rbs revised report on cxs , page-2

from Wilson HTM report....

A trial redo is unlikely following the FDAs complete response letter to
ChemGenexs Omapro NDA. But the Agency is still calling the study incomplete,
so we stick to our launch delay estimate of 12-18 months, relative to the pre-ODAC
expectation of mid-2010. We provide detailed revisions to our earnings forecasts
for Omapro, assuming a significant delay in the US. At this stage we have made
minor changes to the European timing or estimates (the Hospira relationship).
Capital adequacy now depends on the Hospira milestone payments, which are not
in the bag. So we find ourselves pre-emptively diluting ChemGenex for capital
raising. We model $20M raised at 35 cps. Valuation is $0.98 cps but the
recommendation remains a SELL because genuine upside looks a year away.


Key Points
�� FDA has issued a complete response to ChemGenex in relation to their Omapro
NDA. The letter does not contain a request for a new study or for new patients
to be enrolled in the 202 Study (patients who have failed imatinib therapy and
have the T315I mutation). This is in line with our expectations. In our view, the
202 Study, as designed, was adequate to support the approval of Omapro for
T315I patients. However, the study was too small to accommodate any
inconsistencies or question marks over data integrity.
�� Our concerns on that front are still there; largely centred on the T315I diagnostic
issue, and the time that that may take to be resolved. There was no substantive
outcome following last Friday's meeting with FDA in relation to the validation and
approval of a T315I diagnostic test. There is no detail yet about who will sponsor
the diagnostic application to FDA's CDRH, or whether the test will be able, once
approved, to be correlated to the clinical trial results. The latter part presents the
problem, because FDA seems to require the new test to be cross-validated
with the tests used in the clinical trial, of which there were several.
�� We do not take much comfort from the lack of a formal request for a new study
in the complete response letter. Remember that ODAC has not yet been asked
to vote on efficacy or safety and the FDA view on the trial remains that it is
incomplete. We see a complete redo of 202 unlikely. However, ChemGenex
will probably be asked to submit new data from the 202 study (and one would
think, given recent events, ChemGenex would submit every data point it has),
which went on to enrol >100pts. Considering the impacts of both data (re)-
submission and the diagnostic test approval process, we are still putting the US
launch delay at 12-18 months relative to our pre-ODAC expectation of mid-2010.
�� In this report we have recast our US Omapro numbers assuming an 18 month
delay to launch for the T315I and other forms of drug resistance. At this stage
we have made no major changes to the process in Europe, from which
ChemGenex stands to earn milestone payments and royalties from Hospira.
EMEA approval is expected towards the end of 2010.
�� Our basic valuation of ChemGenex is the same as last time (98 cps) and we
refer to our report of 24 March for a discussion of how probabilities were revised
following the ODAC decision. However, our investment view is that material
share price upside is unlikely to emerge until FDA is in a position to approve
Omapro. That is the reason why we expect ChemGenex will underperform on a
12 month view and we retain a SELL rating, accordingly. Those investors with
the luxury of patience can continue as holders because Omapro is a good
product, will eventually find its place in an attractive niche market, but it faces a
long delay.


Valuation and Recommendation
Our basic valuation of ChemGenex is the same as last time (98 cps) and we refer to our
report of 24 March for a discussion of how probabilities were revised following the ODAC
decision. However, our investment view is that material share price upside is unlikely to
emerge until FDA is in a position to approve Omapro. That is the reason why we expect
ChemGenex will underperform on a 12 month view and we retain a SELL rating. Those
investors with the luxury of patience can continue as holders because Omapro is a good
product, will eventually find its place in an attractive niche market, but it faces delays.