Alchemia (ACL) 80cAS we mentioned yesterday when this biotech was in a trading halt, holders were poised to completely do their dough or reap a windfall. Happily for the faithful flock, Alchemia confirmed US regulatory approval of its blood-thinning generic drug fondaparinux.
Through North American partner Dr Reddy's, Alchemia is free to market fonda -- the only rival to proprietary treatment Arixtra -- in the US. A stash of the drug has already been shipped.
Chuffed Alchemia chief Peter Smith was coy about the market share fonda, which will be about 20 per cent cheaper than Arixtra, could expect to win.
"When we are up to full speed this will represent a pure profit stream of several tens of millions," he says.
But investors assuming cascading dividends and other riches should be cautious: Alchemia's priority is to fund clinical trials of colorectal and lung cancer treatments whose value (especially on the colorectal side) could dwarf fonda's revenues.
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The bad news is a funding gap between the cost of clinical trials and the first fonda revenues requires a capital raising. To avoid dilution, Smith is eyeing a US dollar-denominated debt instrument at the "incredibly low" US interest rates now available.
Alchemia shares spurted 18.5c in response. We're reluctant to maintain our speculative buy call after a 30 per cent hike, but we will because the long-awaited approval means the stock has been substantially de-risked.
What's Alchemia really worth? Long-time Alchemia investor and slide-rule whiz Tom Hannaford reckons that if fonda gets 40 per cent of Arixtra's $US350m ($330m) annual revenue, Dr Reddy's will collect $US112m in 2011-12. Of this, about 35 per cent ($US39m) flows back to Alchemia, although it's not all profit as it will be spent paying back loans and funding the colorectal program, HA Ironotecan.
"Factor in 16 per cent year-on-year growth and it is not difficult to envisage Alchemia generating around $US50m per year from US fonda royalties within two years," he says. "European Union and rest-of-world sales from 2012 should add an additional $US10m per year. This implies a peak value in two years of around $US600m for the generic fonda program."
If the phase three colorectal trials are successful, Alchemia's market cap will be measured in the billions -- but never, ever underestimate the risk of clinical trials.
ACL Price at posting:
80.0¢ Sentiment: LT Buy Disclosure: Held
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