Acl

Alchemia
ACL.AX ACL AU
HEALTH CARE & PHARMACEUTICALS
EQUITY RESEARCH
Initiation report
March 30, 2012 Rating Starts at Target price Starts at Closing price March 29, 2012 Potential upside
ACLs fondaparinux taking share in the US and EU launch should occur in CY13
Action: ACL a drug development business, products on market Alchemias lead drug, generic fondaparinux, a synthetic anticoagulant mainly used for the prevention of deep vein thrombosis, was approved and launched in July 2011 in the US by ACLs marketing partner Dr Reddys Laboratories. In addition, ACL is developing potential anti-cancer products. The main product is HA-irinotecan which is currently in a pivotal Phase III clinical trial that commenced recruitment in January 2012. Catalyst: US fondaparinux market worth USD340mn We believe the global market size for fondaparinux was cUSD570mn in 2011. ACLs generic fondaparinux has built 11% share of FY12 YTD US new prescriptions market as of January 2012 (seven months since launch). We believe this trend can continue. ACL earns a 50% operating profit share with Dr Reddys on US sales of fondaparinux. In addition, ACL is well positioned to benefit from the progression of Dr Reddys marketing applications for generic fondaparinux outside the United States, in our view. ACL plans to file for approval in Europe early CY12. ACL will earn royalties from Dr Reddys on ROW net sales of generic fondaparinux. Valuation: Initiate with a Buy rating, TP AUD0.77 Our AUD0.77 TP is based on the risk-weighted valuation of the companys product opportunities. In our view, ACL has: 1) a de-risked business model as it has a product (generic fondaparinux) on market; and 2) potential near-to-medium earnings upside surprise from entry to new markets with this product. Finally, at the current share price, we believe investors are getting a free option on any upside ACL may deliver if successful in its anti-cancer projects. Buy.
30 Jun Currency (AUD) FY11 Actual Old FY12F New Old FY13F New Old FY14F New
Buy
AUD 0.77 AUD 0.52 +48.1%
Anchor themes The percentage of the population in the older age group in developed countries is increasing. Improved longevity and the aging population demographic will likely lead to growing demand for treatments and surgeries, which leads to increased need for anti-clotting products, the target market for generic fondaparinux. Nomura vs consensus There is minimal consensus data available.
Revenue (mn) Reported net profit (mn) Normalised net profit (mn) Normalised EPS Norm. EPS growth (%) Norm. P/E (x) EV/EBITDA (x) Price/book (x) Dividend yield (%) ROE (%) Net debt/equity (%)
0 -13 -13 -7.02c na na na 5.2 na -53.4 net cash N/A N/A N/A
3 -19 -19 -7.99c na na na 7.1 na -97.4 net cash N/A N/A N/A
19 0 0 -0.11c na na 123.4 7.2 na -1.6 net cash N/A N/A N/A
26 9 9 3.37c na 15.4 8.8 6.3 4.7 45.0 net cash
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Source: Company data, Nomura estimates
Key company data: See page 2 for company data and detailed price/index chart.
Nomura | Alchemia
March 30, 2012
Key data on Alchemia

Incomestatement(AUDmn)
Year-end 30 Jun Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x) ROE (%) ROA (pretax %) Growth (%) Revenue EBITDA EBIT Normalised EPS Normalised FDEPS Per share Reported EPS (AUD) Norm EPS (AUD) Fully diluted norm EPS (AUD) Book value per share (AUD) DPS (AUD)
Relative performance chart (one year)

FY10 0 0 0 -10 -10 -8 0 -1 -10 1 0 -9 0 -9 0 FY11 0 -4 -4 -12 -15 -13 0 -1 -15 0 1 -14 0 -13 0 FY12F 3 0 3 -22 -19 -17 0 -1 -19 0 0 -19 0 -19 0 FY13F 19 0 19 -20 -1 1 0 -1 -1 0 0 0 0 0 0 FY14F 26 0 26 -13 13 15 0 -1 13 0 0 14 -4 9 0
Source: ThomsonReuters, Nomura research

(%) Absolute (AUD) Absolute (USD) Relative to index Market cap (USDmn) Estimated free float (%) 52-week range (AUD) 3-mth avg daily turnover (USDmn) Major shareholders (%) 1M 3M 12M
13.5 68.3 -26.3 10.0 72.4 -25.1 11.4 62.6 -16.9 147.8 100.0 .86/.25 0.22
-9 0 -9 0 -9
-13 0 -13 0 -13
-19 0 -19 0 -19
0 0 0 0 0
9 0 9 -7 3
Orbis Investment 13.0 Management Ltd. Phillip Capital Management 2.7 (Singapore) Ltd. Source: Thomson Reuters, Nomura research
Notes na na na na na 3.0 na na na na na na na na na 0.0 -31.4 -32.1 na na na na na 5.2 na na na na na na na na na 0.0 -53.4 -57.5 na na na na na 7.1 na na 100.0 -672.4 -739.0 -728.9 na na 0.0 0.0 -97.4 -94.9 na na na na 100.1 7.2 123.4 na 100.0 5.6 -3.3 -1.7 na na 0.0 0.0 -1.6 -3.3 15.4 23.3 15.0 4.7 12.9 6.3 8.8 10.0 100.0 56.0 49.5 35.8 30.0 70.0 0.0 0.0 45.0 74.1
ACL looks set to continue to build market share in the US fondaparinux market
na na na na na
na na na na na
na na na na na
648.9 na na na na
36.3 1,256.7 na na na
-4.98c -4.98c -4.98c 0.17 0.00
-7.02c -7.02c -7.02c 0.10 0.00
-7.99c -7.99c -7.75c 0.07 0.00
-0.11c -0.11c -0.11c 0.07 0.00
3.37c 3.37c 3.29c 0.08 0.02
Nomura | Alchemia
March 30, 2012
Cashflow(AUDmn)
Year-end 30 Jun EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
FY10 -8 -4 7 -6 -6 0 FY11 -13 10 -8 -12 -12 0 FY12F -17 0 0 -17 -17 0 FY13F 1 0 0 1 1 0 FY14F 15 0 -4 11 11 0 Notes
We forecast revenue from fondaparinux in FY12
-5 -11 0 15 0 0 15 4 1 5 -5
9 -2 0 0 0 0 0 -2 5 4 -4
0 -18 0 20 0 0 20 2 4 6 -6
0 1 0 0 0 0 0 1 6 7 -7
0 11 -7 0 0 0 -7 4 7 11 -11
Balancesheet(AUDmn)
As at 30 Jun Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity Total equity & liabilities Liquidity (x) Current ratio Interest cover Leverage Net debt/EBITDA (x) Net debt/equity (%) Activity (days) Days receivable Days inventory Days payable Cash cycle
FY10 5 0 0 12 18 0 1 0 19 0 37 0 0 1 1 0 4 6 0 0 118 -90 4 32 37
FY11 4 0 0 2 6 0 1 0 17 0 24 0 1 1 2 0 4 6 0 0 118 -103 4 19 24
FY12F 6 0 0 2 9 0 1 0 16 0 26 0 1 1 2 0 4 6 0 0 138 -122 4 20 26
FY13F 7 0 0 2 10 0 1 0 15 0 25 0 1 1 2 0 4 6 0 0 138 -122 4 20 25
FY14F 11 1 0 2 14 0 1 0 13 0 28 0 1 1 2 0 4 6 0 0 138 -119 4 22 28
Notes
ACL had net cash of USD23mn as at 31 December 2011
12.02 na
3.60 na
4.81 na
5.09 na
6.80 na
na net cash
na net cash
na net cash
net cash net cash
net cash net cash
na na na na
na 0.0 34.3 na
47.6 na na na
7.6 na na na
6.7 na na na
Nomura | Alchemia
March 30, 2012
Contents
5
Executive summary Valuing the opportunity for ACL Fondaparinux anti-clotting agent HyACT Targeting cancer Appendix 1: How does the US Pharmacy system work? Appendix 2: the regulatory approval process in the US Appendix A-1
18
38
53
57
59
Nomura | Alchemia
March 30, 2012
Executive summary
Alchemia develops and commercialises pharmaceutical products for global markets, using its proprietary technology to develop carbohydrate-based drugs. Alchemia (ACL) is a drug discovery and development company. The companys lead drug, fondaparinux is a generic version of GlaxoSmithKlines (GSK LN, GBP14, Neutral) Arixtra, a synthetic anticoagulant mainly used for the prevention of deep vein thrombosis. It was launched in July 2011 in the US by ACLs marketing partner Dr Reddys Laboratories (DRRD IN, INR1,706.5, Buy). In addition, ACL is developing other potential products. ACLs pipeline of assets is built on two platform technologies: HyACT (targeted cancer delivery) and VAST (drug discovery). The primary objective of the HyACT technology is to develop a new generation of anti-cancer drugs which demonstrate better efficacy. The lead product from the HyACT platform is HA-irinotecan, which is currently in a pivotal Phase III clinical trial that commenced recruitment in January 2012. The company has plans to demerge the oncology arm of ACL in the near future, allowing investors to have the option of investing in either a stable cash-flow generating business based on revenues from fondaparinux, or a business opportunity based on the potential revenue from a prospective HAirinotecan product. ACLs major product fondaparinux ACLs major product is generic fondaparinux, a treatment for prevention of deep vein thrombosis (DVT). In July 2011, ACLs generic fondaparinux was approved by the US Food and Drug Administration (FDA) for marketing as a treatment for DVT. ACLs worldwide licensee Dr Reddys Laboratories launched generic fondaparinux into the market in July 2011, with potential distribution into another 142 countries. ACL earns a 50% operating profit share with Dr Reddys on US sales of fondaparinux and will earn royalty payments on ROW sales. Arixtra, the branded version of fondaparinux, has been off patent since 2002 in the US, meaning that the process originally developed for its manufacture has been open for companies to use for nearly a decade. The lack of large numbers of generic competitors is testament to the complexity of the original synthetic process used for fondaparinux. Hence, we believe there are unlikely to be any other competitors entering the fondaparinux market in the near term. Catalysts that could move the stock We believe there are a number of potential near-term catalysts for the stock, including the growth of generic fondaparinuxs market share in the US market, which stood at 17% of total prescriptions for the month of January 2012, according to IMS data. Should this increase, this would imply a further confirmation of ACLs growth potential. ACL management has not provided guidance for fondaparinux-derived revenue for FY12F (vs. Nomura at AUD2.6mn for FY12F). Sector/strategic context ACL hopes to develop further treatments using its patented manufacturing mechanisms for developing carbohydrate-based drugs. Given the difficulty in entering this space without requisite manufacturing capabilities, this is an attractive market segment, in our view. In addition, ACL is in a Phase III clinical trial, testing its potentially improved version of a common anti-cancer chemotherapeutic agent, irinotecan, for use in colorectal cancer. Valuation methodology We have valued the generic fondaparinux opportunity in line with our forecasts for growth of the fondaparinux market in the US market, as well as potential entry into other developed markets. In addition, we have valued other opportunities for ACL, namely: HA-irinotecan. Our valuation can be seen in Figure 1.
ACLs management have stated that US fondaparinux sales continue to grow Based in Brisbane, Australia, Alchemia is a small molecule biopharmaceutical company
The company was listed on the Australian Stock Exchange (ASX) under the ticker ACL AU in December 2003
Nomura | Alchemia
March 30, 2012
Fig. 1: ACL valuation methodology

Product Fondaparinux ACL Oncology Less R&D Cash Valuation Probability (%) Risk-weighted valuation
Source: Nomura estimates
Valuation (AUDps) 0.62 0.54 -0.21 0.02 0.97 79 0.77
Probability (%) 100.0 61.2
Risk-weighted valuation 0.62 0.33 -0.21 0.02 0.77
Risks to our investment view For ACLs leading product, generic fondaparinux, there is still uncertainty around the potential level of growth in most of its prospective markets. ACLs rate of earnings growth is dependent on the sales and marketing support provided by its partner Dr Reddys Laboratories. Should ACL enter further clinical trials in new methods of drug delivery, we note that early results give no real enough indication of a products true viability, and full foresight on future market conditions is difficult to obtain. In addition, there is still a good deal of uncertainty around the viability of ACLs HAiriontecan in most of its prospective markets. Early clinical trials, although positive, give no real enough indication of a products true viability and full foresight on future market conditions is difficult to obtain. To date, all preclinical and Phase II trials have shown indications for product viability. As it stands, there have been no significant adverse effects or health issues and Phase II trials indicate a product with the potential for market viability. Therefore, we believe this is an investment opportunity for investors with a higher risk appetite.
Our investment case for ACL

Bull points Earning revenues from generic fondaparinux sales in the US Dr Reddys Laboratories launched generic fondaparinux in the United States in July 2011. According to IMS data, ACLs fondaparinux has generated sales of USD19.5mn for the FY12F year to date to 31 January 2012. Under the terms of its agreement with Dr Reddys Laboratories, ACL will receive 50% of operating profits from US sales of generic fondaparinux indefinitely (after USD10mn in development costs have been recouped by Dr Reddys). Potential revenues from generic fondaparinux sales outside the US ACL is well positioned to benefit from the progression of Dr Reddys marketing applications for generic fondaparinux outside the United States, in our view. ACL plans to file for approval in Europe early CY12, with the expectation of approval 12 months after filing. ACL stands to receive a c10% royalty on worldwide net sales of generic fondaparinux outside of North America. Patent protection ACL has patent protection for its process for generic fondaparinux until 2029 in various jurisdictions. Growing demand for DVT therapy in line with aging of population Due to the post-war baby boom, the percentage of the population in the older age group in developed countries is increasing. Improved longevity and the aging population demographic will likely lead to growing demand for treatments and surgeries, which leads to increased need for anti-clotting products the target market for generic fondaparinux. Experienced global partner ACL has a global licence agreement with Dr Reddys Laboratories for generic fondaparinux. Dr. Reddys Laboratories is an integrated global pharmaceutical company with brand presence established through 28 years of history. Dr. Reddys Laboratories is headquartered in India, with annual sales of USD1.7bn and products marketed in more than 10 countries. Importantly, Dr Reddys Laboratories has considerable experience in marketing generics.
ACL will receive 50% of operating profits from US sales of generic fondaparinux
Nomura | Alchemia
March 30, 2012
Cash balance ACL had a cash balance of USD23mn as at 31 December 2011. It employs 25 staff. ACL management has provided guidance for corporate costs of AUD650,000 per month and phase III clinical trial costs of AUD1mn per month. This implies a cash burn of AUD1.65mn per month. We have included this guidance in our forecasts. Management In terms of management, in our view the recent direction of the company has been impressive. We believe the clinical team is of a high standard. In our opinion, ACL has an impressive board of directors as well. Potential upside from other opportunities ACL may deliver potential upside if successful in its oncology and drug discovery platforms. It is currently recruiting for a phase III clinical trial for HA-irinotecan in metastatic colorectal cancer, and a phase II clinical trial for HA-irinotecan in Small Cell Lung Cancer (SCLC). ACL is in the process of spinning out its oncology assets to create a new, listed specialty pharma company. ACLs timeline is shown in the following figure.
Fig. 2: ACL stage of development
Trial stage General time until cashflow General probability of product getting to market Industry standard cost of trials Indications and stages of development Cardiovascular Fondaparinux (VTE) HyACT Oncology HA-Irinotecan (Colorectal) HA-Irinotecan (SCLC) HA-Doxorubicin HA-5FU VAST Drug Discovery Platform Various targets
Source: Nomura estimates, Tufts data
Preclinical Phase I 7 years+ 5-7 years c10% 13% cUSD5m cUSD10m
Phase II 3-5 years 21% cUSD20m
Phase III 1-2 years 61% cUSD75m
Filed
On market
Partner
Dr Reddy's Recruiting Recruiting
Pharma Partners
Potentially large opportunity should HA-irinotecan trials be successful: we have calculated the potential upside from a successful HA-irinotecan trial. This is shown in the following figure. Our non-weighted valuation is AUD0.54 for the global opportunity from HA-irinotecan sales. However, assuming greater market share in the US and royalty gives upside to AUD1.27.
Fig. 3: HA-irinotecan valuation sensitivity: US market share and royalty assumptions
US peak market share (%) $ Royalty (%) 0.54 15 20 25 30 35 40 45 15 0.20 0.27 0.34 0.40 0.47 0.54 0.61 25 0.27 0.36 0.45 0.54 0.63 0.71 0.80 35 0.33 0.43 0.54 0.65 0.76 0.87 0.98 45 0.38 0.50 0.63 0.75 0.88 1.00 1.13 55 0.42 0.57 0.71 0.85 0.99 1.13 1.27
In addition, we note chemotherapies are widely used in the treatment of cancer, in which the goal of treatment is to reduce the size of a tumour so that it can be completely removed by surgery or other means, through late-stage cancer treatment. The use of chemotherapies is limited by severe adverse effects that, in turn, limit their efficacy. It may be possible to expand the use of HA-irinotecan into indications for which irinotecan is currently not being used by demonstrating that HA-irinotecan has favourable efficacy and safety characteristics compared to the current standard of care. We have not included this in our forecasts. Finally, if ACLs HA-irinotecan trial is successful, then the HA platform technology may be able to be used in other anti-cancer agents, thus presenting further opportunities for ACL.
If ACLs HA-irinotecan trial is successful, then the HA platform technology may be able to be used in other anti-cancer agents
Nomura | Alchemia
March 30, 2012
Bear points Dependence on partner - We note that ACLs future earnings are dependent upon the sales and marketing support of its products by its partner. There is no guarantee that its partner will progress ACLs products as its top priority in the future, or that its partner are under the same management and/or ownership in the future. Dependence on contract manufacturing We note that ACLs earnings from fondaparinux are dependent upon the provision of product manufacturing by Dr Reddys Laboratories. Single-product company Until its oncology treatments are on the market, ACL is essentially a single-product company from an earnings perspective. The value of the irinotecan market is declining at present We note the global irinotecan market value is declining, due to the entry of lower-priced generic products into this market. That said, we note volume of product sold continues to increase, in line with demand for this anti-cancer treatment. Hence, we believe there continues to be solid demand for the irinotecan product. Should HA-irinotecan be successful, we believe this product is likely to be a paradigm shift in irinotecan delivery. Hence, we believe the HA-irinotecan is likely to be able to command a price premium compared to other generic irinotecan products. Planned changes to business structure To best position the company for the future and to release value for shareholders, management intends to change to ACLs business structure in the coming months. ACL proposes to demerge its wholly owned subsidiary Alchemia Oncology to create a standalone company containing all of the HyACT oncology assets including HA-irinotecan. The proposal remains subject to further evaluation and market conditions. It is envisaged that this company will be separately listed on a public exchange, in Australia, the US or both. ACL will begin planning and implementing the proposal as soon as the current funding is completed. While other mechanisms will be explored, it is currently anticipated that this transaction will involve a pro-rata distribution of shares to existing shareholders. After this change, ACL would continue to be listed on the ASX, with fondaparinux being the primary asset of the company. It is proposed that the company focus on distributing the majority of profits arising from fondaparinux to shareholders by way of dividends or return of capital, as appropriate.
We note the value of the irinotecan market is declining, due to the entry of lower-priced generic products into this market
ACL proposes to demerge its wholly owned subsidiary ACL Oncology to create a standalone company containing all of the HyACT oncology assets
Nomura | Alchemia
March 30, 2012
Valuing the opportunity for ACL

