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Biotech-Healthcare: Snippets and Tips

April 27, 2009

(MI) BIOTECH-HEALTHCARE:

Sydney - Monday - April 27: (RWE Aust Business News) - These were some of the developments in the biotech sector over the past week - from ABN AMRO Morgans:

It is not impossible for life science companies to raise capital in this market, provided they have products in late stage development, a clear commercial pathway and a supportive shareholder base.

To this end, Chemgenex, Starpharma, and Mesoblast have each successfully completed placements raising a total of at least $25.1m, in recent weeks.

Further to this, Avexa has a rights issue underway to raise up to $15m and ChemGenex is looking to raise up to $7.4m through its rights issue.

* ChemGenex - CXS placed 23.2m shares at an issue price of 43c per share to raise $10m. A 1-for-14 non-renounceable rights issue also at 43c per share, to raise up to an additional $7.4m, has also been announced.

ABN AMRO Morgans has been appointed Lead Manager and Underwriter to the offer.

* Starpharma - SPL completed a capital raising of at least $4.3m and up to $4.6m, through a private placement to existing and new investors. This placement will boost the company's cash reserves to over $10 million.

* Mesoblast - MSB completed a private placement to existing, as well as new, investors, raising $10.8m. The final price was 72c per share.

Avexa - AVX is undertaking a 1-for-2 renounceable rights issue at 7c to raise up to $14.8m.

ABN AMRO Morgans has been appointed Lead Manager to the offer.

The purpose of the offer is to strengthen the balance sheet and to place the company in a stronger position of financial leverage in partnering discussions.

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ChemGenex (CXS) - CXS's lead compound is called omacetaxine and is under development to treat a type of leukemia. To date, excellent data in the registration directed clinical trial has been recorded.

The company has indicated that it expects to lodge documentation in mid CY09 with the FDA seeking approval for its product.

Omacetaxine has fast track approval with the FDA which means it could be approved for sale by early 2010.

As part of the funding strategy management has indicated that it will seek a marketing partner for Europe and retain the full US rights.

DISCLOSURE - ABN AMRO Morgans is the Lead Manager and Underwriter to the Chemgenex Pharmaceuticals rights issue and may receive fees in this regard. ABN AMRO Morgans was the Lead Manager to the Chemgenex Pharmaceuticals share placement earlier this month and received fees in this regard.

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Starpharma (SPL, Not formally covered) - The additional funds raised will provide sufficient operating capital for development activities to commercialise the VivaGel coated condom with Starpharma's partner SSL International Plc, and to supplement grant funding to further advance the stand-alone VivaGel development program.

The funds will also support further partnering and commercialisation of Starpharma's dendrimer applications, and strengthen the company's balance sheet by providing additional working capital.

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Mesoblast (MSB, Buy, Price Target $1.40) - MSB has announced the successful closure of the equity raising that forms the funding package for the expansion of MSB's clinical programs focusing on bone and cartilage regenerative programs for spinal vertebral disc disease.

Our EPS forecasts decrease by 0.4c in FY09F and 0.6c in FY10F.

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Avexa (AVX) - Apricitabine (ATC) is Avexa's lead compound for the treatment of drug-resistant HIV infections, which is currently in a Phase III clinical trial in HIV patients with NRTI resistance.

ATC targets a current unmet medical need that has earned the compound Fast Track status with the US Food and Drug Administration.

More than 130 sites have been initiated for the Phase III trial.

The company recently announced positive 96-week data for ATC, as well as the passing of the 16-week time point for the last patient enrolled in the initial two-dose phase of ATC's Phase III trial.

This significant event triggers the start of the data analysis for the Week 16 results, which Avexa is expecting to announce in the second quarter of 2009.

DISCLOSURE - ABN AMRO Morgans Corporate Ltd is the lead manager to the Avexa renounceable rights issue and may receive fees in this regard.

Further M&A activity

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PolarTechniques (PLT) and Feriscan (FER) - Not formally covered. PLT and FER announced on April 17 that the two companies will merge their businesses.

Both companies have diagnostic products aimed at women's health. Without having a great insight into either company it would appear to be a meger of equal-sized companies and presumably back-office synergies can be easily achieved.

Both Board's have recommended the bid.

We see these types of mergers as sensible and would expect to see further activity as equity markets remain tight for the foreseeable future.

And newsflow continues ...

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Pharmaxis (PXS, Buy, Target Price $2.72) - Earlier this month PXS updated the market on its quarterly progress:

1) Headline data for the Phase III EU trial for Bronchitol to treat cystic fibrosis (CF) is expected later this month;

2) Conclusion of recruitment for the second Phase III trial of Bronchitol to treat CF is due in mid CY09; and

3) The commencement of dosing of the Phase III trial in the US and EU for Bronchitol to treat bronchiectasis is expected to commence in 2QCY09 (June).

