transcu sees itself as having lower business risk because it does not develop drugs, a nagging concern is whether pharmaceutical companies that the company is in talks with would be receptive to these transderma products.
And while Transcu wants to expand into the cosmetic sector, this stream of business is unlikely to lift profits significantly, given the crowded cosmetics market.
More critically, cash could run out if the company does not manage to find investors to take stakes in the company, which reported a negative operating cashflow of US$6.48 million for its fiscal second quarter ended Sept 30.
Total cash at the end of the period stood at US$21.8 million, an amount that market watchers thought could be depleted quickly in this form of business.
Speculation is that the company could be talking to strategic investors 'who have the patience and understanding of the business', said another market watcher. The company has declined to confirm this.
The latter market watcher also sounded caution over the company's volatile finances, after it posted a net loss of US$6.76 million for its second quarter, reversing from a net gain of US$10.9 million a year ago, due to a slump in revenue.
All eyes would be on its new product to administer Lidocaine - a pain management drug - which is expected to be launched soon after it passes clinical trials.
The company expects to head into advanced trials at the beginning of next year and hopes to push out the products by fiscal 2011.
The company added that it was negotiating with at least five pharmaceutical firms to develop its transderma products.
It's the spoonful of sugar that Mary Poppins sings about, but don't forget the medication.
For these plans to come to fruition, the company must secure investors to keep funding going.
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