rbs target $1.31, page-5

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Recommendation Impact: Our valuation using a discount rate of 15% and assuming a drug life of only eight years is $1.40. The current share price ($0.80) implies a 25% discount rate. We therefore continue to recommend risk tolerant subscribers Buy the stock.

Event Analysis
On September 9 CXS said it had completed its New Drug Application (NDA) submission to the US Food and Drug Administration for its leukemia drug OMAPRO (previously known as Omacetaxine). Management is confident the drug will receive priority which would suggest an approximate six month review. A successful review should enable market launch around mid-2010. Highly compelling trial data implies a high probability of success. OMAPRO targets subsets of chronic myeloid leukemia patients who failed treatment with the first-line drug imatinib (Gleevec), a drug of the class known as tyrosine kinase inhibitors (TKI’s). The NDA submission is for treatment of such patients who have also developed the so-called T3151 mutation. OMAPRO is also in advanced trials in patients who have failed second-line treatment with two other TKS’s nilotinib and dasatinib. The immediate market opportunity for OMAPRO in T3151 carriers is conservatively around US$150m in the US, with the rest of the world probably of similar magnitude. ‘Off-label’ use in other areas for which the drug is not yet registered, eg CML patients with multi-TKI-resistance and in combination with TKI’s, could add significant additional revenues. We expect CXS to earn around $150m after tax from OMAPRO in its fouth year of launch – in 2013. CXS will engage a marketing partner in Europe, but intends to market the drug directly in North America to what is a concentrated market. We raise our pricing assumption from US$35K to US$50K per patient, at the bottom end of the US$50K-US$90K range for existing leukemia drugs, but our currency assumptions are now less favourable reflecting the prospect of an extended period of A$ strength. There is the possibility OMAPRO will also be effective against some acute myeloid leukemia patients. Trials are underway with Phase 2 efficacy trials to run in 2010. Success would add significantly to the value of the drug. Our valuation using a discount rate of 15% and assuming a drug life of only eight years is $1.40. The current share price ($0.80) implies a 25% discount. We therefore continue to recommend risk tolerant subscribers accumulate the stock.