Our risk-weighted valuation for the ACL opportunities is AUD0.77 per share. We enclose our ACL valuation assumptions below. We analyse the individual product opportunities for ACL in the following sections of this report.
Fig. 4: Valuation of the ACL opportunity
Product Fondaparinux ACL Oncology Less R&D Cash Valuation Probability (%) Risk-weighted valuation
Valuation (AUDps) 0.62 0.54 -0.21 0.02 0.97 79 0.77
Probability (%) 100.0 61.2
Risk-weighted valuation 0.62 0.33 -0.21 0.02 0.77
ACL receives 50% of operating profits on US sales from Dr Reddys Laboratories of generic fondaparinux. ACLs earnings in FY12F and FY13F will be largely determined by this revenue
The valuation of the opportunities for ACL can be seen graphically below.
Fig. 5: ACL valuation of opportunities: risk-weighted valuation
ACL Oncology 35%
Fondaparinux 65%
Financial summary for ACL

We enclose the major components of our valuation for ACL: Revenues: We forecast royalty payments from generic fondaparinux to commence in FY12F. Our sales revenue forecasts for the company are shown below.
Fig. 6: ACL potential revenue streams
Revenue (AUDmn) Fondaparinux HyACT Oncology VAST Drug Delivery Platform Other Sales revenue (AUDm) Investor contributions Grant revenue Total revenue
2010A 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
2011A 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
2012F 2.6 0.0 0.0 0.0 2.6 0.0 0.0 2.6
2013F 19.4 0.0 0.0 0.0 19.4 0.0 0.0 19.4
2014F 26.4 0.0 0.0 0.0 26.4 0.0 0.0 26.4
2015F 37.1 7.8 0.0 0.0 44.8 0.0 0.0 44.8
2016F 49.7 18.0 0.0 0.0 67.7 0.0 0.0 67.7
2017F 49.3 28.9 0.0 0.0 78.3 0.0 0.0 78.3
2018F 47.9 38.2 0.0 0.0 86.1 0.0 0.0 86.1
2019F 46.6 42.0 0.0 0.0 88.6 0.0 0.0 88.6
2020F 45.5 43.9 0.0 0.0 89.5 0.0 0.0 89.5
Profit share from Dr Reddys Laboratories from US sales of generic fondaparinux - ACL will receive a 50% share of operating profits from sales of fondaparinux in the US, once Dr Reddys Laboratories has recouped USD10mn in development expenses. Royalty from Dr Reddys Laboratories on non-US sales of generic fondaparinux ACL will also receive a c.10% royalty on non-US net sales.
ACL will receive a 50% share of profits from sales of fondaparinux in the US
Nomura | Alchemia
March 30, 2012
Other operating expenses ACL has provided operating expenses guidance of cAUD20mn for FY12F. This equates to a cash burn of AUD1.67mn per month. A proportion of ongoing expense related to generic fondaparinux is reimbursed by Dr Reddys Laboratories. A breakdown of potential expenses is shown in the table below.
Fig. 7: Potential expense breakdown
Expenses (AUDmn) External R&D expenditure SG&A expenses Other expenses Operating expenses Cash burn per month
2010A (3.1) (5.2) 0.2 (8.1) (0.7)
2011A (6.9) (2.5) (0.4) (9.8) (0.8)
2012F (15.0) (4.0) (1.0) (20.0) (1.7)
2013F (13.0) (4.2) (1.1) (18.3) (1.5)
2014F (6.0) (4.4) (1.2) (11.6) (1.0)
2015F (6.1) (4.6) (1.3) (12.1) (1.0)
2016F (6.2) (4.9) (1.5) (12.5) (1.0)
2017F (6.3) (5.1) (1.6) (13.0) (1.1)
2018F (3.0) (5.4) (1.8) (10.1) (0.8)
2019F (4.4) (5.6) (1.9) (12.0) (1.0)
2020F (4.5) (5.9) (2.1) (12.5) (1.0)
Research & development expenditure we forecast AUD 12mn in R&D expenditure for FY12F, and AUD 12mn for FY13F. Cash balance ACL had a cash balance of AUD23mn as at 30 December 2011, after a capital raising in 2HCY11. Payout ratio ACL has flagged that it intends to distribute its surplus cash by paying a dividend as it is able. Hedging ACL is materially exposed to foreign exchange risk on the US dollar, since all generic fondaparinux revenue received is denominated in USD. We understand that ACL has a risk management policy in place which places limits on the amount of unhedged revenues, but retains flexibility in timing when hedging to take advantage of periods of AUD weakness. Exchange rate We assume exchange rates in line with the Nomura house view. For FY12F, the relevant exchange rates are: 1) AUD/USD 1.02, 2) AUD/ 0.74; 3) /USD 1.44. Our long-term rate for the AUD/USD exchange rate is 0.81. Deferred tax assets not recognized Although recovery of the potential tax benefit is uncertain, ACL has accrued AUD72mn in potential tax losses. Discount rate We use a WACC of 13.05% to value ACL. Our assumptions include: 1) Equity beta due to its derisked business model, ACL has a lower beta than most other biotechnology companies. We assume that the companys equity (and asset) beta is 1.3; 2) Nominal long-run growth rate given the potentially high growth rate of this business, and in line with those of other high-growth companies in the market, we assume a nominal long-run growth rate of 5% and a real long-run growth rate of 2.5%. DCF per share: On the basis of the above, the discounted cashflow valuation per share for ACLs opportunities is AUD1.56. The difference between our DCF valuation and risk-weighted target price relates to the timeframe of each valuation approach. In our risk-weighted valuation, we model the opportunities explicitly for 24 years, whereas our DCF valuation is based on 10 years of explicit net cashflows, with the terminal value calculated using year tens cashflow as an approximation for future cashflows. However cashflow in year ten is likely to have a higher growth rate than that which we forecast for years 11-24, as patents expire during that timeframe.
Fig. 8: DCF valuation sensitivity to WACC and terminal growth rate assumptions
Weighted Average Cost of Capital (WACC) $1.56 4.0% Terminal Growth Rate
We forecast net cash burn of AUD 12mn for FY12F and AUD 12mn FY13F
11.05% 1.94 2.04 2.16 2.30 2.46
12.05% 1.67 1.74 1.82 1.91 2.02
13.05% 1.45 1.50 1.56 1.63 1.70
14.05% 1.28 1.32 1.36 1.41 1.46
15.05% 1.14 1.17 1.20 1.24 1.28
4.5% 5.0% 5.5% 6.0%
10
Nomura | Alchemia
March 30, 2012
Management
The management team has significant experience.
Fig. 9: ACL senior management team
Pete Smith Chief Executive Officer Pete Smith joined Alchemia in May 2006 and was appointed Head of Alchemia's Commercialisation and Business Development Division. He was appointed to the role of CEO and Managing Director on 26 April 2007. During the past three years Pete has not served as a director of another listed company. Previously Pete was CEO and Managing Director of Australian listed biotech Amrad Limited. He founded UK biotech company Onyvax and was a top-rated pharmaceutical industry analyst at European Investment Banks UBS and HSBC. Pete holds a PhD in Biochemistry and a MA from Cambridge University. Charles was appointed in March 2011. He has a BSc. (Hons) in pharmacology from the University of Bristol and a MBA from Warwick Business School in the UK. His career has mostly been spent in investment banking working with international life sciences companies in a number of transactions including mergers, acquisitions, initial public offerings and a range of innovative financings. Charles has been directly involved in over 40 corporate transactions including 15 Initial Public Offerings. Prior to banking, Charles worked in a pharmaceutical consultancy, a NASDAQ listed combinatorial chemistry company and a US hedge fund.
Charles Walker
Chief Financial Officer
Stephen Denaro
Company Secretary Stephen was appointed in February 2011 and has extensive experience in mergers and acquisitions, business valuations, accountancy services, and income tax compliance gained from positions as Company Secretary and Chief Financial Officer of various public companies, and with major chartered accountancy firms in Australia and the United Kingdom. He provides Board and Company Secretarial services for a number of start up technology and public companies. tephen has a Bachelor of Business in Accountancy, Graduate Diploma in Applied Corporate Governance, and is a member of the Institute of Chartered Accountants in Australia, and the Australian Institute of Company Directors. Vice President of Discovery Wim Meutermans joined Alchemia in April 2000 and is responsible for Alchemias early drug discovery programs. He has worked for 15 years in the medicinal chemistry field, including 10 years in management roles on both academic and industrial projects. He has published extensively with over 45 journal publications and is co-inventor of 12 patents. Wim obtained his PhD from the Katholieke Universiteit Leuven in Belgium. Michael joined Alchemia in 1997 after holding positions in academic research at University of Queensland and in industry at GlaxoSmithKline. A registered Patent & Trade Mark attorney, Michael is responsible for the management of the Alchemia group's intellectual property protection and strategy. In his technology transfer capacity Michael manages the process development, scale-up and manufacturing of the fondaparinux project. Michael has responsibility for relationship management with Alchemias manufacturing partners and co-ordinates in-house and outsourced manufacturing. Tracey joined Alchemia in 2006 as a result of the successful acquisition of Meditech. She is responsible for the evaluation of lead compounds from both Alchemias discovery and HyACT programs where her primary role is to take the potential therapeutics into both non-clinical and clinical development. Over the last 28 years, Tracey has researched the biochemistry and therapeutic applications of carbohydrates, where this experience culminated in the invention of the HyACT platform and the development of three drugs from conception through to successful clinical evaluation. During her career, Tracey has gained international experience in managing both academic and commercial scientific teams and as the Chief Scientific Officer, Tracey directs Alchemias team at Monash University where she holds an adjunct position as an Associate Professor in the Department of Biochemistry and Molecular Biology.
Wim Meutermans
Michael West
Vice President of Intellectual Property and Technology Transfer
Tracey Brown
Chief Scientific Officer, Vice President of Oncology
Source: Company data
In terms of management, in our view the recent direction of the company has been impressive. We believe the clinical team is of a high standard. In our opinion, ACL has an impressive board of directors as well.
11
Nomura | Alchemia
March 30, 2012
Fig. 10: ACL Board of Directors

Mel Bridges Non-Executive Chairman Mel Bridges joined the Alchemia Board as Non-Executive Chairman in September 2003. Mel has over 30 years experience in the biotechnology and healthcare industries. He co-founded ASX listed companies Panbio Limited and ImpediMed Limited. Mel is also the Chaiman of ImpediMed Limited and a nonexecutive director of Benitec Limited, Tissue Therapies Limited and Campbell Brothers Limited. Mel is a Fellow of the Australian Institute of Company Directors. Mel is also a member of both Alchemias Audit and Risk, and Remuneration Committees and is chairman of the Nomination Committee. Pete Smith joined Alchemia in May 2006 and was appointed Head of Alchemia's Commercialisation and Business Development Division. He was appointed to the role of CEO and Managing Director on 26 April 2007. During the past three years Pete has not served as a director of another listed company. Previously Pete was CEO and Managing Director of Australian listed biotech Amrad Limited. He founded UK biotech company Onyvax and was a top-rated pharmaceutical industry analyst at European Investment Banks UBS and HSBC. Pete holds a PhD in Biochemistry and a MA from Cambridge University. Nerolie Withnall joined the Board in October 2003. She is a former partner of Minter Ellison Lawyers. In 2001 she retired from the law after practising for more than 30 years in Sydney, Darwin and Brisbane. Nerolie has also served as Chairman Designate for Campbell Brothers Ltd and as non-executive director for PanAust Limited, Computershare Limited. She has also held the positions of Deputy President of the Takeovers Panel, a member of the Corporations and Markets Advisory Committee (retiring in March 2010), and a member of the Senate of the University of Queensland (retiring December 2009). Nerolie is Chairman of Alchemias Audit and Risk Committee. Tracie Ramsdale is one of the founders of Alchemia and led the Companys development as its General Manager and Chief Executive Officer from 1998 to 2007. Tracie joined the Alchemia Board in July 2003. Tracie originally trained as a synthetic organic chemist, obtaining a Master of Pharmacy from the Victorian College of Pharmacy in 1987 and a PhD in Biochemistry from the University of Queensland in 1994. Tracie is a member of the Australian Advisory Council on Intellectual Property and a member of the Australian Institute of Company Directors. Tracie is a member of Alchemias Remuneration Committee and Chairman of Alchemias Scientific Advisory Board.
Pete Smith
Chief Executive Officer
Nerolie Withnall
Non-Executive Director
Tracie Ramsdale Non-Executive Director
Company description
Alchemia Ltd, founded in 1995, continues to develop large-scale custom contract synthesis of novel or existing therapeutics for pharmaceutical applications. The companys lead drug, fondaparinux (a generic version of Arixtra, a synthetic anticoagulant mainly used for the prevention of deep vein thrombosis), was approved and launched in July 2011 in the U.S. by ACLs marketing partner Dr Reddys Laboratories. In addition, ACL is developing other potential products. ACLs pipeline of assets is built on two platform technologies: HyACT (targeted cancer delivery) and VAST (drug discovery). The primary objective of the HyACT technology is to develop a new generation of anti-cancer drugs which demonstrates better efficacy. The lead product from the HyACT platform is HA-irinotecan, which is currently in a pivotal Phase III clinical trial that commenced recruitment in January 2012. The company plans to demerge the oncology arm of ACL in the near future, allowing investors to have the option of investing in either a stable cash-flow generating business based on revenues from fondaparinux; or potentially a high-growth business based on potential revenues from a potential HAirinotecan product. The history of the company is shown below.
Fondaparinux is a synthetic anticoagulant mainly used for the prevention of deep vein thrombosis
12
Nomura | Alchemia
March 30, 2012
Fig. 11: ACL history of the company

