Australia | Jun 10 2008
By Chris Shaw
For some time ABN Amro Morgans has taken the view the data emerging from clinical trials of ChemGenex’s ((CXS)) lead compound, omacetaxine, would make the company attractive to large phamaceutical groups looking to expand their portfolio of oncology drugs.
The latest news sees the company about to buy back the intellectual property and commercial rights to the compound, which is used for treating chronic myeloid leukemia. This is to the broker a sign management is pursuing a strategy designed specifically to position the group as a target for larger corporates.
The deal leaves former partner Stragen Pharma with a 20% stake in the group’s expanded capital base, while the de-merger of its metabolic disease assets late last year leaves ChemGenex a focused cancer company and so more attractive to potential suitors in the broker’s view.
A further plus is the fact omacetaxine is a fast-track drug and this speeds up approval times and so further increases the group’s attraction to big pharma, the broker suggesting potential acquirers include Celgene Corporation, Cephalon Inc, Genzyme Corporation and Novatis AG, all of which are capitalised in the billions of dollars.
Given the potential of a corporate play and the expectation of further positive trial data flowing through the broker rates the stock as a Buy for higher risk investors, with a price target of $1.24, which compares to a trading range over the past 12 months of $0.69 to $1.25.
Given its relatively small market capitalisation of around $175 million there is little coverage of the stock, as the FNArena database shows Aspect Huntley the only other broker or research house to cover the stock, giving it an Accumulate recommendation.
Shares in ChemGenex today are stronger despite the weaker overall market and as at 10.35am the stock was up 5c at $0.98.