ChemGenex: Late Stage Pipeline Is Undervalued

| About: Chemgenex Pharm (CXSPY)

Chemgenex Pharmaceuticals (OTC:CXSPY) is an Australian pharmaceutical company developing personalized oncology medicines. The company is based in Geelong, Australia (just outside of Melbourne), with an office in Menlo Park, California.

Chemgenex has flown under the pharmaceutical / investor radar, but that will change in the coming months.

The Company and its Drug Pipeline:

Chemgenex’s lead drug is omacetaxine, which is an oncology drug that has the potential to positively impact the lives of leukemia patients.

Omacetaxine is currently in global phase 2/3 clinical trials for chronic myeloid leukemia (CML) and has been granted Orphan Drug designations by the U.S. Food and Drug Administration (FDA) and European Medicines Agency (EMEA) as well as Fast Track status by the FDA.

ChemGenex has a second anticancer compound, amonafide dihydrochloride (Quinamed®), which is in phase 2 clinical development for various solid cancers. The Company also has a portfolio of assets in pre-clinical development.

Chemgenex is on track to complete the submission of its NDA to the U.S. FDA in Q3 2009 for omacetaxine with the European submission to the EMEA due Q4 2009.

Chemgenex anticipates a US launch of its lead drug in Q1 2010, after FDA approval. The Company’s strategic goal is to retain the product rights in the US market.

Chemgenex will out-license other territories to fund product development. The Company hopes to launch omacetaxine in Europe in Q3 2010.

The Company aims to have a European partner secured by the end of 2009. Its ideal European partner would have a European focus, with a hematology / oncology product and sales force presence.

Chemgenex Senior Management:

I have followed Chemgenex closely for the past four years. I have found its senior management to be remarkably accessible. As an example, I had emailed the CEO, Dr Greg Collier, for clarification about a drug trial hours after the announcement was released to the market. I received a response from him within an hour.

I have found the CFO, Dr James Campbell, to be just as accessible to questions about recent company announcements.

Just this week, Chemgenex announced it has strengthened its management team by appointing Thomas DeZao as its Chief Commercial Officer. Mr. DeZao will help with the launch of omacetaxine. He has solid experience with other successful pharmaceutical product launches.

The Investing Opportunity:

Despite being just 6 – 9 months from likely commercialization in the United States, Chemgenex is still trading at half the share price it was in late July 2008. That’s a huge share price discount despite there being no adverse news about the Company or its drug trials.

Chemgenex has a market cap of about A$ 155m and roughly A$ 20m in cash. Its ticker symbol on the Australian Stock Exchange is CXS.

Chemgenex is traded as a level 1 ADR on the US OTC market under the ticker symbol CXSPY. Each CXSPY traded on the OTC is an ADR equivalent to 15 underlying CXS traded on the ASX.

This month, Chemgenex voluntarily delisted itself from the Nasdaq (it had been listed as a level 2 ADR). While this may have spooked some American investors, the reason for the voluntary downgrade was to save on listing fees.

I have had communication with Chemgenex’s CFO, Dr. James Campbell, about this issue, and I am very comfortable with the company’s decision to downgrade to the level 1 ADR.

Pharmaxis, which is another quality Australian biotech also downgraded from a level 2 ADR to a level 1 ADR just this past week for the same reasons. I have also discussed this with Pharmaxis’ CFO, and I understand both company’s strategic decision for the voluntary downgrade.

CXS currently trades at roughly .60 on the ASX (Australian Stock Exchange), and its OTC level 1 ADR ((OTC:CXSPY)) is currently trading at roughly $9.00.

On a personal level, I have tremendous confidence in Chemgenex as an investment at these prices.

Chemgenex has many expected milestones coming up in 2H 2009 and in 2010. If the company continues to successfully advance its drug compounds toward commercialization, the current share price will not be available at such a discounted price for long.

Biotech investors who have an appetite for risk and seek potential large gains might take a close look at Chemgenex Pharmaceuticals.

Disclaimer: This article contains the author’s own opinions, and none of the information contained therein constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. To the extent any of the information contained in the article may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.

Disclosure: long Chemgenex

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