tim boreham covers acl

In the Australian today: "THIS biotech's been in the doghouse for four months, but we're willing to reinstate it to the main residence on management's plan -- a radical one for the sector -- to return funds to shareholders.

Alchemia plans to spin off its research-stage oncological arm via a yet-to-be-decided mechanism, leaving holders of the mothership with $20m-$30m of annual revenues from its approved blood-thinning drug Fondaparinux.

Alchemia shares stumbled in August when it emerged that Fonda, a generic version or Arixtra, had unexpected US competition from an approved generic (AG) granted by Arixtra's owner GSK to Canadian pharma Apotex.

Hence, the $US340m-a-year market is being shared by three, not two, rivals.

But so far AG seems to be cannibalising Arixtra's rather than Fonda's sales.

"My feeling is that with Fondaparinux now on the market, that part of the business is effectively taken care of," says Alchemia chief executive Peter Smith.

On the cancer side, Alchemia is raising $20m to fund the phase-three, 390-patient trial of its colorectal cancer drug, HA-Irinotecan. This is expected to be a "drop-in" replacement for an existing treatment, based on more effective delivery.

The oncology side might turn out to be a damp squib, or a breakthrough in a sector where there hasn't been a new drug for years.

The saving grace is that as long as the demerger gets away, investors can choose whether to stay with the high-risk, high-potential side of the business or stick with Fonda's annuity revenues.

The first cheque from Alchemia's global partner, Dr Reddy's, is expected in the first half of next year.

We demoted Alchemia from spec buy to hold on August 10 at 33c, after the stock plunged 32 per cent on the Apotex news.

We restore to a spec buy, given the revenue hit from the AG has been factored into Alchemia's $82m valuation (post dilution). Factor in Alchemia's $77m of tax losses, and that makes a veritable cash cow to milk".

Mulac1