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Pharmaxis cashed up for pathway to drug development

Pharmaxis Ltd (ASX:PXS) released its report for the March quarter confirming progress towards the next value milestones in the deals negotiated last year and is backed by a cash balance of $41.5 million.

Net cash expenditure of $4.6 million over the March quarter puts Pharmaxis in a sustainable position for shareholders, and allows the company to invest in longer term.

Pharmaxis has chosen to invest in early stage drug development projects which can take ten to fifteen years to reach the market.

It has therefore selected targets that potential large Pharma company partners believe will have long term value.

Pharmaxis is a pharmaceutical research company with a portfolio including two respiratory products approved in various world markets and a research pipeline focused on areas of high unmet clinical need in inflammatory and fibrotic diseases.

Approved products

The two respiratory products, Bronchitol and Aridol are approved and being sold in Australia and Europe with Aridol also available in Asia.

Currently a third large multicentre clinical trial is underway aiming to secure approval for Bronchitol to be sold in the United States.

Pharmaxis works closely with Chiesi Farmaceutici SpA on Bronchitol.

Chiesi are the exclusive distributor of Bronchitol in the United Kingdom and Germany markets which generates 80% of current sales and are a partner in the aforementioned United States trial providing up to US$22 million in funding.

Pharmaxis expects to receive a Russian marketing authorisation for Bronchitol this quarter with sales to follow by the end of the year.

Drug development

The company's product pipeline is founded on its expertise in the chemistry of amine oxidase inhibitors.

This expertise has attracted interest from leading pharmaceutical companies looking to make acquisitions or partner in this rapidly expanding area of medical need.

In May 2015, Boehringer Ingelheim acquired the Pharmaxis phase 1 investigational drug PXS-4728A, to develop it for the treatment of the cardiometabolic liver-related condition NASH.

This involved an upfront payment of €27.5 million and potential trailing payments of over €390 million.

Boehringer Ingelheim has confirmed the timetable for the commencement of a phase 2 study of PXS-4728A in the first quarter of 2017 - an event that will trigger the next milestone payment to Pharmaxis of approximately A$25 million.

Recent deal values for drugs in development to treat the liver disease that PXS-4728A is targeting have continued to climb with Gilead Sciences acquiring a drug asset in phase 1 clinical studies for US$400 million and a further potential US$800 million in development milestones.

Outside of PXS-4728A, Pharmaxis continues to use its expertise to develop other amine oxidase inhibitor drugs.

In August 2015 the company announced a research collaboration with Synairgen plc (LSE:SNG) to develop a LOXL2 inhibitor for pulmonary fibrosis.

Pharmaxis is on track to select a LOXL2 drug candidate and proceed into full preclinical evaluation in the second half of 2016, and is targeting commencement of a phase 1 clinical trial in 2017.

Pharmaxis also has other drug development programs underway , most notably the SSAO/MAO-B program which has produced a preclinical data package for assessment before proceeding with further development.

Analysis

Pharmaxis is currently capitalised at $80 million trading at $0.25 and the company had $41.5 million in cash at the end of March.

With an upcoming $25 million milestone payment due from Boehringer Ingelheim, the company is in a healthy financial position.

The company offers shareholders value from multiple streams of revenue, including sales of approved products and payments from drug development.

This also gives the company large upside potential through its drug development programs while continuing to be self sustaining through product sales and partnership payments.

Pharmaxis has proven it can produce commercial grade drugs as identified by the deals done in 2015, which increases the confidence and ability of the company to continue to do so going forward.

The recent US$400m+ deal done by Gilead Sciences is an encouraging sign of the commerciality of the areas Pharmaxis is focused on.

Pharmaxis has attracted recent attention from an independent investment research house with a recommendation of Speculative Buy Class B.

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