1995-1999 Alchemia founded in Brisbane Australia in 1995. Begins venture capital raising, and develops proprietary carbohydrate technology, filing for patent protection. Research facilities are established in 1998. 2000 Alchemia and The Dow Chemical Company (Dow) form a manufacturing alliance for the large-scale custom contract synthesis of novel or existing therapeutics for pharmaceutical applications. Alchemia decides to pursue generic fondaparinux, which will target the multi-billion dollar heparin drug market. 2003 2004 2005 2006 Makes an Initial Public Offering in December, listing on the Australian Stock Exchange (ASX) under the symbol ACL. Process development of generic fondaparinux completed at Alchemia laboratories proving process can be taken to commercial scale. Pilot scale production begins at Dow. Alchemia forms a collaboration with the Pain Research Group at the University of Queensland to develop new generation opioidbased pain treatments. Pilot cGMP manufacture of generic fondaparinux completed at Dow facilities Alchemia acquires Melbourne based oncology company Meditech Research Limited, obtaining the cancer targeting HyACT drug delivery platform and the Phase II product HA-irinotecan. Meditech renamed Alchemia Oncology, with research facilities remaining in Melbourne. Alchemia forms a collaboration with the Belgian based drug discovery company Euroscreen s.a. to identify new drug candidates for g-protein coupled receptors (GPCRs). In April 2007 Alchemia announced it had signed Dr Reddy's Laboratories Limited (RDY US) as its marketing partner for generic fondaparinux. Alchemia also transferred the manufacturing rights to generic fondaparinux from Dow to Dr Reddy's. In May 2007 Alchemia reportedresults from the HA-irinotecan Phase II clinical trial. HA-irinotecan: 1) allowed more cycles of irinotecan to be administered to cancer patients, 2) produced better disease control and 3) more than doubled progression free survival. 2009 In February, ACL's manufacturing and marketing partner, Dr Reddy's, filed a drug master file (DMF) for generic fondaparinux with the US FDA. In March the ANDA for fondaparinux was filed. Completion of the VAST Diversity Scanning Library occurred in April 2009 with the successful completion of 15,000 compounds that cover diversity space. Targeted marketing of drug discovery collaborations employing these compounds commenced in 2H09. In June the Company agreed an Investigational New Drug application (IND) with US FDA for HA-Irinotecan. The FDA agreed to a modified Phase lll study where only one trial, using progression free survival as a clinical end point, to be undertaken to obtain market approval for HA-Irinotecan. 2010 The company successfully completed a 1 for 11 rights issue raising. Whilst the commencement of the single Phase III trial for HAIrinotecan will be the primary use of the proceeds, the other programs to which the funds will be applied include:1) Pre-clinical research evaluating the effectiveness of the HyACT platform in targeting cancer stem cells: 2) Preparing for the Companys filing for approval of fondaparinux in the European markets; 3) Assessing the viability of delivering fondaparinux sodium in an oral dosage form; and 4) The support for a physician initiated Phase I/IIa trial for HA-Irinotecan as a cancer stem cell targeted therapy in first line treatment of extensive Small Cell Lung Cancer. In July, Dr Reddy's (RDY US) was notified by the FDA that approval had been granted for fondaparinux. Alchemia expects to receive first revenues from sales of fonaparinux made by Dr Reddy's Laboratories in the first half 2012.
2007
2011
What is a carbohydrate?
Carbohydrates are simple sugars having the empirical formula CnH2nOn, where n is >3, suggesting that carbon atoms are in some way combined with water. They are also called hydrates of carbon. Glucose is a common monosaccharide that, after oxidation, forms carbon dioxide and water, providing energy source. The molecules of glucose may link together to form a variety of other macromolecules. In comparison to dipeptide, consisting of amino acid that can produce single dipeptide, the glucose molecules can give rise to 11 different disaccharides. Moving to a larger-scale, 24 tetrapeptides can be produced by 4 different amino acids; on the other hand, 4 different hexose monosaccharides may potentially produce 35,560 unique tetrasaccharides. This increases the difficulty in manufacturing of these molecules. The polysaccharides are formed by linkage of monosaccharide through O-glycosidic linkages. Differences in the type, linkage patterns, molecular weight, and chain shapes decide the carbohydrates physical properties. Why are carbohydrates important in the body? The cell surface consists of proteins, lipids and carbohydrates. The carbohydrates of glycoproteins and glycolipids usually reach furthest from the surfaces of cells and therefore are often involved in initial interactions with other cells and substrates. Thus, carbohydrates play a key role in cellular interactions.
The complex nature of carbohydrates means that chemical production of pure and structurally defined oligosaccharides for biologicals is challenging
13
Nomura | Alchemia
March 30, 2012
Carbohydrate polymers are promised candidates for drug development because they play important roles in key recognition events with a variety of receptor proteins such as lectins, enzymes, hormones, toxins, antibodies, bacteria and viruses. They are also involved in numerous biological processes such as cell growth, recognition and differentiation, cancer metastasis, inflammation, and bacterial and viral infection. These specific interactions occur through glycoproteins, glycolipids, and polysaccharides found on cell surfaces and through proteins with carbohydrate-binding domains, known as endogenous lectins. Why are carbohydrate-based drugs so difficult to manufacture? The complex nature of carbohydrates means that chemical production of pure and structurally defined oligosaccharides for biologicals is challenging. In addition, carbohydrates are rapidly broken down in the bloodstream. Unlike DNA and proteins, no technology has been developed to allow carbohydrates to be sequenced using straightforward techniques. Instead, sugar structures must be solved by a combination of chromatography and mass spectrometry, procedures that have traditionally required considerable technical skill. Besides the complex multistep analysis required for each sugar, scientists must also contend with the heterogeneity of sugar structures within a sample. Once a carbohydrate structure is solved, duplicating the structure artificially can also be a daunting task. Glycosylating proteins generate a diverse array of carbohydrate structures, and it is difficult to control the production of a specific glycoprotein in vivo. Until recently, organic chemistry was the most common approach for carbohydrate synthesis in the lab, but the complexity of biologically relevant glycans pushes synthetic chemistry to its limits. In addition, the synthesis of each structure had to be designed from scratch, making this approach inappropriate for high-throughput drug design. The digestive system excels at breaking down most naturally occurring carbohydrates, and such drugs will likely have to be injected directly into the bloodstream. Glycosidases in the blood can reduce a carbohydrate-based drugs half-life to just a few minutes, depending on its structure. Hence, until recent years, little attention was given to these molecules, primarily because they are so diverse and so much more difficult to study than, for example, proteins that are directly encoded by genes. It is only fairly recently that carbohydrates have been given more attention because of advances that have been made in their synthesis, analysis and manipulation. Various carbohydrate-based drugs and diagnostics are currently in use. These include: Heparin: Heparin is composed of a variably sulphated repeating disaccharide unit, with an average of 2.5 sulphate molecules/disaccharide unit that makes it highly charged polymer. Heparin is synthesized in mast cells as a proteoglycan component (molecular weight 60100 kDa) and is cleaved into nonuniform fractions by endoglycosidases (molecular weight 525 kDa). This has been used for decades as an anti-clotting agent. This has been beset with quality control issues, in part because it is a complex mixture of high-molecular-weight molecules, isolated from natural sources that can obscure contaminants such as over-sulphated chondroitin sulphate; Tamiflu (oseltamivir phosphate): This is a monosaccharide-based drug that is used for treating influenza. It is believed to work by inhibiting viral neuraminidase that alters virus particle aggregation and release; Aminoglycoside antibiotics: These are used to treat various infections by gram negative bacteria, as they inhibit protein synthesis by binding to bacterial ribosomes; and Acarbose: This is a glycosidase inhibitor that is used to treat type-2-diabetes by regulating carbohydrate digestion, intestinal absorption and carbohydrate metabolism. It has been shown to cause a significant decrease in plasma glucose in patients with non-insulin dependent diabetes.
Once a carbohydrate structure is solved, duplicating the structure artificially can also be a daunting task
14
Nomura | Alchemia
March 30, 2012
Listed comparables
There are a number of listed drug companies which can be thought of as being comparables to ACL. These include: Dr Reddys Laboratories Dr. Reddys is an integrated global pharmaceutical company with brand presence established through 28 years of history. Dr. Reddys is headquartered in India, with annual sales of USD1.7bn and products marketed in more than 10 countries. GlaxoSmithKline GSK is one of the world's largest pharmaceutical and healthcare companies. GSK employs over 97,000 people in over 100 countries. Around 12,500 people work in GSKs research teams in the UK, US, Spain, Belgium and China. GSK invested nearly GBP600mn in vaccines R&D in 2011 and has more than 1,600 scientists working on the development of new vaccines. Products sold by GSK include: Seretide/Advair, Seroxat/Paxil, Augmentin and Cervarix. Apotex (APO, not rated) Privately owned Apotex Inc. was founded in 1974, and is the largest Canadian-owned pharmaceutical company. The worldwide sales of the Apotex Group of companies exceed C$1bn per year. The company employs over 6,800 people in research, development, manufacturing and distribution facilities world-wide. The companys pharmaceuticals are exported to over 115 countries Starpharma Holdings (SPL AU, AUD1.75, Buy) Starpharmas underlying technology is built around dendrimers a type of synthetic polymer that is highly regular in size and structure. Starpharma is commercialising products based on its proprietary dendrimer technology. The company holds more than 100 granted dendrimer patents covering a range of classes of this type of molecule. In terms of pharmaceutical development, SPLs lead dendrimer-based product is VivaGel, a gelbased formulation of a nano-pharmaceutical. Acrux (ACR AU, AUD3.99, Buy) ACR develops and commercialises pharmaceutical products for global markets, using its proprietary technology to administer medicines through the skin. Its products are fast-drying sprays and liquids which are applied to the skin, delivering the medicine transdermally into the bloodstream. Each product is designed to be preferred by patients over current therapies. ACRs expertise is in transdermal drug-delivery systems. ACRs major product is Axiron, a treatment for hypogonadism (anti-clotting deficiency in men). In November 2010, Axiron was approved by the US Food and Drug Administration (FDA) for marketing as a new anticlotting replacement therapy for hypogonadal men. Acruxs worldwide licensee Eli Lilly launched Axiron into the market in April 2011, with potential distribution into another 142 countries. Halozyme Therapeutics (HALO US, not rated) Halozyme Therapeutics is a biopharmaceutical company developing and commercializing products targeting the extracellular matrix for the diabetes, oncology, dermatology and drug-delivery markets. The company's product portfolio is primarily based on intellectual property covering the family of human enzymes known as hyaluronidases and additional enzymes that affect the extracellular matrix. Halozyme's Enhanze technology is a drug-delivery platform designed to increase the absorption and dispersion of biologics. Nektar Therapeutics (NKTR US, not rated) Nektar Therapeutics is a clinical-stage biopharmaceutical company developing a pipeline of drug candidates that utilise its PEGylation and polymer conjugate technology platforms, which are designed to improve the benefits of drugs for patients. Its product pipeline consists of drug candidates across a number of therapeutic areas, including oncology, pain, antiinfectives, anti-viral and immunology. Nektar's research and development activities involve small-molecule drugs, peptides and other potential biologic drug candidates. Its drug candidates are designed to improve the pharmacokinetics, pharmacodynamics, half-life, bioavailability, metabolism or distribution of drugs. There are other comparables to ACL that specialise in carbohydrate-based drug technology.
ACR develops and commercialises pharmaceutical products for global markets, using its proprietary technology to administer medicines through the skin
15
Nomura | Alchemia
March 30, 2012
Fig. 12: Other comparables to ACL focussing on carbohydrates

Abaron BioSciences Oncothyreon GlycoDesign Glycominds Targeting glycosylation enzymes for a variety of novel therapies Vaccines to halt metastatic cancers Carbohydrate-processing inhibitors (CPIs) for the treatment of cancer, infection, inflammation, and cardiovascular disease: GD39 in phase 2 for various High-throughput study of complex carbohydrates, and commercializes autoimmune and chronic inflammatory disease management tools and services with a focus on the Multiple Sclerosis market Using non-natural molecules to mimic carbohydrates Biopharmaceutical company focused on therapeutics for patients suffering from cancer and related conditions Carbohydrate-based chiral chemistry technology
GlycoTech Progenics Synthon Chiragenics
Examination of patents
US and EU patents ACL has a number of relevant patents relating to its carbohydrate technology. These include the following. A. Patent number: 8,114,970 Issue Date: February 14, 2012 This patent relates to the preparation of synthetic monosaccharides, for use in the preparation of synthetic heparinoids. In February 2012, ACL was granted a new patent in the US that further enhances the protection of the proprietary process used for the manufacture of fondaparinux sodium, a drug used for the prevention and treatment of venous blood clots (DVT). This broadly protects building blocks that are used in the ACL process for manufacturing fondaparinux. The monosaccharide (single sugar) building blocks enable the efficient synthesis of fondaparinux, which is a pentasaccharide (five sugar) molecule. We believe this patent lasts until at least 2029. B. Patent number: 8,093,227 Issue Date: January 1, 2012 This invention relates to monosaccharide compounds, methods for their preparation and their use in producing combinatorial libraries of potentially biologically active mono- or oligosaccharide compounds. C. Patent number: 7,541,445 Issue Date: June 2, 2009 This invention relates to preparation of synthetic monosaccharides, disaccharides, trisaccharides, tetrasaccharides and pentasaccharides for use in the preparation of synthetic heparinoids. This invention is directed to intermediates, and processes for the chemical synthesis of AT-III binding heparin or heparinoid, pentasaccharides.
In February 2012, ACL was granted a new patent in the US
Who are Dr Reddys Laboratories?

Dr. Reddys is an integrated global pharmaceutical company with brand presence established through 28 years of history. Dr. Reddys is headquartered in India, with annual sales of USD1.7bn and products marketed in more than 10 countries. Importantly, Dr Reddys Laboratories has high levels of experience in marketing generics. In the view of the Nomura Dr Reddys analyst, Saion Mukherjee, Dr Reddys US performance has been mixed so far. While there has been good traction in Prograf and Prilosec OTC, there have been disappointments on lower market share in Lotrel, delay in Arixtra approval and complete OTC switch of Allegra. With a substantial increase in the quantum of patent expiries and certain product-specific opportunities, the US should remain a key growth driver for Dr Reddys over the next two years, in our view.
16
Nomura | Alchemia
March 30, 2012
The companys OTC business is recording strong growth on market share gain in Prilosec and the launch of Allegra. The initial signs of the market build-out of Allegra OTC are encouraging. As per Sanofi, within a few weeks of the launch, Allegra OTC has outsold Zyrtec, which had annual sales of USD700mn. In 1Q CY11, Sanofi booked revenues of USD120mn from the product. A part of the sales booked were on account of inventory filling, and hence, sales in subsequent quarters should be a better representation of the market. Our interaction with Dr Reddys suggests that initial rampup of the generic Allegra OTC is encouraging. We expect Dr Reddys to make up for the loss in Rx sales, although margins will likely be lower. OTC sales should remain an important component of Dr Reddys US sales. As per Perrigo, USD10bn worth of Rx (prescription) drugs will transition to OTC over the next five years. We will be watching for ongoing growth in Dr Reddys US franchise.
In our view, Dr Reddys US performance has been a mixed bag so far
17
Nomura | Alchemia
March 30, 2012
Fondaparinux anti-clotting agent

ACLs product, generic fondaparinux, has been launched in the United States as a preventative agent for deep vein thrombosis (DVT). This market was worth more than USD340mn in 2011.
How do we clot? The Clotting Cascade

Coagulation (or blood clotting) is an essential component of basic human functioning, aimed at sealing off damaged vessels and tissues to prevent excessive bleeding and also at trapping invading microbes in the blood stream. The clotting cascade describes the process whereby proteins in the blood known as coagulation factors are activated in a cascading sequence to form a clot over a damaged vessel. The cascade is a series of reactions in which a zymogen (inactive enzyme precursor) of serine protease (enzymes that cut peptide bonds in proteins where there are specific amino acids present) and its glycol-protein co-factor are activated to their active components and then catalyse the next reaction in the process. This ultimately results in the formation of the blood clot.
Fig. 13: The clotting cascade
INTRINSIC PATHWAY Damaged Surface
ACLs product, generic fondaparinux, has been launched in the United States as a preventative agent for deep vein thrombosis (DVT)
Kininogen Kallikrein XII XIIa EXTRINSIC PATHWAY Trauma XI XI a
IX
IXa VIIIa
VIIa Tissue factor Xa Va X
VII Trauma
Prothrombin (II)
Thrombin (IIa)
FINAL COMMON PATHWAY
Fibrinogen (I)
Fibrin (Ia )
XIII a Cross-linked fibrin clot

Source: PubMed, Nomura research
This cascade effect is the secondary phase of haemostasis, a feedback model that regulates clot formation in the body and dissolves the blot clot when the injury is healed. At each stage of this coagulation cascade, feedback mechanisms regulate the balance between active and inactive enzymes. The clotting cascade is initiated
18
Nomura | Alchemia
March 30, 2012
through two alternate pathways the intrinsic and extrinsic, which converge at the formation of Factor X. The intrinsic pathway, also called the contact activation pathway, is the slower and less frequent of the two. This pathway is catalysed by the presence of physical chemical substances such as collagen, bacteria and circulating lipoproteins (fat proteins) in the blood, or from contact between sub-endothelial connective tissues or negatively charged surfaces that are exposed when a vessel or tissue is damaged. These incidences stimulate the conversion of coagulation factor XII (the Hageman factor) into its active form XIIa as well as the release of platelets in the bloodstream. Factor XIIa then causes the catalysed activation of Factor XI to XIa in the bloodstream and then IX to their active form IXa and finally to the activation of Factor X into Xa in the presence of Ca2+ (calcium) and phospholipids (a platelet membrane constituent). Alternatively, the extrinsic pathway is a far more rapid process and is initiated by the release of a tissue factor (Factor III containing fibroblasts and leukocytes) at the site of a traumatised vascular wall or extravascular tissue. This tissue factor stimulates the conversion of Factor VII into its active form VIIa. This active form of Factor VII leads directly to the activation of Factor Xa from its inactive form Factor X, and it is at this point in the clotting cascade where the intrinsic and extrinsic pathways converge. The final united common pathway of the clotting cascade results from the activation of Factor Xa and involves the conversion of protein Prothombin to Thrombin, which is responsible for activating fibrin (white fibres) from the plasma protein fibrinogen. Fibrinogen stimulates the clumping of platelets (colourless bodies in the blood) which are attracted to the site by the protein Thrombin. Strands of fibrin form a cross-linked mesh that along with platelets block the damaged blood vessel and prevent further bleeding. If the clot contains only platelets it is called a white thrombus, however when red blood cells are also present it is deemed a red thrombus.
Vascular thrombosis is a cardiovascular disease indicated by the partial or total occlusion of a blood vessel by a clot containing blood cells and fibrin
What is thrombosis?
Vascular thrombosis is a cardiovascular disease indicated by the partial or total occlusion of a blood vessel by a clot containing blood cells and fibrin. In arteries, it results predominantly from platelet activation and leads to heart attack, angina or stroke, whereas venous thrombosis results in inflammation and pulmonary emboli. The coagulation of blood is the result of a cascade of events employing various enzymes collectively known as activated blood-coagulation factors.
What is deep vein thrombosis (DVT)?

Deep vein thrombosis (DVT) is the formation of blood clots (thrombi) in the deep veins. It commonly affects the deep leg veins (such as the calf veins, femoral vein, or popliteal vein) or the deep veins of the pelvis. It is a potentially dangerous condition that can lead to morbidity and mortality. The most important acute complication of DVT is pulmonary embolism (PE), which can be fatal. In DVT, thrombus formation preferentially starts in the valve pockets of the veins of the calf and extends proximally. This is especially true for those that occur following surgery. Though most thrombi begin intraoperatively, some start a few days, weeks, or months after surgery. Hence, prevention of DVT is important to decrease morbidity and mortality. Epidemiology and causation of DVT DVT is a major and a common preventable cause of death worldwide. It spontaneously affects approximately 0.1% of persons per year. The overall average age- and sexadjusted annual incidence of venous thromboembolism (VTE) is 117 per 100,000 (DVT, 48 per 100,000; PE, 69 per 100,000), with higher age-adjusted rates among males than females (130 vs 110 per 100,000, respectively). VTE occurs in an estimated 900,000 people per year in the major European countries alone, according to Bayer (BAYN DE, EUR52.24, Neutral). The approximate risk for DVT following general surgery procedures is 15-40%. It nearly doubles after hip or knee replacement surgery or hip fracture surgery (40-60%). Without
19
Nomura | Alchemia
March 30, 2012
prophylaxis, fatal PE occurs in 0.2-0.9% of patients undergoing elective general surgery, 0.1-2.0% of those undergoing elective hip replacement and up to 2.5-7.5% of those undergoing surgery for hip fracture. Though regarded mainly as a surgical complication, most symptomatic VTE events and fatal PE occur in medical patients. In adults, the clinical conditions that predispose to VTE are increasing age, cancer and its treatment, prolonged immobility, stroke or paralysis, previous VTE, congestive heart failure, acute infection, pregnancy, dehydration, hormonal treatment, varicose veins, long air travel, acute inflammatory bowel disease, rheumatological disease, and nephrotic syndrome. Oral contraceptive pills, especially those that contain third-generation progestins increase the risk of VTE. Risk of DVT associated with long-duration air travel is called economy class syndrome. Its prevalence is 3-12% in a long-haul flight, with stasis, hypoxia, and dehydration being pathophysiological changes that increase the risk. How is DVT diagnosed? Venous ultrasonography is the investigation of choice in patients stratified as DVT likely. It is noninvasive, safe, available, and relatively inexpensive. There are three types of venous ultrasonography: compression ultrasound (B-mode imaging only), duplex ultrasound (B-mode imaging and Doppler waveform analysis), and color Doppler imaging alone. In duplex ultrasonography, blood flow in normal vein is spontaneous, phasic with respiration, and can be augmented by manual pressure. In color flow sonography, pulsed Doppler signal is used to produce images. Compression ultrasound is typically performed on the proximal deep veins, specifically the common femoral, femoral, and popliteal veins, whereas a combination of duplex ultrasound and color duplex is more often used to investigate the calf and iliac veins.
VTE occurs in an estimated 900,000 people per year in the major European countries alone
What are the potential treatments to prevent DVT?

