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Pharmaxis Pumps Up Cash As Partnerships And Products Add Value

Pharmaxis Limited (ASX:PXS) more than doubled its cash at bank year-on-year to A$50.3 million at the end of the September quarter as the company realised significant drug trialling and collaborative research milestones.

The specialist pharmaceutical developer's cash holdings were up 102% compared to the same time last year as revenues climbed 44.4% to $2.1 million.

These figures capped a quarter of progress which took quick advantage of a transformational drug supply deal signed in May with Boehringer Ingelheim, one of the world's 20 leading pharmaceutical companies.

The landmark sales deal for Pharmaxis' phase 1 anti-inflammatory drug PXS-4728A precipitated successful trials last month and signified an important step in appreciating the value of this cardiometabolic disease treatment.

PXS-4728A is targeted at treating diseases such as the liver related disease non-alcoholic steatohepatitis (NYSEARCA:NASH), which is commonly found in people who are overweight or obese.

Trials for the drug so far have indicated that low doses are efficacious in long-lasting inhibition of an enzyme which reduces inflammation and oxidative stress. It is rare to be able to demonstrate effective target engagement in a phase 1 study, so the fact that the long-lasting enzyme inhibition seen in the phase 1a study was reinforced when given once a day for 14 days adds to confidence in PXS-4728A.

Successful completion of this trial for PXS-4728A not only clears the way for Boehringer to proceed with its development program but also validates and adds credibility to Pharmaxis' expertise in drug development.

The next milestone payment under the potentially $A750 million "big pharma" deal with Boehringer is due to Pharmaxis at the start of phase 2 - which is expected to occur by the first quarter of 2017.

Synairgen collaboration

Pharmaxis' stronger footing in recent months has also coincided with a new research collaboration with U.K. biotech company Synairgen (LSE: SNG).

This partnership aims to develop a Pharmaxis drug candidate for the treatment of the fatal lung disease idiopathic pulmonary fibrosis (NYSEARCA:IPF). By sharing the risk and cost of the preclinical and clinical development on a drug for this disease, Pharmaxis is able to increase the overall number of amine oxidase chemistry based programs it is pursuing and increase its opportunities for success.

Pharmaxis' work in this field is targeting the LOXL2 enzyme because it is known to promote scar tissue which hardens and irreparably damages the lungs of IPF patients.

Under the terms of the agreement Synairgen will fund further activity of the program, use its BioBank and in vitro lung model platform, and collaborate with the IPF research team at the University of Southampton in the U.K. to complete preclinical and early clinical development.

The IPF program will be managed by a joint steering committee through to the end of phase 1 or phase 2a clinical trials, at which time the collaboration will seek a license partner. Pharmaxis and Synairgen will share any licensing revenues in accordance with the ratio of total investment by the two companies at that time.

The share of licensing revenues is expected to be approximately equal for a compound licensed for IPF after early clinical development.

The collaboration is progressing well and is currently evaluating drug candidates to enter preclinical development in 2016.

Analysis

Pharmaxis' year-on-year strides in cash at bank and revenue illustrate a steady, long-term validation of the company's business model and partnering approach.

The company's recent progress in developing NASH treatment PXS-4728A and lung disease treatment LOXL2 have supported increasing investor interest, particularly from substantial shareholder BVF Partners, which raised its holding in the company from 12% to 13% last month.

Progress related to Pharmaxis' new partnerships this year has had a dramatic effect on the company's share price, with a 161% increase in the value of the stock since February.

This traction puts Pharmaxis well on track to become a powerhouse in drug development through the leveraging of its platform in amine oxidase chemistry on validated targets for inflammatory and fibrotic diseases with high unmet needs.

IPF affects about 100,000 people in the U.S. and whilst current products are expected to produce global revenues in excess of $1.1 billion by 2017, there remains a clear need for new treatments.

The significant interest among leading clinicians and pharmaceutical companies in the role of LOXL2 in a number of different diseases highlights the need for Pharmaxis to pursue the potential value of its intellectual property in this field. As such, the company has scored an important coup in establishing a relationship with Synairgen, a company which has demonstrated excellence in respiratory drug development.

NASH, likewise, is expected to increase in prevalence as obesity rates increase around the world. It's estimated that one in three people have fatty liver disease and that up to 10% of those will have NASH. There are currently no approved NASH therapies available and Deutsche Bank estimates that the global market could be worth more than US$35 billion by 2025.

The early-stage trialling success of PXS-4728A as a treatment for this growing disease has been extremely encouraging and appears likely to underpin future value-appreciating steps in the clinical development program.

With a cash balance of $50.3 million at 30 September 2015 and net cash expenditure for the last quarter of $4.3 million the company is well positioned to benefit from upcoming milestones from its existing partnership deals.

With that cash level, the current market capitalisation of circa $71 million still values the remainder of Pharmaxis at less than intrinsic value. There are a number of share price drivers ahead.

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