The last two days have marked fairly significant changes of ownership position in Alchemia (ASX : ACL), suggesting a very interesting turning point in the company. I particularly note that Sandon Capital, an activist fund, now seems to be the 3rd largest shareholder in ACL and is starting to accumulate some reasonably impacting voting rights.
In my opinion, Alchemia is a prime activist investor target. It’s a revenue stage company that has a reasonable shot at increasing its product revenues from Fondaparinux (and profitability) in the next 24 months. Based on Q4 sales reporting, a 2015 revenue target of $5-6m is probably fairly realistic – possibly more if market launch is completed in other territories and the money that Dr. Reddy/Alchemia has spent on optimising manufacturing cost pays off (we should be getting a Q1 ’15 update any day now). This means that with its current market cap (even after the share bump) at roughly $21m, it is a cheap equity if you can do something useful with this mixed bag of a company.
Alchemia is a company that has been crying out for some grown-up attention for a long time. Most of what it is developing isn’t that mind-blowing but it seems reasonable that some sort of an asset disposal deal for the revenue-generating part of the pipeline could be accomplished. It would be a lot easier if the overall market opportunity were generally growing for Fondaparinux, which it doesn’t seem to be. Still, Dr. Reddy’s market share has a decent shot at increasing (hey, that’s the whole “generics” battle, right?) and therefore doing a deal is probably just about having a sensible discussion about the numbers.
In terms of what to do with the rest of the company, there are a couple of interesting opportunities. I am personally not really wild about any of the existing HA-pipeline and I think that if the HA-Irinotecan program didn’t work in mCRC then there isn’t a whole lot of point in spending more resource on this particular product for other cancers. That’s just “ASX Zombie” behaviour. The major investment focus in biopharma is mostly moving away from “chemo”, so believing that Alchemia is going to be another Abraxis or something is not only unrealistic but it’s not even all that exciting. But, as a general concept, I sort of like the idea of using CD44-mediated drug delivery with a hyaluronic acid particle because we have a whole slew of exciting new intracellular targets that are tough to hit – one has to remember that the world has changed a lot since this company started! By now Alchemia has a decent level of meaningful clinical experience with its platform technology and if it were smart about what targets to go after, this could be something genuinely used to re-launch the company in an exciting way.
The VAST technology is kind of an oddball. Although it functionally fits the company’s core chemistry expertise, it’s a much more fundamental “platform” technology (frankly, I can’t even really convince myself that it is a platform technology – more of a library generation strategy). But if AstraZeneca likes it then maybe an asset spin-out deal can be done and a few bucks picked up there as well. Based on recent discovery initiatives, I can think of a few other reasonably well-capitalised companies that would be interested in this technology that might enable a “bidding war” to be established with AZ, assuming that has been progress made with that particular relationship (note to executive team, it would be nice to get a more detailed update on how that is going at some point).
To summarise, I guess my main point about ACL is that it is kind of all over the place (a bit like this blog). It has some nice toys and has done a fair amount with its platform technology but there are probably some big-boy decisions that need to be made around the later-stage programs. However, there are enough meaningful partnership “pulls” on the company that an accomplished BD team and some value-added shareholder “encouragement” (i.e. in the form of newly acquired voting rights from activist funds) could clean this company up quite a bit.
I will be watching with great interest… maybe Pb can be turned into Au after all!