We are most focused on the release of the Phase III CF results.

The trial has enrolled 325 patients designed to determine if Bronchitol, administered twice a day for six months, provides an improvement in lung function (FEV1) when measured against an inactive placebo.

We will be looking for a positive improvement in FEV1 (about 5 per cent improvement overall), with no serious adverse events.

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Acrux (ACR, Hold, Target Price 49c) - ACR has received an interim ruling from the independent arbitration panel convened by the Judicial Arbitration and Mediation Service (JAMS) in California.

The ruling relates to a dispute between ACR and Vivus Inc over ACR's testosterone spray for women (Luramist - to treat decreased libido in women), which Vivus has licensed.

The most important finding from the panel is that within 30 days ACR and Vivus are required to meet and agree to a new "Outside Date" by which Vivus must start the first Phase III study of Luramist.

We believe this is a critical first step in progressing the commercialisation of Luramist.

Investment view - We view this announcement positively as it removes uncertainty surrounding the development of Luramist.

Our Hold rating, driven by short-term concerns surrounding negative sentiment arising from the issues impacting KV Pharmaceutical stands.

However, given the steps that KV Pharmaceutical is taking to address these issues and that sales for Evamist continue to track upwards, we will continue to closely monitor the situation and will reconsider our investment view as we develop greater confidence that these issues are indeed being addressed.

Near-term catalysts include:

1) a licensing deal for Ellavie outside the US; and

2) the Testosterone MD-Lotion trial results due 3QCY09.

Key risks to our target price include the ability to commercialise ACR's pipeline, secure a partner for Testosterone MD- Lotion, and ACR's partners' ability to drive revenue growth.

Recent Company Visits

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Atcor (ACG, Not formally covered) - We caught up with Atcor's management via a teleconference recently for an update.

Briefly, Atcor develops and markets products for the early detection of cardiovascular risk and management of cardiovascular disease.

Its technology allows researchers and clinicians to assess central blood pressure non-invasively.

Atcor os one of the growing number of Australian helathcare/life science companies that are now generating a profit.

Although only a small profit of $200,000 for the 1H09 was generated, this compares favourably with a loss of $2.9 million for the previous corresponding period.

Since our meeting, Atcor has secured a number of other contracts worth in excess of $US1.5m and this underpins management's revenue guidance of at least $10m for FY09.

Near-term milestones to watch

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Acrux (ACR) 3QCY09: Testosterone MD-Lotion Phase III clinical trial results.

Avexa (AVX) 1HCY09: Signing marketing partner for lead HIV compound; 2QCY09: Release of 16-week Phase III clinical trial data for ATC; Achieved: Release of 96-week interim data from the Phase IIb ATC extension study; 4QCY09: Release of 144-week final analysis data Phase IIb ATC extension study; 2QCY10: Conclusion of enrolment of Phase III ATC study; 4QCY10: Release of 24 week Phase III ATC data.

Peplin (PLI) Achieved: Actinic Keratosis (sun spots) - Results of Phase IIb clinical trial - head; 2QCY09: Actinic Keratosis (sun spots) - Results of Phase III clinical trial - non-head; Mid CY09: Actinic Keratosis (sun spots) - Commence Phase III clinical trial - head.

Alchemia (ACL) 1HCY09: FDA to approve acute coronary syndrome indication for GSK's Arixtra. Timing is difficult to predict; Achieved: Submission of ANDA to FDA for Fondaparinux. End CY09: Approval Fondaparinux by FDA.

Pharmaxis (PXS) 2QCY09: Headline data for the Phase III EU trial for Bronchitol to treat cystic fibrosis; 2QCY09: Conclusion of recruitment for the second Phase III trial of Bronchitol to treat cystic fibrosis; Mid CY09: Commence second Phase III trial for Bronchitol in bronchiectasis (was 1QCY09).

Tissue Therapies (TIS) 1QCY09: Complete human trials of VitroGro.

Chemgenex (CXS) Achieved: Complete recruitment for lead compound; 1HCY09: File chemistry and manufacturing controls section of rolling NDA for Omacetaxine; Mid CY09: File clinical section of rolling NDA for Omacetaxine.

Arana Therapeutics (AAH) Achieved: Results of Phase II psoriasis trial.

Biota (BTA) 3QCY09: Complete recruitment Phase III LANI trial.

Impedimed (IPD) Achieved: FDA clearance for U-400.

Clinuvel (CUV) 1QCY09: US Phase II trials with Afamelanotide in photodynamic therapy (PDT); 2QCY09: US Phase III trials with Afamelanotide in erythropoietic protoporphyria (EPP).

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Source: ABN AMRO Morgans, Company data

(Note that Biotech & Healthcare Weekly Snippets provides a summary of views only. Full reports can be found at www.abnamromorgans.com.au).

ENDS