There are a number of potential treatments to prevent DVT Mechanical Mechanical methods of prophylaxis against DVT include: Intermittent pneumatic compression (IPC) device, Graduated compression stocking (GCS), and Venous foot pump. Intermittent pneumatic compression enhances blood flow in the deep veins of the leg, preventing venous stasis and hence preventing venous thrombosis. Scientific studies have shown that these mechanical methods reduce postoperative venous thrombosis. A Cochrane review showed a reduction of VTE by about 50% with the use of graduated compression stockings. Other mechanical means in both medical and surgical patients include ambulation and exercises involving foot extension. Pharmacological Pharmacological treatments include: Unfractionated heparin (UFH) Studies have shown that the incidence of all DVTs, proximal DVT, and all PE including fatal PE has been reduced by low-dose UFH; Low-molecular-weight heparins (LMWH) These can be given once or twice daily without laboratory monitoring. Other advantages are predictability, dose-dependent plasma levels, a long half-life, less bleeding for a given antithrombotic effect, and a lower incidence of heparin-induced thrombocytopenia than with UFH; Fondaparinux This is a synthetic pentasaccharide which has been approved for prophylaxis of DVT. It is an indirect selective inhibitor of factor Xa which binds to antithrombin with high affinity in a reversible manner. Heparin-induced thrombocytopenia has not been reported with fondaparinux as it does not interact with platelet function and aggregation, and has a predictable response. Monitoring of prothrombin time or partial thromboplastin time is also not required. In summary, it has an equal or better effectiveness than currently available agents, a low bleeding risk, no need for laboratory monitoring, and once daily administration;
The duration of thromboprophylaxis depends on the level of risk of VTE
20
Nomura | Alchemia
March 30, 2012
Oral direct selective thrombin inhibitors Dabigatran is an oral univalent direct thrombin inhibitor. Dabigatran etexilate is the prodrug of dabigatran. It is rapidly absorbed from the gastrointestinal tract with a bioavailability of 5-6%; and Factor Xa inhibitors Rivaroxaban is a potent and selective oral factor Xa inhibitor. It has a rapid onset of action, a high bioavailability (80%), and a half-life of 4 to 12 hours. oral rivaroxaban is as effective in preventing recurrence of symptomatic VTE as the current standard therapy of injectable LMWH, enoxaparin, or fondaparinux. All are effective pharmacological agents for prophylaxis of DVT. The duration of thromboprophylaxis depends on the level of risk of VTE. For patients undergoing total hip replacement or hip fracture surgery, prolonged thromboprophylaxis beyond 10 days and up to 35 days is recommended especially for patients who are considered to be at high risk for VTE, while in patients admitted with acute medical illness thromboprophylaxis should be continued until discharge for the majority of the patients.
Pharmacological prevention of DVT in detail products in the US market

We examine methods pharmacological prevention of DVT in more detail below. All agents are effective pharmacological agents for prophylaxis of DVT. A. Heparin Heparin, a powerful anticoagulant, has been used since the late 1930s in the treatment of thrombosis. In its original implementation, tolerance problems were noted, and so reduced dosage was suggested to reduce bleeding and improve efficacy. In the early 1970s, clinical trials did indeed indicate acceptable tolerance was obtainable whilst still preserving antithrombotic activity.
Fig. 14: Heparin vs. Low Molecular Weight Heparin vs. Fondaparinux
Source Structure Targets Pharmacologic Effect Administration HIT Response Unfractionated Heparin LMWH Fondaparinux Animal Animal Synthetic Heterogeneous Heterogeneous Homogeneous Multiple Multiple Single (factor Xa) Activity expressed as IU (anti-Xa = anti- Activity expressed as IU (anti-Xa > anti- Activity expressed gravimetrically as IIa) IIa) g or mol Intravenously or two to three times One to two times daily subcutaneously Once daily subcutaneously daily, subcutaneously Nil ~80% crossreactivity with heparin- No crossreactivity with HIT antibodies induced thrombocytopenia (HIT) antibodies Variable Dose-dependent ~11.5 hours (IV) Reticuloendothelial, urinary Protamine sulfate High ~4 hours Urinary Protamine sulfate (partial neutralization) High ~17 hours Urinary None
Unfractionated heparin (UFH) is primarily used as an anticoagulant for both therapeutic and surgical indications
Bioavailability Half-life Mode of Excretion Antidote

Unfractionated heparin (UFH) is primarily used as an anticoagulant for both therapeutic and surgical indications, and is usually derived from either bovine lung or porcine mucosa. Amongst the modern uses of unfractionated heparin are the management of unstable angina, as an adjunct to chemotherapy and anti-inflammatory treatment, and as a modulation agent for growth factors and treatment of haemodynamic disorders. The most common sensitivity to UFH is Heparin-induced thrombocytopenia and thrombosis syndrome (HITTS). The HITTS syndrome Thrombocytopenia is a known complication of the administration of heparin that occurs in approximately 5-30% of cases. The pathophysiology of HITTS remains controversial; however, most investigators agree that an immune mechanism is most plausible. In HITTS, thrombosis occurs in both the arterial and venous circulation, with significant morbidity and mortality. Complications include deep venous thrombosis, pulmonary embolus, stroke, myocardial infarction, chronic venous insufficiency, extremity ischemia, gangrene, and death.
21
Nomura | Alchemia
March 30, 2012
This market has been genericised. We believe supply for the US heparin market is saturated with over 41 different products (153 various strengths) manufactured by 25 different companies. According to IMS data, annual sales of generic heparin in the US market amounted to over USD290mn for 2011. B. Low Molecular Weight Heparins In the late 1980s, the development of low molecular weight heparins (LMWHs) led to improvements in antithrombotic therapy. LMWHs are derived from UFH by such processes as chemical degradation, enzymatic depolymerisation and gamma-radiation cleavage.
Fig. 15: Types of LMWHs
LMWH name Bemiparin Certoparin Dalteparin Enoxaparin Nadroparin Parnaparin Reviparin Tinzaparin Average molecular weight (daltons) 3600 5400 6000 4500 4300 5000 4400 6500 Ratio anti-Xa/anti-IIa activity 9.7 2.4 2.5 3.9 3.3 2.3 4.2 1.6
Of particular interest is the fact that their relative effects on platelets are minimal compared to heparin, providing an immediate advantage when treating plateletcompromised patients.
Fig. 16: Advantages of low-molecular-weight heparin over unfractionated heparin
Greater bioavailability Predictability and dose-dependent plasma level Less risk of bleeding Lower incidence of heparin-induced thrombocytopenia Lower risk of heparin-induced osteoporosis No need for laboratory monitoring Can be safely administered in outpatient Duration of anticoagulant effect is longer, permitting once- or twice-daily administration
The degree of depolymerisation of UFH can be controlled to obtain LMWH of different lengths. Dosage requirements for the treatment of deep vein thrombosis (DVT) are significantly reduced when employing LMWH as opposed to UFH, although in general the efficacy of both therapeutics seems to be comparable. In addition, LMWH can be effective as an alternative therapeutic for patients who have developed a sensitivity to UFH. There has also recently been a great deal of concern in the use of LMWH due to the perceived potential for cross-species viral contamination as a result of the animal source of the parent UFH. One way of avoiding the possibility of cross-species contamination, is to prepare heparins by chemical synthesis. This method provides the opportunity to develop second generation heparins or heparinoids that can be tailored to target particular biological events in the blood coagulation cascade. The major LMWH is Enoxaparin. Enoxaparin In 1993, the US FDA approved a low molecular weight heparin called Enoxaparin, which is marketed under the trade name Lovenox, among others. We believe the US market for Enoxaparin is at its apex, as has been characterised by the launch of strong generic competition coupled with the substantial share losses of the market leader, Lovenox. Lovenox, which is manufactured by Sanofi [SAN FP, EUR57.54, Neutral], had annual sales of USD2.3bn for 2010 in the US alone. In July 2010, Sandoz launched its generic version of Enoxaparin, followed by others in October 2011. Collectively the generic enoxaparin products have garnered annual sales
The major LMWH is Enoxaparin Enoxaparin is derived from the intestinal mucosa of pigs.
22
Nomura | Alchemia
March 30, 2012
of USD1.5bn in 2011, meanwhile branded Lovenox sales have shrunk by USD1.2bn to USD1.1bn in 2011. Currently there are five different products (35 various strengths), manufactured by five different companies on market. According to IMS data, annual sales of Enoxaparin in the US market amounted to USD2.6bn for 2011. C. Fondaparinux injectable Xa inhibitor In 2001, the US FDA approved fondaparinux, which is marketed under the trade name Arixtra. Arixtra commercialised its product a year after its patent expired in 2002. Marketed by GlaxoSmithKline, Arixtra had annual global sales of GBP301mn for 2010. The antithrombotic activity of fondaparinux sodium is the result of antithrombin III (ATIII)mediated selective inhibition of Factor Xa. By selectively binding to ATIII, fondaparinux sodium potentiates (about 300 times) the innate neutralization of Factor Xa by ATIII. Neutralization of Factor Xa interrupts the blood coagulation cascade and thus inhibits thrombin formation and thrombus development. Fondaparinux sodium does not inactivate thrombin (activated Factor II) and has no known effect on platelet function. At the recommended dose, fondaparinux sodium does not affect fibrinolytic activity or bleeding time. In July 2011, a generic version developed by ACL and marketed by Dr. Reddy's Laboratories was launched, followed by an authorised generic from Apotex the next month (August 2011). Collectively the generic fondaparinux products have garnered sales of USD78mn in 2011; meanwhile Arixta sales shrunk by USD70mn to USD259mn in 2011. Currently there are three different products (12 various strengths), distributed by three different companies in the US market. According to IMS data, annual sales of fondaparinux in the US market amounted to USD337mn for 2011. Recent studies suggest benefits of fondaparinux over enoxaparin Using OASIS-5 population data, a recent study showed that fondaparinux was a more cost-effective antithrombotic agent than enoxaparin in ACS, both in the short and in the long term. In addition, another recent study showed fondaparinux can offer substantial economical savings in patients with low or moderate risk ACS when compared to enoxaparin. This favourable effect is not only due to the lower price of fondaparinux, but also to the decrease of costly haemorrhagic complications during hospitalisation. The different scenarios showed that mean savings reached between 51% and 61% of total hospital costs. D. Oral factor Xa inhibitors New anticoagulants Dabigatran etexilate is a direct thrombin inhibitor that reversibly inhibits the active site of thrombin, which is a central player in the coagulation cascade converting fibrinogen to fibrin. Rivaroxaban, apixaban and edoxaban are all factor Xa inhibitors, which bind reversibly to the active site of factor Xa. The bioavailability of dabigatran etexilate is much lower than that of the other three agents, so a higher dose of this agent is required. All four agents are given as a fixed dose, and their anticoagulant effects are so predictable that they do not require routine coagulation monitoring. In total knee or hip replacement, dabigatran etexilate, rivaroxaban and edoxaban are all administered once daily, while apixaban is administered twice daily. In July 2011, the US FDA approved Rivaroxaban, which is marketed under the trade name Xarelto to reduce the risk of blood clots, DVT and PE following knee or hip replacement surgery. Rivaroxaban is a potent and selective oral factor Xa inhibitor. It has a rapid onset of action, a high bioavailability (80%), and a half-life of 4 to 12 hours. Xarelto is marketed in the US by Janssen Pharmaceuticals Inc (owned by Johnson & Johnson [JNJ US, not rated]). In 2011, Xarelto had USD17mn in sales.
Currently there are 3 different products distributed by 3 different companies in the US market The antithrombotic activity of fondaparinux sodium is the result of antithrombin III (ATIII)mediated selective inhibition of Factor Xa
23
Nomura | Alchemia
March 30, 2012
Rivaroxaban studies There have been a number of studies of rivaroxaban. Xarelto is already marketed in Europe and Canada for the treatment of DVT and the secondary prevention of VTE: Einstein-DVT: this was conducted to assess the efficacy and safety of oral rivaroxaban versus an injectable low molecular weight heparin followed by a vitamin K antagonist (warfarin). Bayer reported positive data from the Einstein-DVT and Einstein-Extension studies. Einstein-PE: The recently-released rivaroxaban Einstein-PE Phase III study met its primary efficacy outcome, showing that rivaroxaban was non-inferior to standard therapy in the treatment of pulmonary embolism with or without DVT and secondary prevention of venous thromboembolism. The findings with respect to the primary safety outcome; the combination of major and non-major clinically relevant bleeding were similar in both treatment arms. With regard to major bleeding, rivaroxaban demonstrated superiority versus standard therapy. In addition, Bristol-Myers (BMY US, not rated) and Pfizer (PFE US, not rated) are awaiting FDA approval to launch its drug Eliquis in the US. Eliquis is currently approved and available in Europe to prevent certain blood clots after hip- or knee-replacement procedures; although the companies are seeking FDA approval for its use in relation to the prevention of strokes in people with a heart-rhythm disorder called atrial fibrillation.
What is ACLs generic fondaparinux?

ACLs fondaparinux sodium injection is a Factor Xa inhibitor (anticoagulant) indicated for: 1) prophylaxis of deep vein thrombosis (DVT) in patients undergoing hip fracture surgery (including extended prophylaxis), hip replacement surgery, knee replacement surgery, or abdominal surgery; 2) treatment of DVT or acute pulmonary embolism (PE) when administered in conjunction with warfarin. The doses come as single-dose, prefilled syringes containing 2.5 mg, 5 mg, 7.5 mg, or 10 mg of fondaparinux. Dosing is as follows: Prophylaxis of deep vein thrombosis: Fondaparinux sodium 2.5 mg is given subcutaneously once daily after haemostasis has been established. The initial dose should be given no earlier than 6 to 8 hours after surgery and continued for 5 to 9 days. For patients undergoing hip fracture surgery, extended prophylaxis up to 24 additional days is recommended. In the US, we believe Enoxaparin is not approved for use in patients undergoing hip fracture surgery; Treatment of deep vein thrombosis and pulmonary embolism: Fondaparinux sodium 5 mg (body weight <50 kg), 7.5 mg (50 to 100 kg), or 10 mg (>100 kg) is given subcutaneously once daily. Treatment should continue for at least 5 days until the INR (International Normalised Ratio) blood test of 2 to 3 is achieved with warfarin.
Fondaparinux is indicated for: 1) prophylaxis of deep vein thrombosis (DVT); and 2) treatment of DVT or acute pulmonary embolism (PE)
Market size
The US market for anti-clotting products is in a state of transition with the launch of some generic versions of both enoxaparin and fondaparinux during the past 20 months. According to IMS prescription and sales data, the annual sales for all products in the US amounted to USD3.2bn in 2011. This contracted by 5.0% on the pcp due to the impact of generic competition in enoxaparin. We use IMS to collate data on the US acute clotting and anti-cancer market.
Annual sales for all products in the US amounted to USD3.2bn in 2011
24
Nomura | Alchemia
March 30, 2012
Fig. 17: Channels captured in IMS prescription and sales data

Channels captured in IMS sales data Retail Channels Non-Retail Channels Chain Pharmacies Non-Federal Hospitals Mass Merchandisers Clinics, Federal, HMOs Independent Pharmacies Long-Term Care Foodstores with Pharmacies Home Healthcare Miscellaneous (Prisons, Universities, others) Mail Service Channels captured in IMS prescription data Included Excluded Chain, Independent and Foodstore Pharmacies Dispensing Physicians Discount Houses Hospital Pharmacies, Mass Merchandisers Clinic Pharmacies Mail Service Pharmacies Closed Wall HMOs Long-Term Care Home Healthcare
Source: IMS data, Nomura research
Like many other markets, the United States uses National Prescription Data from IMS to track performance and market share. IMS is a provider of information services for the healthcare industry, covering markets in more than 100 countries around the world. Product substitutability what are the current indications for enoxaparin vs. fondaparinux? Fondaparinux is currently not indicated for patients who require a percutaneous Coronary Intervention (PCI coronary angiogram) as a treatment for cardiac disease: A. Orthopaedic surgery fondaparinux indicated A meta-analysis of four studies (EPHESUS, PENTATHLON 2000, PENTHIFRA and PENTAMAKS) comparing enoxaparin and fondaparinux was performed. Overall, 7344 patients undergoing major orthopaedic surgery of the lower limbs were randomized into the four phase III studies: Fondaparinux reduced the incidence of VTE by day 11 from 13.7% in the enoxaparintreated group to 6.8%, an odds reduction of 55.2%; for proximal DVT, fondaparinux led to an odds reduction of 57.4%. The incidences of fatal and non-fatal pulmonary embolism up to day 49 were low (< 1%) and did not differ between the two groups. Safety analysis showed that there were more adjudicated episodes of major bleeding in the fondaparinux group (2.7%) than in the enoxaparin group (1.7%). In both treatment groups, major bleeding occurred mostly within the first five days after surgery. The difference in major bleeding between the two treatment groups was mainly accounted for by an excess of bleeding with a bleeding index of two or more. Minor bleeding events occurred in 3.0% of patients in the fondaparinux group and in 2.7% in the enoxaparin group. B. Acute coronary Syndromes (Cardiac pain) Fondaparinux efficacious The OASIS 5 trial in non-ST-segment elevation acute coronary syndromes demonstrated that the fondaparinux dose approved for prophylaxis of deep venous thrombosis is as efficacious with respect to ischemic outcomes as therapeutic doses of enoxaparin; fondaparinux, however, was associated with a substantial reduction in major bleeding at 9 days and mortality at 1 and 6 months. C. Percutaneous Coronary Interventions Fondaparinux not indicated The OASIS studies evaluated the efficacy of fondaparinux versus enoxaparin in the acute treatment of patients with unstable angina/non-ST-segment elevation myocardial infarction, with regard to the incidence of death, myocardial infarction, and refractory ischemia as well as safety as defined by the incidence of major bleeds. Fondaparinux (2.5 mg once daily) was as effective as enoxaparin (1 mg/kg bid) for the primary composite efficacy endpoint at 9 days (5.8% and 5.7%, respectively), but was associated with a 48% reduction in major bleeding at 9 days (p < 0.001). This reduction in bleeding is due to the dose and/or properties (i.e., absence of anti-factor IIa activity) of fondaparinux as compared to low-molecular-weight heparin.
There was a significantly higher rate of catheter-related thrombosis in the fondaparinux arm in patients who underwent cardiac catheterization with or without PCI
However, there was a significantly higher rate of catheter-related thrombosis in the fondaparinux arm in patients who underwent cardiac catheterization with or without PCI
25
Nomura | Alchemia
March 30, 2012
However, there was a significantly higher rate of catheter-related thrombosis in the fondaparinux arm in patients who underwent cardiac catheterization with or without PCI (1.3% versus 0.5%, P=0.001). This impacted negatively on the use of fondaparinux in acute coronary syndrome patients requiring revascularization procedures. Snapshot of the US market for the anti-clotting product in 2011 This is shown below.
Fig. 18: Snapshot of the US market for the anti-clotting product in 2011
Anti-clotting products Heparin Enoxaparin Fondaparinux Rivaroxaban
Source: IMS, FDA, Nomura research
Brands na Lovenox Arixtra Xarelto
US launch date 1930's 1993 2003 2011
2011 Prescriptions 952,730 3,071,148 236,629 58,976
2011 Sales (USDmn) 291 2,592 337 17
No of Generics No of Brands 41 0 4 1 2 1 0 1
Approximately 80% of the US anti-clotting market consists of enoxaparin sales, which amounted to USD2.6bn in 2011, according to IMS data. The next most important method of therapy is fondaparinux at 10% of sales, closely followed by heparin at 9% of sales. This is shown in the following chart.
Fig. 19: Composition of the US acute anti-clotting market by USD sales- 2011
Enoxaparin 80%
Fondaparinux 10% Xa inhib. 1% Heparin 9%
The following figure highlights the changing sales dynamics, by month, of anti-clotting products in the US market. In the largest segment, the cannibalisation of Lovenox by generic enoxaparin is clearly apparent. In 2011, sales of Lovenox declined by 54% on pcp, after one full years impact of generic competition. Combined USD sales of enoxaparin (both branded and generic) contracted by 5.7% on pcp in 2011. Meanwhile prescription sales of enoxaparin (both branded and generic) increased by 6.0% on pcp in 2011. This highlights the 11% erosion in average prices caused by the generic enoxaparin competitors in 2011.
Approximately 80% of the US anti-clotting market consists of enoxaparin sales
26
Nomura | Alchemia
March 30, 2012
Fig. 20: Monthly sales in US anti-clotting market

