Can the flutter of a butterfly in South America, or in this case Oceania, really cause a typhoon in the USA? Australian biotech company Innate Immunotherapeutics just might be living proof that it can.
A serendipitous series of meetings more than a decade ago, when the Auckland-based company was searching for an HIV vaccine, marked the start of a trail that has led to the company being at the front line of some of the intense brawling over Cabinet appointments by US President Donald Trump.
![Tom Price's holding in a small New Zealand based biotech has prompted a storm of criticism following his nomination as ...](/web/20170201030924im_/http://www.brisbanetimes.com.au/content/dam/images/g/t/0/h/d/h/image.related.articleLeadwide.620x349.gu2uzm.png/1485916459709.jpg)
A shareholder in the company is Dr Tom Price, who had worked as an orthopedic surgeon before joining the US Congress. He has been nominated to head the Health and Human Services department under President Trump.
That shareholding, which Innate says is "very small" has kicked off a controversy over whether Price received a 'privileged offer' to acquire shares in the biotech outfit last year, since the shares were acquired at a discount.
Price has stated the shares were available to other investors, although Innate's chief executive Simon Wilkinson said that it was a private placement, involving just 20 US investors "of which 15 were existing shareholders and five were new investors".
"Dr Price acquired his shares at that time. What has been lost in the furore in the US, is that Dr Price stated he would divest all pharmaceutical stocks he holds, if he is confirmed as the department secretary."
Mr Wilkinson said the amount of shares Price holds "is very small".
"It is not a significant number, at all - it would be nowhere near the top 20 list. He is a very small shareholder - even by US standards."
![The company is going through a clinical trial for the treatment of multiple sclerosis.](/web/20170201030924im_/http://www.brisbanetimes.com.au/content/dam/images/g/i/q/2/s/h/image.related.articleLeadwide.620x349.gu2uzm.png/1485916459709.jpg)
The shares hit highs at $1.83 last Friday to value the company at just over $400 million, more than doubling in a matter of weeks.
"Since December, the shares have surged, in large measure due to the collateral publicity we have received in the US," Innate's Wilkinson said. "We have no visibility over what is behind it," suggesting it may be day traders, attracted by the volatility.
The recent gains couldn't be sustained, with the shares falling back 45 per cent on Monday before gaining 59 per cent on Tuesday. At midday on Wednesday, they are 5 per cent lower at $1.18, in continued heavy trading.
The sticking point for the critics of Price in the US is that while members of Congress can buy and sell shares they cannot use their positions to gain special access to investments. So there has been a call for answers about how - and why - a member of Congress would buy shares in a tiny biotech based on the other side of the world.
And, as a critic of Obamacare, which Trump has vowed to dismantle, this has given a political edge to the firestorm of criticism now surrounding Price's nomination in some circles in Washington.
When Price bought in, Innate was worth around $60 million based on its share price in mid-2016, with the shares trading on little more than a promise as it seeks a treatment for multiple sclerosis. It placed shares with investors at a 12 per cent discount to the then share price to raise the money needed to finish a clinical trial. It raised $6.6 million via two placements and a rights issue, which was heavily oversubscribed.
"We're betting the farm on what we think will be a good outcome," Innate's Wilkinson said, while conceding that research results due later in the year will either succeed, or fail.
"We're headed for a 'binary' outcome. We think we have an outcome that is going to work."
Optimism aside, the reality is that few drugs make it through clinical trials, although the company is already providing some of its treatment to MS sufferers in both New Zealand and Australia on a 'compassionate-use' basis. Wilkinson says more than 90 per cent of MS sufferers who had been involved in the clinical trials to date have sought ongoing access to its treatment.
The common link between Price and Innate is fellow shareholder and Innate director Chris Collins, a longstanding investor in the pharmaceutical industry who is also a member of the US Congress.
Innate began life seeking to cure HIV, and it turned to ZeptoMetrix, based in up-state New York, for HIV protein since it was one of the few suppliers of the safe, non-infectious material. Collins was running ZeptoMetrix, which he had helped to found, when Innate's chief executive, Simon Wilkinson first met him in late 2005, in what Wilkinson describes as a 'chance meeting".
"We chatted about what we were doing and he indicated that if the opportunity to invest arose then he could be interested."
Subsequently, Collins came onto the register with some family friends and other associates in a private placement. No financial intermediaries were used.This group held around a quarter of the shares, having invested around $NZ28 million in total, with their total stake rising to around 40 per cent prior to Innate deciding to raise a further $10 million and list on the Australian sharemarket in late 2013.
Before going public, Innate had raised around $NZ60 million in total, spending around half of that working on an HIV drug, before switching to focus on multiple sclerosis, where a clinical trial is underway.