ChemGenex Pharmaceuticals: Years ahead of competitionMonday June...

ChemGenex Pharmaceuticals: Years ahead of competition
Monday June 30, 6:20 am ET
Paul Rolfes

ChemGenex Pharmaceuticals Ltd. (NasdaqCM:CXSP - News) wants to share an ancient Chinese secret with the world, one that could provide a knockout punch to a form of leukemia resisting other treatment.

Recent announcements from the Australian company with a California research base triggered interest in the American Depository Receipts of ChemGenex — and given hope to those diagnosed with one of the four main types of leukemia.

For U.S. investors looking at ChemGenex’s Nasdaq-traded shares, or at the shares on the Australian Stock Exchange (Toronto:CXS.TO - News), it could be difficult to calculate the biotech company’s financial health. The SEC filings lack quarterly updates, and few analysts follow ChemGenex, though two in Australia rate it a “buy.”

Its homeland shares are trading around $1 Australian. On the Nasdaq, ChemGenex has risen 80% since January. Shares hit a 52-week low of $8.58 last Aug. 28, and a high of $26.99 on Tuesday. ChemGenex closed at $23.50 on Friday.

ChemGenex Pharmaceuticals was formed in 2004 from the merger of AGT BioSciences of Melbourne, with ChemGenex Therapeutics of Menlo Park, Calif. It united AGT’s focus on genetic discoveries in treating cancer, diabetes, obesity and depression, with ChemGenex Therapeutics’ application of genomic technologies to cancer treatment. A late 2007 spinoff of its metabolic disease business focuses on cancer.

With headquarters in Geelong, Victoria, ChemGenex is guiding omacetaxine mepesuccinate, derived from the Chinese yew tree, through final patient trials. The substance received U.S. fast-track approval for clinical trials to treat chronic myelogenous leukemia (CML) in late 2006.

According to the National Cancer Institute, most patients with CML are middle-aged or senior adults. The Leukemia and Lymphoma Society estimates 22,000 Americans have CML, and 450 will die of it this year. The American Cancer Society estimates CML represents 10% to 15% of leukemia cases, and that 4,830 new cases will be diagnosed in the United States during 2008.

Omacetaxine is being tested for one specific gene mutation, known as T315I. Gleevec, a drug from Novartis AG (NYSE:NVS - News) derived from the Pacific yew, has encountered resistance, reducing treatment available for this cancer strain. Industry observers believe ChemGenex is years ahead of its competition in getting its research to market. Patient testing under way in North America and Europe could conclude next summer, and U.S. approval could come next year.

Merck & Co. (NYSE:MRK - News) and partner Vertex Pharmaceuticals (NasdaqGS:VRTX - News) stopped recruiting new subjects last year in testing a similar substance because of potential side effects.

In recent weeks, ChemGenex has reported promising preliminary results from the phase 2 trials of omacetaxine.

"The knowledge we are gaining from our two major clinical trials gives us confidence in the potential of omacetaxine to treat CML patients for whom there are few treatment options due to the limitations of tyrosine kinase inhibitor treatments," said Dr. Greg Collier, ChemGenex's managing director and chief executive, in a press release. He said the company remains on track to apply for Food and Drug Administration approval in the coming months.

ChemGenex stock is lightly traded, but since a June 16 update on trial results, volume has picked up. The shares shot up Monday to $23.75 from the previous session’s $18.50.

ChemGenex’s pipeline includes other drugs in earlier stages of development, including Quinamed, for targeted treatment of prostate, breast and ovarian cancer with fewer side effects.

ChemGenex has not yet turned an annual profit. For the year ended June 30, 2007, ChemGenex reported a net loss of nearly $10 million, with revenue of just $1.2 million, compared with a loss of $7.6 million, and revenue of $1.4 million in the previous fiscal year.

In the 2007 annual report, ChemGenex noted that it had strengthened its financial base by raising $17.8 million in capital and added investors, including Alta Partners of the U.S. and GBS Venture Partners of Australia. Alta holds about a 20% stake.

On June 10, ChemGenex announced that it had gained complete commercial control of omacetaxine by acquiring all intellectual property rights from its European partner, Stragen Pharma, in exchange for about a stake of about one-third of the company.

According to Australian analysts Scott Power and Tanya Solomon of ABN-AMRO Morgans in Sydney, the move could position ChemGenex “for corporate activity.”

Writing to investors on June 10, the analysts maintained their “buy” rating, but raised their target price to Australian $1.29 from $1.24, calling ChemGenex “our top pick in the life science sector.” They wrote: “…as additional clinical data supporting the development of lead compound omacetaxine is release, CXS will increasingly be of interest to larger pharmaceutical companies looking to partner or acquire to expand oncology portfolios.” Potential partners or acquirers mentioned include Novartis.

Biotech stocks often require a strong stomach, with dips and rises coming upon shareholders with the speed of an amusement park rollercoaster. Still, ChemGenex doesn’t appear likely to hurdle off the track as it brings a cancer-fighting drug to market