400 350 300 250 200 150 100 50 0 Feb-09
APO Apotex Source: IMS, Nomura research
(USD mn) Heparin Lovenox Enoxaparin Arixtra Fonda. - APO Fonda. - ACL Xarelto
Jun-09
Oct-09
Feb-10
Jun-10
Oct-10
Feb-11
Jun-11
Oct-11
Fondaparinux in the US In the fondaparinux segment, the cannibalisation of Arixtra sales by generic fondaparinux was emerging in 2011. According to IMS data, sales of Arixtra declined by 21% on pcp, after just six months impact of generic competition. The average price of Arixtra increased by 12% on pcp, as GSK prepared for the potential market share loss with total Arixtra prescriptions down 30% on pcp. Combined USD sales of fondaparinux (both branded and generic) increased by 2.2% on pcp in 2011, benefitting from an average price increase of 6.6% on pcp. Meanwhile total prescription sales of fondaparinux (both branded and generic) decreased by 4.1% on pcp in 2011. We believe this may suggest some price sensitivity and product substitutability in the anti-clotting market. In the Heparin segment, annual total prescription sales of Heparin (all generic) increased by 4.1% on pcp in 2011. Heparin sales declined by 11.6% on pcp, according to IMS data. This was driven by strong decline in the average price of Heparin which fell by 15% on pcp. This leads to the following US market shares of branded and generic anti clotting products.
Fig. 21: US acute anti-clotting market share - 2011 (USD terms) by brand
Enoxaparin 47%
The market is historically split between the US and Rest of World (ROW) in the proportion 60;40
Fonda. - APO 2% Fonda. - ACL 0% Heparin 9%
Arixtra 8% Xarelto 1%
APO Apotex Source: IMS data, Nomura research
Lovenox 33%
The market is historically split between the US and Rest of World (ROW) in the proportion 60:40. This is seen in the following figure, where in 2010 (pre-generic entry), the US comprised c60% of the global fondaparinux market.
27
Nomura | Alchemia
March 30, 2012
Fig. 22: US acute anti-clotting market 2011 (USD3.2bn)

3,000 2,500 2,000 1,500 1,000 500 0 Heparin Enoxaparin Fondaparinux Xa inhib. 291 337 17 (USDmn) 2,592
Fig. 23: Global Fondaparinux market 2010 (USD0.48bn)

EU 33%
Emerging Markets 3% ROW 5%
US 59%
Source: GSK data, Nomura research
The dominant product, Lovenox, has shown a decline in sales over the past three years.
Fig. 24: US acute anti-clotting market (USDmn) 2009 to 2011
300,000,000 250,000,000 200,000,000 150,000,000 100,000,000 50,000,000 0 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Arixtra Heparin
Source: Dr Reddys, Nomura research
(USD Sales)
Enoxaparin Lovenox
Fonda. - APO Xarelto
Fonda. - ACL
What have been Arixtras sales been since 2004?

In September 2004, for a cash consideration of GBP297mn, GSK acquired Fraxiparine, Fraxodi and Arixtra and related assets including a manufacturing facility from Sanofi. Since then Arixtras CAGR until 2010 has been 75%. This is shown in the following figure. We note that 2011 Arixtra sales declined on pcp due to the release of Apotexs generic fondaparinux product entering the US market.
Fig. 25: Sales of GSKs Arixtra (branded fondaparinux) 2004 to 2010
350 300 250 200 150 100 50 0 2004A 2005A US 2006A EU 2007A 2008A 2009A Emerging Markets 2010A ROW 2011A (GBPmn)
Arixtras CAGR until 2010 has been 75%
Source: GSK data, Nomura research
28
Nomura | Alchemia
March 30, 2012
How have ACLs sales gone in the US market?

ACLs generic fondaparinux was launched in July 2011 with its marketing partner Dr Reddys. Year to date FY12, according to IMS, ACLs generic fondaparinux has market share of 10% of the market by revenue, and 9% share of total prescriptions. Overall ACLs fondaparinux has had a solid start, needs to continue to grow There are three producers of fondaparinux in the US market, including ACLs generic fondaparinux. The largest supplier is GlaxoSmithKline with its branded product Arixtra. This product was commercialised a year after its patent expired in 2002. Despite this, it had eight years of exclusivity due to the difficulty for generics to replicate the drug synthesis. In August 2011, another generic version developed by Apotex was launched, a month after ACLs product.
Fig. 26: US Fondaparinux market 2011 sales (USDmn)
Anti-clotting products Arixtra Generic Fondaparinux Generic Fondaparinux
Manufacturer GSK Alchemia (ACL) Apotex (APO)
US launch date 2003 Jul-11 Aug-11
2011 Prescriptions 173,945 8,775 53,909
Avg price (USD) 1,492 1,571 1,187
2011 Sales (USDmn) 259 14 64
Share (%) 76.9 4.1 19.0
Apotexs product is an authorised generic; as we understand, it has not filed an ANDA. That said, it is not listed on the FDAs authorised generic database. Authorised generics are prescription drugs produced by brand pharmaceutical companies and marketed under a private label, at generic prices. Authorized generics compete with generic products in that they are identical to their brand counterpart in both active and inactive ingredients; whereas according to the U.S. Food and Drug Administration's Office of Generic Drugs, generic drugs are required to contain only the identical active ingredients as the brand. The branded fondaparinux, Arixtra, had the largest market share of the fondaparinux segment of the US anti-clotting market in USD in 2011. This is seen in the following figure.
Fig. 27: US Fondaparinux market share by USD sales 2011
Fondaparinux ACL 4%
Year to date FY12, according to IMS, ACLs generic fondaparinux has market share of 10% of the market by revenue, and 9% share of total prescriptions
Arixtra 77%
Fondaparinux APO 19%
Like many other markets, the United States uses National Prescription Data from IMS to track performance and market share. IMS is a provider of information services for the healthcare industry, covering markets in more than 100 countries around the world. There are different types of prescription data, two of which are most relevant to generic fondaparinux. A. Monthly new prescriptions New to Brand Prescriptions (NBRx or NTBRx) measures prescriptions written for patients commenced on a product for the first time, including new therapy starts and switches from other products. In the early stages of a products life, NBRx is the most important measure, since it isolates instances in which a physician and patient make a treatment decision and a choice between product alternatives. NBRx is therefore a leading early indicator of likely sales performance.
In 2011, the US Fondaparinux market was worth USD337mn
29
Nomura | Alchemia
March 30, 2012
Fig. 28: US Fondaparinux market monthly new prescriptions (2009-2011)

(Monthly new 16,000 'scrips) 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Feb-09 Jun-09 Oct-09 Arixtra
Feb-10
Jun-10
Oct-10
Feb-11
Jun-11
Oct-11 Total
Fondaparinux - APO
Fondaparinux - ACL
Up to end-July 2011, Arixtras average for new prescriptions was over 12,200 per month. Since the entry of generic competition, its monthly average has dropped to approximately 3,600 per month. Apotexs generic version of Fondaparinux has gained the greatest proportion of Arixtras forgone share at c5,500 per month since its launch. This compares with ACLs Fondaparinux which has a six month average of 1,200 per month. We note in January 2012 ACLs fondaparinuxs monthly new prescriptions surpassed that of Arixtra. This is seen in the following figure.
Fig. 29: US Fondaparinux market monthly new prescriptions (2011)
14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Jan-11 Arixtra
Apotexs generic fondaparinux and ACLs generic fondaparinux have both grown strongly in terms of new monthly prescriptions since launch
(Monthly new 'scrips)
May-11 Fondaparinux - APO
Sep-11 Fondaparinux - ACL
Jan-12
This leads to the share of FY12 year to date new prescriptions as seen in the following figure. Despite only being launched in August 2011, Apotexs generic fondaparinux already has a 48% share of new prescriptions for the FY12 year to date, thereby eclipsing Arixtra, which has lost its monopoly and currently has 41% of the new prescriptions for the FY12 year to date. ACLs generic fondaparinux has 11% market share of the new prescriptions for the FY12 year to date.
Fig. 30: US Fondaparinux market share monthly new prescriptions (FY12 YTD)
Fonda. - APO 48%
Fonda. - ACL 11% Arixtra 41%

30
Nomura | Alchemia
March 30, 2012
However, if we look at the trend in prescription data, we see that ACLs generic version of fondaparinux has 22% share of the monthly new prescriptions market as of January 2012. This compares to no market share as of June 2011. We believe this trend can continue.
Fig. 31: US Fondaparinux market share monthly new prescriptions (as of June 2011)
Despite only being launched in July 2011, ACLs generic fondaparinux already has a 22% share of new prescriptions
Fig. 32: US Fondaparinux market share monthly new prescriptions (as of January 2012)
Fonda. ACL 22%
Arixtra 100%
Fonda. APO 59%
Arixtra 19%
B. Total prescriptions Total Prescriptions (TRx) is the sum of NBRx and Continuation on Brand prescriptions (CBRx). CBRx measures patients continuation on a product, from both new and refilled prescriptions. In the longer term, TRx is important, since this provides measurement of the total market share for a product. Both Apotex and ACLs generic fondaparinux products have grown strongly in terms of total monthly prescriptions since launch, driven by solid growth in new monthly prescriptions. This is shown in the following figure.
Fig. 33: US Fondaparinux market monthly total prescriptions (2009-2011)
25,000 20,000 15,000 10,000 5,000 0 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Total (Monthly total 'scrips)
Arixtra
Fondaparinux - APO
Fondaparinux - ACL
Whilst sales growth of both generic fondaparinux products in total prescriptions was strong in the last six months of 2011, ACLs growth has not been as rapid as Apotexs growth. Apotexs fondaparinux currently has a higher market share than Arixtra.
31
Nomura | Alchemia
March 30, 2012
Fig. 34: US Fondaparinux market monthly total prescriptions (2011) (Monthly total 25,000 'scrips)
20,000 15,000 10,000 5,000 0 Jan-11 Arixtra
Jan-12
After launch, a new entrants share of TRx should lag behind its share of NBRx. Over time, the share of TRx should grow and approximate the share of NBRx as the continuing treatment prescriptions accumulate. This leads to the 2012 YTD share of monthly total prescriptions as seen in the following figure. Apotexs generic fondaparinux has the largest market share of the US fondaparinux market at 50%, despite being launched in August 2011. ACLs generic fondaparinux already has a 9% share of total prescriptions.
Fig. 35: US Fondaparinux market share monthly total prescriptions (FY12 YTD)
Fonda. - APO 50%
ACLs generic fondaparinux already has a 9% share of total prescriptions
Fonda. - ACL 9%
Arixtra 41%
However, if we look at the trend in prescription data, we see that generic fondaparinux has built to 17% share of the monthly total prescriptions market as of January 2012. This compares to no market share as of June 2011. We believe this trend can continue.
Fig. 36: US Fondaparinux market share monthly total prescriptions (as of June 2011) Fig. 37: US Fondaparinux market share monthly total prescriptions (as of January 2012)
Fonda. ACL 17%
Arixtra 100%
Fonda. APO 64% Arixtra 19%
32
Nomura | Alchemia
March 30, 2012
C. What is generic fondaparinuxs price point? On IMS data, which we acknowledge is not comprehensive, we note that generic fondaparinux currently has a lower price point than the branded proposition in the market. Whilst we note that the IMS data is not comprehensive, we believe it does give some insight into trends in pricing.
Fig. 38: US Fondaparinux market average price per prescription (FY12 YTD)
2,500 2,000 1,500 1,000 500 0 Arixtra
Note price per prescription is for 10 vials of product Source: IMS data, Nomura research
(USD)
2,150 Average 1,178 1,490
Fondaparinux - APO
Fondaparinux - ACL
As can be seen in the preceding figure, Arixtras average price for the FY12 year to date is USD2,150 (based on IMS data). This is 83% higher than Apotexs average price of USD1,178. ACLs average price of USD1,490 is 7% below the market average price. We believe the pricing for generic products is generally accepted to be below the market average for a number of reasons: Rapid market share gains: Manufacturers of the generic products are keen to build market share quickly to generate an adequate return on their investment before price erosion becomes too great. GPOs: In the US, fondaparinux is sold into the hospital pharmacies through the Group Purchasing Organisations, or GPOs, and that is a very concentrated market. We believe about seven or eight GPO's cover about 85% of all hospital purchases, including drugs. These GPOs generally require discounts in order to stock a new product. As can be seen below, Apotexs generic fondaparinux price based on IMS data has been the lowest of the new entrants. Not surprisingly, it has garnered a higher market share than the other new entrant. ACLs generic fondaparinux price has increased closer to Arixtras average price.
Fig. 39: US Fondaparinux market new entrant pricing (2011)
3,000 2,500 2,000 1,500 1,000 500 0 Jan-11 Arixtra
ACLs average price is USD1,490 is 7% below the market average price
(USD avg prices)
Jan-12
In 2011, we note that Arixtras average price increased by 30% on pcp, in anticipation of the entry of the generic competition. In 2010, Arixtras average price was USD1,336. Therefore, Apotexs generic fondaparinux average price has undercut Arixtras by 12%. Moreover, ACLs average price is c11% above Apotexs price as of January 2012, according to IMS data.
We would expect average prices to increase going forward, and hence profit share for ACL should also increase
33
Nomura | Alchemia
March 30, 2012
Fig. 40: US Fondaparinux market new entrant pricing (2009-2011)

3,000 2,500 2,000 1,500 1,000 500 0 Feb-09 Jun-09 Arixtra
(USD avg prices)
Oct-09
Feb-10
Jun-10
Oct-10
Feb-11
Jun-11
Oct-11
Fondaparinux - APO
Fondaparinux - ACL
We would expect average prices to increase going forward, and hence profit share for ACL should also increase. We explore the profit share relationship between ACL and Dr Reddys in more detail further in this note. D. How does this translate into revenues and total market share? The strong growth of Apotexs generic fondaparinux in new and total prescriptions since its launch in August 2011 has seen it overtake Arixtra in terms of having the highest monthly revenues since October 2011.
Fig. 41: US Fondaparinux market Monthly revenues (2009-2011) (USD)
40 35 30 25 20 15 10 5 0 Feb-09 Jun-09 Arixtra
(USD mn)
Oct-09
Feb-10
Jun-10
Oct-10
Feb-11
Jun-11
Oct-11 Total
Fondaparinux - APO
Fondaparinux - ACL
ACLs generic fondaparinux currently has the smallest share of revenues in the US Fondaparinux market. We expect the market share of prescriptions and revenue to grow. As the market increasingly genericises then we believe market shares will converge.
Fig. 42: US Fondaparinux market Monthly revenues (2011) (USD)
40 35 30 25 20 15 10 5 0 Jan-11 Arixtra
As the market increasingly genericises, we believe market shares will converge
(USD mn)
Sep-11
Jan-12 Fondaparinux - ACL
This leads to the following revenue shares for the US Fondaparinux market for FY12 YTD. As we expected given the length of time it has been in the market, the branded
34
Nomura | Alchemia
March 30, 2012
product Arixtra has dominant market share at 51%, followed by Apotexs generic product with 39% and ACLs generic product with 10%.
Fig. 43: US Fondaparinux market share (FY12 YTD)
Fonda. APO 39%
Fig. 44: US Fondaparinux market revenues (FY12 YTD)

120 100 80 60 40 19 (USDmn) 98 76
Arixtra 51%
Fonda. ACL 10%
20 0 Arixtra Fonda. - APO
Fonda. - ACL
However, if we look at the trend in market share by monthly revenue, we see that Apotexs generic fondaparinux has 46% share of monthly revenue as of January 2012 and ACLs generic fondaparinux has 22% share of monthly revenue as of January 2012. This compares to no market share in June 2011. We believe this trend can continue.
Fig. 45: US Fondaparinux market total market share by revenues (June 2011) Fig. 46: US Fondaparinux market total market share by revenues (January 2012)
Fonda. ACL 22%
Arixtra 100%
Fonda. APO 46% Arixtra 32%
What has been the issue with ACLs fondaparinux growth in the US market? We note that near-growth in the US of ACLs fondaparinux has been below that of Apotexs fondaparinux. We believe this is for a number of reasons. Dr Reddys initially targeting the US retail space According to ACL management, half of Arixtra sold in the US is sold in the retail segment. We believe patients tend to buy the drug, then take it home with them postsurgery, or they buy the drug at the pharmacy to be administered while they are in hospital. Hence, there is a small group of sales people who are talking to the larger potential contracts to buy the generic drug. According to ACL management, the retail segment of the US fondaparinux market (nonhospital) is known to be relatively higher priced and profitable compared with the nonretail (hospital) segment, and Dr Reddys has achieved a dollar market share of over 30% in the retail segment as of February 2012. According to ACL management, the dollar value of the retail market for fondaparinux has remained at USD240m through 2011, maintained by an increase in prescription numbers after the introduction of lower price generics. We believe Dr Reddy's traditional strength is actually in the solid dosage (pill) area. This is addressed by retail pharmacies. That said, the company has a presence in hospitals, as solid dosage forms are used in hospitals. We believe Dr Reddy's has attempted to address the retail segment first, but will be moving more into the hospital space.
Half of Arixtra sold in the US is sold in the retail segment
35
Nomura | Alchemia
March 30, 2012
Manufacturing We believe producing at scale is a key challenge in making fondaparinux. ACL management has stated that in going from a hundred gram scale to kilogram scale with fondaparinux that there were issues in terms of different impurity profiles that ACL had to deal with either through purification or preventing their formation. Hence, fondaparinux is a very complex molecule to manufacture. ACL management have stated that they have raw API that is ready for purification. They have also previously stated that at the moment the bottleneck is in the purification steps but more capacity has been added. ACL management have stated that there is a threemonth cycle from advanced intermediates through to finished material. We believe that should these stated bottlenecks be addressed in the near future, then there would be more product on market, for both the retail and hospital channel. Going forward, we will be watching for these issues to be resolved, which should lead to an increase in market share for ACL in the total fondaparinux market. What are the other potential fondaparinux products in the market? These include: Apicore: Privately owned Apicore filed a US drug master file (DMF) in July 2010 to the US FDA. We are unaware as to whether Apicore has subsequently filed an Abbreviated New Drug Application (ANDA); and Reliable Biopharmaceutical: Private-equity owned Reliable Biopharmaceutical filed a US drug master file (DMF) in July 2011 to the US FDA. We are unaware as to whether Reliable Biopharmaceutical has subsequently filed an Abbreviated New Drug Application (ANDA). ACL management have stated that they believe Reliable also filed a patent on an improved step in fondaparinux synthesis. A Drug Master File is the paperwork required if an Active Pharmaceutical Ingredient (API) is to be used in a product in the US. The FDA requires a manufacturing process and the analysis of the final drug substance in the Drug Master File before an ANDA can be filed. The amount of material that is filed in a DMF allows the company to manufacture batches at ten times that scale. If the batches are above that ten-fold increase in manufacturing capacity in the batch, then the company would have to submit more data and amend the DMF. We believe a filing for an ANDA approval would likely be the start of a 2-3 year approval process, in line with the timeline that ACL went through. Where else will ACL sell its product? ACL is well positioned to benefit from the progression of Dr Reddys Laboratories marketing applications for generic fondaparinux outside United States. Dr Reddys has a right of first refusal to market generic fondaparinux in Europe once data exclusivity expires in 2012. It is expected filing for approval in Europe will be in 2012.
We are unaware as to whether Apicore or Reliable Biopharmaceutical has filed an Abbreviated New Drug Application (ANDA)
What is the nature of the licensing agreement with Dr Reddys Laboratories?

