chearter pacific...chemgenex research note

RESEARCH NOTE - CXS - More positive data supporting expanded potential of lead leukaemia drug Ceflatonin




Stock (ticker): ChemGenex (CXS.AX)
Market Cap: A$68m
Recommendation: Spec Buy
Share price: A$0.45
Price target: A$0.91
Up/(down) to target: 102%
Fair value: A$1.40 (DCF methodology)

Subject: More positive data supporting expanded potential of lead leukaemia drug Ceflatonin

Analyst: Scott Power (+61 7 3334 4884) / Tanya Solomon (+61 7 3334 4521)

Key points:

* Two new studies have been completed by respected international research teams, with results supporting the potential of Ceflatonin as a treatment in a type of leukaemia:

1. A Phase 1 study was published in the British Journal of Cancer and showed the Ceflatonin had significant clinical benefits for patients with advanced stages of acute myeloid leukaemia (AML), who had failed to respond to previous treatments.

2. A Phase 2 study published in Leukaemia showed that Ceflatonin has potential as a first line combination therapy in young adult patients with AML.

* These studies support the expanded potential of CXS's lead compound in other types of leukaemia.

* Currently, CXS is undertaking registration directed trials (phase 2/3) for Ceflatonin. The trial will recruit patients who have developed resistance to the current treatments of Gleevec® and dasatinib. Results of this trial is expected in 2QCY07, with an update to be provided towards the end of the year.

We consider CXS to be a compelling story for three key reasons:

* Advanced, deep pipeline means plenty of newsflow - CXS has an advanced pipeline with its lead product to treat a type of leukaemia, called Chronic Myeloid Leukaemia, expected to reach the market in CY08. This is backed up by products to treat cancer, depression, anxiety and metabolic diseases. The depth of the pipeline means multiple newsflow opportunities.

* Well funded - Post the recent A$15m capital raising, CXS is well funded.

* Undervalued compared to peers - It is worth noting that CXS' pipeline is particularly advanced in comparison to its Australian peers. Additionally, compared with other listed life-science companies with compounds in late stage development, CXS is undervalued. We remain comfortable with our Buy recommendation and A$0.91 price target and expect the stock to be re-rated as trial results are announced.