Under the terms of its agreement with Dr Reddys Laboratories, ACL will receive 50% of operating profits from US sales of generic fondaparinux indefinitely. Dr Reddys manufactures the fondaparinux product. We believe ACLs revenue is calculated on the annual operating profits on US sales at the end of each quarter. ACL is likely to be informed of the actual amount of each subsequent quarter in line with when Dr Reddys releases its financial accounts. ACL management have stated publically that the company will be paid quarterly in arrears. Hence, ACL will likely have a P&L profit a quarter before it books cash flow. In the following figure we illustrate our assumptions regarding the USD value of ex-US generic fondaparinux sales.
Dr Reddys manufactures the fondaparinux product
36
Nomura | Alchemia
March 30, 2012
Fig. 47: Forecast global sales of generic fondaparinux

200 150 100 50 0 2012F 2014F 2016F 2018F 2020F 2022F 2024F 2026F 2028F 2030F 2032F 2034F Fondaparinux market revenue (LHS) Growth (RHS)
(USDmn)
(%)
100 80 60 40 20 0 (20) (40) (60)
What does it mean for ACL?

Our generic fondaparinux earnings assumptions are based on the global deal with Dr Reddys. Current size of the market: We believe the size of the US market in FY12F will be USD324mn. We assume EU sales for generic fondaparinux from 2HFY13. We forecast price declines of 5% per annum; Market for ACLs fondaparinux in the US market: We take our data from the IMS in terms of current market share. We believe ACLs market share is likely to increase to 30% over the next four years.
Fig. 48: Forecast growth in operating profit
70 60 50 40 30 20 10 0 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F Fondaparinux operating profit in US market (USDmn) (LHS) Fondaparinux operating profit margin in US market (%) (RHS) (USDmn) (%) 70% 60% 50% 40% 30% 20% 10% 0%
We believe ACLs market share is likely to increase to 30% over the next 4 years
Market share in the EU: We assume ACLs generic fondaparinux will achieve 19.6% market share of total scripts in FY14F. We assume its peak market share is 30% in the EU and 30% in ROW. Pricing: We assume the average price per script will be USD1,642 in FY12F. This is forecast to decline by 5% per annum; Potential market size: Based on the variables cited above, we estimate the potential market size for the product at USD172mn by FY16F, five full years post launch. This equates to 35% of the forecast value of the global fondaparinux market, assuming the fondaparinux market grows at a future CAGR of -3%; Peak sales: We believe peak sales will occur in 2017. Royalty: We assume ACL receives a 50% share of operating profit, based on net sales for generic fondaparinux. Valuation of the opportunity: Hence, we have developed a NPV of AUD0.62 per share for ACLs generic fondaparinux opportunity.
We have developed a NPV of AUD0.62 per share for ACLs generic fondaparinux opportunity
37
Nomura | Alchemia
March 30, 2012
HyACT Targeting cancer

Colorectal cancer (CRC) is one of the most prevalent cancers worldwide and remains a leading cause of mortality. ACL is developing a targeted anti-cancer therapy. Global incidence Colorectal cancer is the third most common cancer in men (in 2008, 663 000 cases, 10.0% of the total) and the second in women (in 2008, 571 000 cases, 9.4% of the total) worldwide. Almost 60% of the cases occur in developed regions. Incidence rates vary ten-fold in both sexes worldwide, the highest rates being estimated in Australia/New Zealand and Western Europe, the lowest in Africa (except Southern Africa) and SouthCentral Asia, and are intermediate in Latin America. Incidence rates are substantially higher in men than in women (overall sex ratio of the ASRs 1.4:1).
Fig. 49: World estimated colorectal cancer Incidence, all ages: both sexes (2008A)
Estimated numbers (thousands) Men Cases Deaths 663 389 274 79 125 20 182 320 165 154 24 61 14 80 5-year prev. 1765 1141 624 245 289 27 507 Women Cases Deaths 571 338 232 74 95 16 151 288 154 134 26 48 11 68 5-year prev. 1495 968 526 227 219 21 417 Both sexes Cases Deaths 5-year prev. 1234 608 3260 727 319 2109 506 288 1150 153 50 472 220 109 508 36 25 48 333 148 924
CRC is the third most common cancer in men and women and the second-leading cause of cancer-related death in the United States
World More developed regions Less developed regions United States of America China India European Union (EU-27)
Source: Globocan database, Nomura research
Global incidence About 608 000 deaths from colorectal cancer occurred worldwide in 2008, accounting for 8% of all cancer deaths, making it the fourth most common cause of death from cancer. As observed for incidence, mortality rates are lower in women than in men, except in the Caribbean. There is less variability in mortality rates worldwide (six-fold in men, five-fold in women), with the highest mortality rates in both sexes estimated in Central and Eastern Europe (20.1 per 100,000 for male in 2008, 12.2 per 100,000 for female in 2008), and the lowest in Middle Africa (3.5 and 2.7, respectively). US incidence CRC is the third most common cancer in men and women and the second-leading cause of cancer-related death in the United States, with an estimated 103,170 newly diagnosed colon cancer cases and 51,960 colon and rectal cancer deaths in CY12 (estimated). Incidence has been declining in the US, as latest data shows.
Fig. 50: Incidence of Colorectal cancer, US
155 150 145 140 135 130 1999A 2000A 2001A 2002A Incidence (LHS) 2003A 2004A 2005A 2006A % growth on pcp (RHS) 2007A (000s) (%) 6 4 2 0 -2 -4
Source: CDC data, Nomura research
The lifetime risk of developing the disease is as high as 6% in the American population. The lifetime risk of colorectal cancer in the US is c5%, with the incidence in the population over 75 years at about 40 to 50 per 100,000 persons. This is compared to an incidence of 15 to 20 per 100,000 in persons 6065 years. In the US, the annual
38
Nomura | Alchemia
March 30, 2012
incidence of colon cancer is decreasing slowly, likely in part due to the USs screening effort and possibly to related lifestyle changes. Aetiology of CRC Colorectal tumours arise through a multistep progression involving cellular mutation, which leads to activation of oncogenes (cancer-causing genes) coupled with the inactivation through mutation of tumour suppressor genes. This leads to the development of a non-malignant tumour, which then progresses to a malignant cancer. In essence, there is a transition from normal colonic mucosa via polyp formation, with consequent progression to colon cancer. Data from observational studies estimate this time span to be 10 to 15 years, although it may be much more rapid in some hereditary polyposis syndromes. Some individuals may go directly from normal appearing colonic mucosa to cancer. This type of transition had traditionally been associated with certain hereditary/familial syndromes. Adenomas or premalignant lesions are completely curable via endoscopic removal. However, even those patients diagnosed with early asymptomatic disease are more likely to have localized or at least regional cancer which has an excellent five-year survival rate (>90%). Diagnosis of CRC To diagnose colorectal cancer, the following tests are usually performed: Physical exam and history: An exam of the body to check general signs of health, including checking for signs of disease, such as lumps or anything else that seems unusual. A history of the patients health habits and past illnesses and treatments will also be taken. Digital rectal exam: An exam of the rectum. The doctor or nurse inserts a lubricated, gloved finger into the rectum to feel for lumps or anything else that seems unusual. Faecal occult blood test: A test to check stool (solid waste) for blood that can only be seen with a microscope. Small samples of stool are placed on special cards and returned to the doctor or laboratory for testing. Barium enema: A series of x-rays of the lower gastrointestinal tract. A liquid that contains barium (a silver-white metallic compound) is put into the rectum. The barium coats the lower gastrointestinal tract and x-rays are taken. This procedure is also called a lower GI series. Sigmoidoscopy: A procedure to look inside the rectum and sigmoid (lower) colon for polyps (small pieces of bulging tissue), abnormal areas, or cancer. A sigmoidoscope is inserted through the rectum into the sigmoid colon. A sigmoidoscope is a thin, tube-like instrument with a light and a lens for viewing. It may also have a tool to remove polyps or tissue samples, which are checked under a microscope for signs of cancer. Colonoscopy: A procedure to look inside the rectum and colon for polyps, abnormal areas, or cancer. A colonoscope is inserted through the rectum into the colon. A colonoscope is a thin, tube-like instrument with a light and a lens for viewing. It may also have a tool to remove polyps or tissue samples, which are checked under a microscope for signs of cancer. Biopsy: The removal of cells or tissues so they can be viewed under a microscope by a pathologist to check for signs of cancer. Virtual colonoscopy: A procedure that uses a series of x-rays called computed tomography to make a series of pictures of the colon. A computer puts the pictures together to create detailed images that may show polyps and anything else that seems unusual on the inside surface of the colon. This test is also called colonography or CT colonography. Doctors describe colorectal cancer by the following stages: Stage 0: The cancer is found only in the innermost lining of the colon or rectum. Carcinoma in situ is another name for Stage 0 colorectal cancer; Stage I: The tumour has grown into the inner wall of the colon or rectum. The tumour has not grown through the wall;
The lifetime risk of developing CRC is as high as 6% in the American population
39
Nomura | Alchemia
March 30, 2012
Stage II: The tumour extends more deeply into or through the wall of the colon or rectum. It may have invaded nearby tissue, but cancer cells have not spread to the lymph nodes; Stage III: The cancer has spread to nearby lymph nodes, but not to other parts of the body; Stage IV: The cancer has spread to other parts of the body, such as the liver or lungs. Recurrence: This is cancer that has been treated and has returned after a period of time when the cancer could not be detected. The disease may return in the colon or rectum, or in another part of the body.
Treatment of colon cancer

Surgery Surgery is the primary form of treatment and results in cure in approximately 50% of the patients. Standard treatment for patients with colon cancer has been open surgical resection of the primary and regional lymph nodes for localized disease. Surgery is curative in 25% to 40% of highly selected patients who develop resectable metastases in the liver and lung. Adjuvant Chemotherapy Chemotherapy is used, depending upon the stage of the cancer: Stage II: The potential value of adjuvant chemotherapy for patients with stage II colon cancer is controversial. Stage III: For Stage III CRC, adjuvant chemotherapy is used. oxaliplatin, leucovorin, and fluorouracil [5-FU]) or versions of this are used. For instance, in the FOLFOX4 regimen, oxaliplatin; leucovorin, and 5-FU are used. Stage IV: In Stage IV and Recurrent Colon Cancer, adjuvant chemotherapy is used. This includes folic acid, 5-FU, irinotecan, Capecitabine and Oxalipatin. For instance, the FOLFIRI regimen (folic acid, 5-FU, and irinotecan) includes irinotecan, leucovorin, and 5-FU. All in all, there are seven currently active and approved drugs for patients with metastatic colorectal cancer in the US. These include 5-FU, Capecitabine, irinotecan, Oxaliplatin, Bevacizumab, Cetuximab and Panitumumab. Cancer stem cells Recently, research has focused on the theory that CRC is driven by transformed cancer stem cells (i.e. early-stage cancer cells). Cancer specialists now possess a variety of drugs capable of inducing tumour responses in patients with CRC. However, advanced colorectal tumours (which comprise a large number of cancer stem cells) are often resistant to these therapies. Hence, treatments that preferentially target cancer stem cells may serve as potential targets in developing novel therapeutics specifically targeting CRC stem cells and hold promise for curative approaches to patients with advanced CRC. CD44 is thought to be a marker of cancer stem cells, so targeting this may target cancer stem cells, and well as more differentiated cancer cells. ACLs HAIriontecan preferentially targets CD44.
Chemotherapy is used depending upon the stage of the colorectal cancer
40
Nomura | Alchemia
March 30, 2012
The potential opportunity HA/irinotecan

What is CD44? In many cancers of epithelial origin there is an up-regulation of CD44, a receptor that binds hyaluronic acid (hyaluronan or HA). In other cancers, HA in the tumour matrix is over-expressed. Both CD44 on cancer cells and HA in the matrix have been targets for anti-cancer therapy.
Fig. 51: Clinical trials of antibody anti-CD44 conjugates
Antibody U36 BIWA 4 BIWA 4 BIWA 4 BIWA 4 BIWA 4 BIWA 4 Drug Re-186 Tc-99m Re-186 Re-186 Mertansine Mertansine Mertansine Injection Method Single intravenous Single intravenous Dose escalation Single intravenous Dose escalation Dose escalation Dose escalation Head and Neck Squamous Cell Carcinoma Head and Neck Squamous Cell Carcinoma CD44v6 Positive Metastatic Breast Cancer Cancer Type Head and Neck Squamous Cell Carcinoma Head and Neck Squamous Cell Carcinoma Head and Neck Squamous Cell Carcinoma Early Stage Breast Cancer Effect Stable disease in 5 of 9 patients, mild myelotoxicity Tumor targeting Stable disease in 3 of 6 patients, limiting myelotoxicity Moderate tumor identification, no correlation with CD44v6 expression Moderate disease stabilization, skin toxicity Low interpatient pharmacokinetic variability, skin toxicity Stable disease in 12 of 24 patients, dose limiting toxicity
Even though CD44 is expressed in normal epithelial cells and HA is part of the matrix of normal tissues, selective targeting to cancer is possible
Even though CD44 is expressed in normal epithelial cells and HA is part of the matrix of normal tissues, selective targeting to cancer is possible. This is because macromolecular carriers predominantly connect and deliver their payload into the tumour and not normal tissue; thus CD44-HA targeted carriers administered intravenously localize preferentially into tumours. In summary, several intrinsic characteristics of HA highlighted its potential as a drug delivery vehicle: The nature of HA makes it a vehicle for the delivery of smaller molecules; There is up-regulation and activation of the HA receptor CD44 on malignant cancer tissue. An active CD44 within the tumoural environment mediates HA internalisation and HA is non-immunogenic and considered by regulatory bodies as a biologically inert compound. Hence, there is a potential opportunity to target the HA tumour matrix to provide a sustained drug source within the tumour. There have been a number of Targeted Drugs and Drug Carriers trials using HA.
Fig. 52: Targeted drugs and drug carriers in vitro
Carrier LMW-HA HMW-HA HMW-HA HMW-HA HMW-HA LMW-HA, HMW-HA HMW-HA Fe2O3 Particle HPMA Polymer, LMW-HA Liposome HA Oligos HMW-HA PLGA Particle
Irinotecan is a standard therapy for patients with metastatic disease who have failed 5Fluorouracil (5-FU)-based therapy
Drug Paclitaxel Butyrate Paclitaxel Paclitaxel Carborane siRNA Peptide Doxorubicin Doxorubicin Doxorubicin
Cancer targeted mammary, colon, ovarian mammary, liver, non-small cell lung bladder, ovarian ovarian colorectal, mammary, ovarian, transitional cell colon alveolar squamous mammary, colon, ovarian melanoma breast
Effect Cytotoxicity, CD44 specific uptake Inhibited proliferation, CD44 specific uptake Cytotoxicity Cytotoxicity CD44 specific uptake CD44 specific uptake, gene silencing Peptide internalization Cytotoxicity, CD44 specific uptake Cytotoxicity, CD44 specific uptake Cytotoxicity, CD44 specific uptake
What is irinotecan? Iriontecan is a semisynthetic camptothecin derivative that works by inhibiting the topoisomerase 1 enzyme, which is involved in cancer cell replication. irinotecan is a standard therapy for patients with metastatic disease who have failed 5-Fluorouracil (5-FU)-based
41
Nomura | Alchemia
March 30, 2012
therapy. Single-agent irinotecan can be given according to a variety of schedules, including 350 mg/m2 every 3 weeks, which demonstrates similar efficacy to other alternatives.
Fig. 53: Current 1st line chemotherapy treatments for metastatic CRC
Contain IR 13%
Fig. 54: Current 2nd line chemotherapy treatments for metastatic CRC
Other 27%
Fig. 55: Current 3rd line chemotherapy treatments for metastatic CRC
Contain IR 30%
Other 87%
Contain IR 73%
Other 70%
IR= irinotecan Source: MEDACorp survey August 2010, Nomura research
What is the HyACT therapy? In an attempt to increase the benefit associated with irinotecan-based treatment and/or to reduce the dose-limiting toxicity often associated with this therapy, irinotecan has been formulated with the naturally ubiquitous polysaccharide, hyaluronan (HA), resulting in ACLs proprietary product (HA-irinotecan). This process is called HyACT. This product utilises the physiochemical and biologic properties of HA as a macromolecular carrier of drugs to solid tumours. After intravenous administration, the HA-drug combination enters the tumour and aggregates thereby forming a vascular microembolism within the tumour where the intratumoural drug depot persists, increasing drug accumulation and retention. The increased intra-tumoural drug concentration enables the increased internalization of the anti-cancer agent via a CD44-mediated mechanism, ultimately enhancing efficacy. A secondary effect is the diversion of the drug from healthy tissue leading to a reduction in some commonly observed treatment toxicities. Phase II clinical trial in CRC In Phase II, the primary endpoint was any late-form grade 3 or grade 4 diarrhoea at any cycle during therapy, where sample size power calculations were based on an incidence of 30% grade 3/4 diarrhoea in the control arm (based on literature estimates) versus 5% in the HA-irinotecan arm (based on an incidence of 8% in the phase I study). Late-form diarrhoea was considered to be >24 h post drug infusion. Progression-free survival was considered as progressive disease on radiological assessment or death from any cause. PFS was determined for each patient as the number of days from Day 1, Cycle 1 (D1C1) to the date of progression. Survival for each patient was defined as the number of days from the date of D1C1 to the date of death. For patients alive at study follow-up, the time was from the date of D1C1 to the date of the last follow-up assessment. Results of the Phase II clinical trial This study failed to meet its primary end-point due to the lack of a significant difference between the study treatment groups. This is because, compared to the grade 3 or 4 diarrhoea levels reported in the literature (1641%), this study presented a low overall incidence of late-form diarrhoea. Due to improved methods of treating gastrointestinal toxicities, the best comparator study is the recently completed EPIC trial where 16% of patients who received irinotecan according to the same schedule (350 mg/m2 q3w) experienced grade 3 or 4 diarrhoea. This percentage is very similar to the incidence observed in the HA-irinotecan arm. However, the median progression-free survival was 5.2 months for HA-irinotecan patients compared with 2.4 months for those receiving irinotecan alone (P = 0.02). When adjusted for 12 baseline prognostic factors, the
After intravenous administration, the HA-drug combination enters the tumour and aggregates thereby forming a vascular microembolism within the tumour where the intra-tumoural drug depot persists, increasing drug accumulation and retention
42
Nomura | Alchemia
March 30, 2012
difference remained significant (P = 0.01). The median time to treatment failure was 4.0 versus 1.8 months (P = 0.01) months, again favouring HA-irinotecan-treated patients. There was no statistically significant difference in median overall survival of HAirinotecan (10.1 months) versus irinotecan-treated (8.0 months) patients (P = 0.2).
Phase III trial in CRC

Following the Phase II trial, it was decided to progress to a Phase III clinical trial. The trial design was a randomised (1:1) double-blind treatment trial regimen. The primary completion date is January 2014. There will be monitoring to 18 months postrandomization for 390 patients. Progression Free Survival (PFS) over 20 months is the primary endpoint. ACL management have stated that they expect data to be available after 350 events (disease progression or patient death). This is estimated to be in 3QCY13. Patients are eligible if they had metastatic CRC, and were 2nd/3rd line irinotecan nave. The trial centres are Australia, Bulgaria, Poland, Serbia, Russia, Ukraine and the United Kingdom. The dosing regimen is: 1. Active Comparator arm A. irinotecan (180 mg/m2) or HA-irinotecan (180 mg/m2), IV, over 90 minutes, day 1 (in patients > 75 years of age, the irinotecan and HA-irinotecan dose in must be reduced to 150 mg/m2); B. Leucovorin, 400 mg/m2, or levoleucovorin, 200 mg/m2, IV over 90 minutes with irinotecan. C. 5-fluorouracil (5-FU), 400 mg/m2 IV bolus day 1, then 1200 mg/m2/day x 2 days (total 2400 mg/m2 over 46-48 hours) continuous infusion. D. Repeat every 2 weeks for 8 months. 2. Experimental arm A. HA-irinotecan (irinotecan 180 mg/m2), IV, over 90 minutes, day 1 (in patients > 75 years of age, the irinotecan dose in must be reduced to 150 mg/m2). B. Leucovorin, 400 mg/m2, or levoleucovorin, 200 mg/m2, IV over 90 minutes with irinotecan. 5-FU, 400 mg/m2 IV bolus day 1, then 1200 mg/m2/day x 2 days (total 2400 mg/m2 over 46-48 hours) continuous infusion. C. Repeat every two weeks D. 8 months of treatment In addition, management has stated that both the US FDA and EMA have agreed that Progression Free Survival may be acceptable endpoint for approval. Finally, should this trial be successful, ACL will attempt to receive regulatory approval via a 505(b)(2) process. Investigator-sponsored Phase II Study of HA-irinotecan in Small Cell Lung Cancer (SCLC) This is a randomized, 40 patient study to investigate treatment nave patients with extensive SCLC. The treatment arms are: 1) HA-irinotecan and carboplatin; versus 2) irinotecan and carboplatin. The primary endpoints are safety and cancer stem cell burden, whilst the secondary endpoints are progressive-free survival at six months, objective response rate, quality of life, and survival. There will be measurement of cancer stem cells during and on completion of therapy and enumeration of circulating tumour cells. ACL Oncology patents ACL has a number of patents in this area.
In Phase II, median progressionfree survival was 5.2 months for HA-Irinotecan patients compared with 2.4 months for those receiving irinotecan alone (P = 0.02)
43
Nomura | Alchemia
March 30, 2012
Fig. 56: ACL Oncology patent families

Name AU00/00004 Enhanced Efficacy: Use of HA/chemotherapeutics for overcoming cellular resistance AU01/00849 Pre-sensitising: Composition comprising prior administration of HA AU/02/01160 Improved Therapeutics: Composition comprising high dose of HA/chemotherapeutic AU04/01383 Modulation of HA synthase: Modulation of HA synthesis AU2006/001059 Therapeutic Protocols Using Hyaluronan (Glucuronide): Compositions comprising HA and methods for reducing toxicity or enhance efficacy of agents AU2006/001293 Therapeutic compositions and methods of treatment: Antibody formulations of HyACT AU2007/000359 Method of treatment: HAS II
Source: Company data, Nomura research
Date Priority Date: 13 January 1999 Priority Date: 14 July 2000 Priority Date: 27 August 2001 Priority Date: 10 October 2003 Priority Date: 27 July 2005 Priority Date: 7 September 2005 Priority Date: 31 March 2006
Granted Granted in Australia, New Zealand, Europe, Taiwan, China, Canada, Japan; National phase in USA Granted in Australia, New Zealand, United Kingdom, Canada; National phase in China, USA (3 applications) Granted in Australia, Canada; National phase in USA Granted in Australia, New Zealand, China and USA(x2); National phase in Canada, Europe National phase in Australia, Canada, China, Europe, India, Japan, USA Granted in Eurasia, Israel; National phase in Australia, Canada, China, Europe, India, Japan, USA, Indonesia, Brazil, Mexico, Malaysia National phase in Australia, Canada, China, Europe, India, Japan, USA
We note that the composition comprising high dose of HA/chemotherapeutic is still at the national phase in the US. Should it be approved, then it is likely that the patent protection would last for 20 years post patent approval, in our view.
The US progressing the HA-irinotecan opportunity through a 505(b)(2) process

ACL plans to progress the HA-irinotecan opportunity via a 505(b)(2) process in the US. This is how generic fondaparinux was approved. The 505(b)(2) application is one of three established types of new drug application (NDA). The 505(b)(2) regulatory pathway is defined in The Federal Food Drug and Cosmetics Act as an NDA containing investigations of safety and effectiveness that are being relied upon for approval and were not conducted by or for the applicant, and for which the applicant has not obtained a right of reference. These applications differ from the typical NDA, in that they allow a sponsor to rely, at least in part, on the FDAs findings of safety and/or effectiveness for a previously approved drug. Section 505(b)(2) was added with the goal of avoiding unnecessary duplication of preclinical and certain human studies. However, the sponsor must still provide any additional preclinical or clinical data necessary to ensure that differences from the reference drug do not compromise safety and effectiveness. The 505(b)(2) NDA also differs from an abbreviated NDA (ANDA), which is an application containing information to demonstrate that the proposed product is identical to a previously approved product. Identity is proven in an ANDA simply through chemistry and bioequivalence data, without the need for preclinical and clinical trials assessing safety and efficacy. In a sense, a 505(b)(2) application can be thought of as a hybrid that contains more data than an ANDA, but less data than an NDA. The 505(b)(2) approval route can be utilized for a wide range of products, especially for those that represent a limited change from a previously approved drug. The following are examples of changes to approved drugs which would be appropriate to submit as 505(b)(2) applications: Changes in dosage form, strength, route of administration, formulation, dosing regimen, or indication; A new combination product where the active ingredients have been previously approved; Change to an active ingredient (e.g., different salt, ester complex, chelate, etc);
The 505(b)(2) application is one of three established types of new drug application (NDA)
44
Nomura | Alchemia
March 30, 2012
New molecular entity when studies have been conducted by other sponsors and published information is pertinent to the application (e.g., a pro-drug or active metabolite of an approved drug); Change from an indication that requires a prescription to an over-the-counter indication; Change to an OTC monograph drug (e.g., non-monograph indication, new dosage form); Drugs with naturally derived or recombinant (ie, biological) active ingredients where additional limited clinical data is necessary to show the ingredient is the same as the ingredient in the reference drug. Why go down this route? There are important potential commercial benefits to employing a 505(b)(2) regulatory strategy. As previously stated, this approval route was designed to encourage innovation and to eliminate costly and time-consuming duplicative clinical studies. For some products, the reference drug can be relied upon for essentially all safety and efficacy information (nonclinical and clinical), with only a small amount of new work required to establish comparability to the reference drug. The 505(b)(2) applicant may qualify for three or five years of market exclusivity, depending on the extent of the change to the previously approved drug and the type of clinical data included in the NDA. A 505(b)(2) application may also be eligible for orphan drug or paediatric exclusivity. What are the challenges for a 505(b)(2) application? There are, however, some regulatory challenges that are unique to 505(b)(2) applications. Unlike an NDA, wherein the sponsor owns all the data necessary for approval (or has obtained the right to reference), the filing or approval of a 505(b)(2) application may be delayed due to patent or exclusivity protection on the reference drug. Sponsors filing 505(b)(2) applications must include patent certifications in their applications and must also provide notice of certain patient certifications to the NDA and patent holders of the reference drug. A major challenge with 505(b)(2) applications is determining what additional information is needed to support the proposed change of the previously approved drug. This will usually be a case-by-case determination. FDA guidance documents and discussions with regulatory professionals experienced in the 505(b)(2) approval route, as well as the involved FDA review division, are helpful in understanding what data is necessary and adequate. Rates of approval of 505(b)(2) applications In 2007, for the first time, FDAs new drug division approved more 505(b)(2) drugs than those submitted via other NDA applications. In 2006 and 2007, the percentage of 505(b)(2) drug approvals went from 20 to 43%, respectively, and this is expected to increase.
Fig. 57: Number of 505(b)(2) NDAs approved each year
40 35 30 25 20 15 10 5 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: US FDA, Nomura research
A major challenge with 505(b)(2) applications is determining what additional information is needed to support the proposed change of the previously approved drug
Of 115 505(b)(2) applications seen in 2008/9, there are some patterns to note regarding types of applications approved: Applications approved with no human or animal studies c10% of these were approved with no human or animal studies.
45
Nomura | Alchemia
March 30, 2012
Applications approved with only pharmacokinetic studies c13% of these were approved with only pharmacokinetic studies. In all of these cases, there was sufficient published literature about the active ingredients and often also dosage forms involved. The reference-listed drugs were often of relatively recent approval, so the FDA could consider them as meeting current standards for safety and efficacy. Applications approved with one well-controlled clinical trial c10% of the applications were approved with one well-controlled clinical trial, including several topical treatments that were approved based on one bioequivalence trial with a clinical endpoint. Applications approved with multiple well-controlled clinical trials the remaining c50% approved had between 2 and 22 clinical trials submitted in their applications, between zero and 25 pharmacokinetic studies. Hence, the more data that is submitted, the better.
The more data that is submitted, the better
The market opportunity in irinotecan

In order to assess the potential opportunity for ACL from irinotecan, we use IMS data from the US. Like many other markets, the United States uses National Prescription Data from IMS to track performance and market share. IMS is a provider of information services for the healthcare industry, covering markets in more than 100 countries around the world. We believe the US is c60% of the total irinotecan market. History of irinotecan on the market The original drug was developed by Yakult Honsha (2267 JT, not rated). This was sold to Pfizer on September 30, 2004. At this time, Pfizer completed the acquisition of the then branded Camptosar (irinotecan), from Sanofi for USD525mn. Peak sales of Camptosar occurred in 2007, and have declined since.
Fig. 58: Pfizers Camptosar (branded irinotecan) sales
1200 1000 800 600 400 200 0 2003A 2004A 2005A 2006A 2007A 2008A 2009A 2010A PFE Irinotecan sales (LHS)
PFE = Pfizer Source: Company data
(US$mn) US patent expiry
(%)
EU patent expiry
100 80 60 40 20 0 -20 -40 -60 -80
% growth on pcp (RHS)
We note that: PFE lost US patent exclusivity for Camptosar in February 2008; and PFE lost EU patent exclusivity for Camptosar in July 2009.
Snapshot of the US market for irinotecan in 2011

In 2011, according to IMS prescription and sales data, the annual sales for all irinotecans in the US amounted to USD32mn in 2011. This contracted by c4% on the pcp due to the impact of generic competition. This is shown below.
46
Nomura | Alchemia
March 30, 2012
Fig. 59: US sales of irinotecan

60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 0 2009 Sales (LHS)
(US$)
(%)
0 -5 -10 -15 -20 -25 -30 -35 -40 -45
2010
2011 % change on pcp (RHS)
Approximately 42% of the US irinotecan market consists of APP (owned by Fresenius [FRE GR, EUR77.08, Buy]) sales, which amounted to cUSD13mn in 2011, according to IMS data. The next highest seller is from PFE at 31% of sales in 2011, followed by Hospira (HSP US, not rated) at 14% of sales. This is shown in the following chart.
Fig. 60: US irinotecan market share by USD sales 2011
Hospira 14% Sandoz 10%
Fig. 61: US irinotecan market share by total scripts 2011

Teva 1.4% Pfizer 6.1%
Teva 3%
Sandoz 35.7%
APP 42%
APP 21.7% Pfizer 31% Hospira 31.7%

Greenstone 3.3%
This leads to the US irinotecan market by USD sales below. We note that Sandozs and Hospiras irinotecan has higher numbers of total prescriptions compared to revenues, implying their product has a lower price. We explore this in more detail below.
Fig. 62: US irinotecan market by USD sales 2009-2011
7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 (USD) (%) 10 0 -10 -20 -30 -40 -50 -60 Jan-12
Approximately 42% of the US irinotecan market consists of APP
Sales (LHS)
% change on pcp (RHS)
The following figure highlights the changing sales dynamics by month of irinotecan in the US market. At present both APP and PFE have similar market share. This leads to the following US market shares of branded and generic irinotecan products.
47
Nomura | Alchemia
March 30, 2012
Fig. 63: Change in US market shares - branded and generic irinotecan products
3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 Feb-09 Jul-09 Pfizer Greenstone Watson
(USD)
Dec-09 May-10 Actavis Hospira West Ward
Oct-10 Mar-11 APP Sandoz
Aug-11 Jan-12 Bedford Labs Teva
According to APP, the global irinotecan market has historically split between the US and Rest of World (ROW) in the approximate proportions of 60:40. This implies that the global irinotecan market was cUSD57mn in 2011.
Fig. 64: Global irinotecan market 2011 (USD57mn)
According to APP, the global irinotecan market has historically split between the US and Rest of World (ROW) in the approximate proportions of 60:40
ROW 43% US 57%
Total prescriptions Total Prescriptions (TRx) is the sum of NBRx and Continuation on Brand prescriptions (CBRx). CBRx measures patients continuation on a product, from both new and refilled prescriptions. In the longer term, TRx is important, since this provides measurement of the total market share for a product. In 2010 and 2011, there has been solid growth in new monthly prescriptions. This is despite a decrease in total value of the market, implying the dollar value per prescription has declined. This is shown in the following figure.
Fig. 65: US irinotecan market by TRx 2009-2011
4,400 4,200 4,000 3,800 3,600 3,400 3,200 3,000 2009 TRx (LHS)
(TRx)
(%)
16 14 12 10 8 6 4 2 0
2010
2011 % change on pcp (RHS)
48
Nomura | Alchemia
March 30, 2012
This is seen on month on month basis below.

Fig. 66: US irinotecan market by TRx 2009-2011 (monthly)
500 400 300 200 100 0 Feb-09 (TRx) (%) 80 60 40 20 0 -20 Jul-09 Dec-09 TRx (LHS) May-10 Oct-10 Mar-11 Aug-11 % change on pcp (RHS) -40 Jan-12
Hospira currently has the highest market share of total prescriptions in the US market
The market share of the total prescriptions are shown below. Hospira currently has the highest market share of total prescriptions in the US market.
Fig. 67: US irinotecan market by TRx
250 200 150 100 50 0 Feb-09 Jun-09 Oct-09 Pfizer Greenstone Watson
(TRx)
Feb-10 Jun-10 Actavis Hospira West Ward
Oct-10 Feb-11 APP Sandoz
Jun-11
Oct-11 Bedford Labs Teva
What is generic irinotecans current price point? On IMS data, which we acknowledge is not comprehensive, we note that generic irinotecan currently has a lower price point than the branded proposition in the market. We also note the extreme variability in pricing in this market. Whilst we note that the IMS data is not comprehensive, we believe it does give some insight into trends in pricing.
Fig. 68: US irinotecan market average price per prescription (CY11)
140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 (USD)
We note the extreme variability in pricing in this market
Aug-11
Sep-11
Oct-11
Apr-11
Nov-11
Pfizer
APP
May-11
Hospira
Sandoz
Nomura viewpoint We note the global irinotecan market value is declining, due to the entry of lower-priced generic products into this market. That said, we note volume of product sold continues to increase, in line with demand for this anti-cancer treatment. Hence, we believe there
Dec-11
Jan-11
Jun-11
Feb-11
Mar-11
Jul-11
49
Nomura | Alchemia
March 30, 2012
continues to be solid demand for the irinotecan product. Should HA-irinotecan be successful, we believe this product is likely to be a paradigm shift in irinotecan delivery. Hence, we believe the HA-irinotecan is likely to be able to command a price premium compared to other generic irinotecan products. We explore this in more detail below.
Can HA-irinotecan command a price premium?

At its essence, HA-irinotecan is a potential way to change the biological activity of a commonly used anti-cancer drug. We explain this in more detail below. HA-irinotecans opportunity may be similar to that of Abraxanes in paclitaxel Approved in the US market in 2005, Abraxane, a super-generic version of paclitaxel quickly commanded a price premium in the paclitaxel market. We believe this may be possible for HA-irinotecan. What is Abraxane? Abraxane combines a different anticancer drug paclitaxel with albumin, a naturally occurring human blood protein. Its proposed mechanism of delivery is thought to be by targeting a previously unrecognized tumour-activated, albumin-specific biologic pathway. The drug won FDA approval in January 2005 for the treatment of breast cancer after failure of combination chemotherapy for metastatic disease or relapse within six months of adjuvant chemotherapy. Sales have been strong since approval.
Fig. 69: Sales of Abraxane
400 350 300 250 200 150 100 50 0 2005A 2006A 2007A Sales (LHS) 2008A 2009A 2010A Growth on pcp (RHS) 2011F 0 (20) 60 40 20 (USDmn) (%) 100 80
We believe it is important to note that: Abraxane commanded a significant price premium: this was compared to standard paclitaxel. This is seen in the following chart. Indeed the price increase paid for Abraxane was 2,700% of the previous generic paclitaxel price, and 320% of the previous branded paclitaxel price.
Fig. 70: Average price of versions of paclitaxel US market 2002-2005A
6,000 5,000 4,000 3,000 2,000 1,000 0 2002
(Ave. price USD/dose)
Abraxane released - price increases
Branded Paclitaxel
Paclitaxel genericises - price declines 2003 2005
Insurers paid for a lower side-effect profile: in 2005, insurers reimbursed this price because of the decreased side-effect profile and the potential for an enhanced
50
Nomura | Alchemia
March 30, 2012
mechanism of action of Abraxane over generic paclitaxel. We believe one of the major implications of this is that HA-irinotecan may also be able to charge a significant price premium should it demonstrate: 1) a decreased side-effect profile; and 2) an enhanced mechanism of action (which HA-irinotecan has already demonstrated in Phase II trials). Despite this level of pricing increase, Abraxane has built market share to close to 50% of the paclitaxel market at present. This is seen in the following figure.
Fig. 71: Market share of Abraxane as a % of total paclitaxel market
100% 80% 60% 40% 20% 0% 2005A 2006A 2007A 2008A 2009A Abraxane Others 2010A 2011F
Nomura viewpoint Hence, we assume a significant level of price premium in developing of price assumption for ACLs HA-irinotecan, and we use IMS data for potential volume of prescriptions in the US market. In addition, we note chemotherapies are widely used in the treatment of cancer, in which the goal of treatment is to reduce the size of a tumour so that it can be completely removed by surgery or other means, through late-stage cancer treatment. The use of chemotherapies is limited by severe adverse effects that, in turn, limit their efficacy. It may be possible to expand the use of HA-irinotecan into indications for which irinotecan is currently not being used by demonstrating that HA-irinotecan has favourable efficacy and safety characteristics compared to the current standard of care. We have not included this in our forecasts. Comparable in irinotecan Merrimack Pharmaceuticals US-based, unlisted Merrimack Pharmaceuticals is developing a variant irinotecan. Merrimack is a biopharmaceutical company discovering, developing and preparing to commercialise medicines consisting of novel therapeutics paired with companion diagnostics. Merrimack has four programs in clinical development, the most advanced of which (MM-398) has enter a pivotal Phase III clinical trial in 1QCY12. MM-398 is a nanotherapeutic encapsulation of the irinotecan molecule. Merrimacks nanotherapeutics consist of lipidic particles, which are enclosed spheres of lipid membranes, and are designed to encapsulate active drug payloads. MM-398 achieved its primary efficacy endpoints in Phase II clinical trials in pancreatic and gastric cancer. In the recently completed open label, single arm Phase II clinical trial of MM-398 as a monotherapy in 40 metastatic pancreatic cancer patients who had previously failed treatment with gemcitabine, patients treated with MM-398 achieved median overall survival of 22.4 weeks. Additionally, 20% of the patients in this Phase II trial survived for more than one year, and a disease control rate was observed, meaning patients exhibited stable disease or partial or complete response to treatment. EU and Asian rights to MM-398 sold in 2011 In May 2011, Merrimack Pharmaceuticals, Inc. and the holders of the EU and Asian rights to MM-398, unlisted PharmaEngine, announced the signing of an agreement under which Merrimack acquired the rights to develop and commercialize MM-398 in Europe and Asia. Under the terms of the agreement, Merrimack and PharmaEngine will collaborate on the development of MM-398. PharmaEngine will receive an upfront payment of USD10mn and is eligible to receive up to an additional USD210mn upon
51
Nomura | Alchemia
March 30, 2012
achievement of certain development, regulatory and sales milestones as well as tiered royalties on sales of MM-398 in Europe and Asia. We believe this gives a useful reference of what the size of EU and Asian markets for HA-irinotecan might be.
Valuing the opportunity

We have evaluated ACLs HA-irinotecan opportunity. There are a number of variables in this analysis. These include: Sales: We believe the market size of the global generic irinotecan market will be USD64mn in 2014. Notwithstanding this, we forecast that ACL will be able to command a significant price premium;
Fig. 72: Forecast sales for ACLs HA-irinotecan
180 160 140 120 100 80 60 40 20 0 (USDmn) (%) 100 80 60 40 20 0 (20 2012F 2014F 2016F 2018F 2020F 2022F 2024F 2026F 2028F 2030F 2032F 2034F HA - Irinotecan revenue (LHS) Growth (RHS)
Source: Nomura research
The risk-weighted NPV for ACLs HA-Irinotecan opportunity is AUD0.33 per share
Number of injections: We assume that 16 treatments would be required to treat the colorectal cancer in line with the HA-irinotecan Phase III clinical trial; Reimbursement: We assume a treatment cost per injection of USD2,000. ACLs closest comparable is Abraxane, which was reimbursed at USD4,000 per treatment when it was released onto the market in 2005, so we believe our assumption is not unreasonable. We assume this price will decline 5% per year; Timeline for getting to market: We assume the HA-irinotecan opportunity will get to market in FY16 in the EU, and in FY15 in the US; Penetration rate: We forecast a FY16F penetration rate of 7.1% in the US. This increases by 6.5% per annum for 10 years; Market share: We have assumed peak market share of 25% in US by 2018. Royalties: We believe ACL will license this product. As a result of this potential deal, we believe that ACL will earn a royalty rate between 25-40% on net sales of the product by its partner. We have used 30% in calculating our forecasts.
Fig. 73: HA-irinotecan valuation sensitivity: US market share and royalty assumptions
US peak market share (%) $
Royalty (%)
0.54 15 20 25 30 35 40 45
15 0.20 0.27 0.34 0.40 0.47 0.54 0.61
25 0.27 0.36 0.45 0.54 0.63 0.71 0.80
35 0.33 0.43 0.54 0.65 0.76 0.87 0.98
45 0.38 0.50 0.63 0.75 0.88 1.00 1.13
55 0.42 0.57 0.71 0.85 0.99 1.13 1.27
Source: Nomura research
Valuation of the opportunity: Hence, the risk-weighted NPV for ACLs HA-irinotecan opportunity is AUD0.33 per share. We have calculated the potential upside from a successful HA-irinotecan trial. Our non-weighted valuation is AUD0.54 for the global opportunity from HA-irinotecan sales. However, assuming greater market share in the US and royalty gives upside to AUD1.27.
52
Nomura | Alchemia
March 30, 2012
Appendix 1: How does the US Pharmacy system work?

This is a very complex subject. We focus on Pharmacy Benefit Managers (PBM) in this section. The first PBMs were created by managed care organizations in the 1980s to apply managed care principles, such as provider networks and patient co-pays, to the drug benefit portion of health care plans. Through rapid growth in the 1990s, PBMs emerged as the national standard for the administration of prescription drug insurance in the United States as described by the Federal Trade Commission. The three largest PBMs manage drug benefits for over 200mn Americans 95% of Americans with prescription drug coverage. Todays PBMs manage all aspects of a prescription drug benefit plan, including creating formularies of preferred medicines, negotiating with drug manufacturers for discounts and rebates, negotiating with pharmacies to establish retail networks for dispensing drugs, and establishing automated processes for determining (often called adjudicating) coverage eligibility at the point of sale. Each of the four largest PBMs operates its own mail order pharmacy to fill prescriptions directly. Typically, a PBM has the following functions: Process pharmacy claims when one goes to a retail pharmacy, the pharmacist enters the prescription and electronically submits it for adjudication. The claim is routed to the PBM, where it is checked for eligibility and then to see if it pays (and what copayment one owes); Set up pharmacy benefits based on the plan selected by employer or payer, the PBM codes what drugs are covered and the copayment structure); Administer rebates since large pharma companies pay rebates for having their drugs on formulary (a preferred drug list), a PBM manages negotiations and billing of this. As described by the Federal Trade Commission: Pharmaceutical manufacturers recognize that having their drugs listed on the formulary or in a preferred spot on the formulary (as compared to competing drug products) will likely increase the drug products sales. . . . [P]harmaceutical manufacturers use formulary payments to obtain formulary status, and/or they use market share payments to encourage PBMs to dispense their drugs. Both payments are often specified as a percentage of the drugs wholesale price (e.g., a percentage level of 10% means the manufacturer will pay the PBM 10% of a measure of the drugs wholesale price multiplied by the quantity dispensed). Most industry members refer to these payments as rebates, and they refer to the percentage level as the rebate level.; Set up clinical programs most PBMs have a clinical committee which evaluates new drugs and looks at market data to help employers choose coverage options; Establish a retail pharmacy network work with retailers to get them to agree to discounts on drugs; Communicate with patients and physicians monitor pharmacy claims data and help find ways to save money or identify clinical issues about which to inform the patient or physician; Provide cross-pharmacy data for drug-drug interactions since many people use more than one pharmacy for claims; Mail order and often specialty pharmacy the drugs are shipped to patients. The PBMs clients are employers who are self-insured, government entities (i.e., state employees, DoD), unions, TPAs (third party administrators), and managed care companies. The US payer environment is seen in the following figure.
The PBMs clients are employers who are self-insured, government entities PBMs manage all aspects of a prescription drug benefit plan The three largest PBMs manage drug benefits for over 200mn Americans 95% of Americans with prescription drug coverage
53
Nomura | Alchemia
March 30, 2012
Fig. 74: US payer environment a typical managed care network

Purchaser
(private of public)
Medical Benefits Premium Pharmacy Benefits Pharmacy Rebates
Pharmaceutical Company
Managed Care Organisations (MCO)
Pharmacy Benefit Manager (PBM)
Discounted Reimbursement
Retail Pharmacy Mail Order Pharmacy Specialty Pharmacy Patient

Co-pay or Coinsurance
Discounted Reimbursement
Hospital
Physician
Source: Managed Care Pharmacy Practice, Nomura research
Pricing for drugs in the US

The US government and other payers generally establish their payment for prescription drugs through formulas that start with a benchmark price, some of which are proprietary and, therefore, not publicly available. Government programmes have tried to mimic the action of the private market by obtaining price concessions outside the distribution chain. Definitions There are a number of definitions for pricing schedules for drugs in the US: Average Manufacturer Price (AMP) AMP is the average price paid to manufacturers by wholesalers (after discounts) for a particular dosage form and strength of a prescription drug distributed solely to the retail pharmacy class of trade. It excludes sales to institutional purchasers and others that would get low prices, but does reflect certain financial concessions, including discounts available to drug purchasers. The AMP is not a published price. It is calculated by the manufacturer and submitted to CMS quarterly. Average Sales Price (ASP) The ASP, which was statutorily defined in the Medicare Modernisation Act (2002), is the weighted average of a manufacturers sales prices for a drug (or biological) for all purchasers, net of certain pricing adjustments, such as discounts and rebates. It excludes sales that are exempt from inclusion in the determination of best price and sales at prices that are deemed nominal by the Secretary. As set forth by the US Medicare Modernisation Act (MMA), the ASP is reported quarterly by drug manufacturers to CMS for certain outpatient drugs. The federal government has the authority to audit these calculations submitted to CMS and, in cases where a misrepresentation is found, civil monetary penalties may apply. Average Wholesale Price (AWP) AWP is the average list price that a manufacturer suggests wholesalers charge pharmacies. This published price is purchased by government entities, private insurance companies, and other purchasers and often serves as the basis for prescription drug reimbursement. The AWP has often been equated with a sticker price or list price. Best Price This is the lowest price available from the manufacturer to any purchaser, with some exceptions. The best price must reflect certain financial concessions, such as discounts, that are available to drug purchasers. Prices charged to certain governmental purchasers are not considered in the determination of the best price. Estimated Acquisition Cost (EAC) The EAC is a states best estimate of the price generally paid by pharmacies. Most states use a drugs AWP to calculate the drugs EAC.
Best price is the lowest price available from the manufacturer to any purchaser, with some exceptions The ASP, which was statutorily defined in the Medicare Modernisation Act (2002), is the weighted average of a manufacturers sales prices for a drug (or biological) for all purchasers
54
Nomura | Alchemia
March 30, 2012
Federal Ceiling Price (FCP) The FCP is the maximum price that manufacturers can charge VA, DOD, PHS, and Coast Guard for brand-name drugs. Federal Supply Schedule (FSS) The FSS price, which is negotiated by the Department of Veterans Affairs (VA), is the price available to direct federal purchasers of prescription drugs, including the VA, the Department of Defence, and the Public Health Service, among others. The FSS price is equal to or lower than the price given to any of the drug manufacturers non-federal purchasers. Manufacturers must make their brand-name drugs available at the FSS price in order to receive reimbursements for drugs covered by Medicaid. The FSS prices are publicly available. Federal Upper Limit (FUL) The FUL is the federal payment ceiling under Medicaid that applies to drugs with three or more generic versions. The FUL is set at 150% of the published price (in any of the published compendia of cost information for drugs) for the least costly therapeutic equivalent that can be purchased by pharmacists in quantities of 100 tablets or capsules. Maximum Allowable Cost (MAC) State MAC programmes are prescription drug cost management programmes that enable states to establish maximum reimbursement amounts that they will pay for selected generic and multiple source drugs. State MAC lists typically include more drugs than the FUL list and must have payment limits that are no higher than the federal list. Private third-party payers, such as PBMs, may also establish their own MACs. Retail Price The retail price, or usual and customary price, is charged by retail pharmacies to individuals without insurance, known as cashpaying customers. Wholesale Acquisition Cost (WAC) The WAC is the manufacturers list price charged to wholesalers or direct purchasers, not including prompt pay or other discounts, rebates, or reductions in price, as reported in wholesale price guides or other drug pricing publications.
Fig. 75: Illustration of relative drug prices used by select US government payers
FCP $
FSS
Best Price
ASP
AMP
AWP $$$
Increasing drug prices
Source: US Government Accountability Office, Nomura research
Explanation of drug pricing terms One of the most widely used benchmark prices is the average wholesale price, or AWP. Although not defined in law or regulation, AWP is intended to represent the average price at which wholesalers sell drugs. AWP is based on information provided by drug manufacturers, distributors, and other suppliers and sold by commercial publishers of drug pricing data. It is not a price that is paid, nor is it an average of any set of prices. Prescription drug payments by Medicaid are based on formulas established by each states Medicaid programme. Most formulas start with AWP and then reduce it by a certain percentage, typically in the range of 5-16% for brand-name drugs. Many states vary their formulas, depending on whether the drug is generic or brand name. The discount below AWP in state reimbursement formulas is intended to account for the fact that the actual cost to pharmacies to acquire a drug may be well below this published benchmark. Although states develop their own reimbursement formulas, the federal government contributes financially to state Medicaid programmes and thus exerts some control over payment formulas by limiting the payment amounts it will match for specific drugs. These ceilings differ for brand name and generic drugs. The maximum amount that the federal government will match for brand-name drugs, or drugs with fewer than three generic versions, is the lesser of two figures: a drugs estimated acquisition cost (EAC), which is a states best estimate of the price generally paid by pharmacies for the drug (often based on AWP minus a certain percentage), or the pharmacys usual and customary charge to the general public. The ceiling amount is usually the EAC. For drugs with at least three therapeutically equivalent generic versions, the federal ceiling is known as the federal upper limit (FUL), which is established and periodically revised by CMS. The FUL
One of the most widely used benchmark prices is the average wholesale price, or AWP. Although not defined in law or regulation, AWP is intended to represent the average price at which wholesalers sell drugs
55
Nomura | Alchemia
March 30, 2012
is intended to enable the federal government to realize savings from prices that are driven by competition in the market. The FUL is set at 150% of the price listed in any of the published compendia of drug cost information for the least costly therapeutically equivalent drug that can be purchased by pharmacies. Most states also have payment limits, known as maximum allowable cost limits (MACs) that may control the price they will pay. States may use their MACs instead of the FUL, provided they are not higher than the federal limit. States may also apply MACs to drugs not subject to the federal limit. Approximately 40 states have developed MAC programmes.
56
Nomura | Alchemia
March 30, 2012
Appendix 2: the regulatory approval process in the US

What is marketing authorisation?
To market a drug or biological product in the United States, a prospective manufacturer must provide adequate information to the FDA demonstrating that the product is safe and effective for the conditions prescribed, recommended or suggested in the proposed labelling for the product. This is known as a marketing authorisation. A marketing authorisation document generally includes the results of: New drug application (ANDAs), abbreviated New drug applications (NDAs), or Biological license applications (BLAs)
NDAs
The New Drug Application (NDA) is the vehicle in the United States through which drug sponsors formally propose that the FDA approve a new pharmaceutical for sale and marketing. The goals of the NDA are to provide enough information to permit FDA reviewers to establish the following: Is the drug safe and effective in its proposed use(s) when used as directed, and do the benefits of the drug outweigh the risks? Is the drugs proposed labelling (package insert) appropriate, and what should it contain? Are the methods used in manufacturing (Good Manufacturing Practice, GMP) the drug and the controls used to maintain the drugs quality adequate to preserve the drugs identity, strength, quality, and purity? Comprehensive data to assess risk-benefit balance In general, randomized active and placebo-controlled trials required Phase IV: Follow-up studies of (dose-response), therapeutic use Hence, the NDA will include evidence from clinical trials as well as evidence that the drug can be manufactured and marketed safely. The legal requirement for approval is "substantial" evidence of efficacy demonstrated through controlled clinical trials. Data for the submission must come from rigorous clinical trials. The trials are typically conducted in three phases: Phase 1: The drug is tested in a few healthy volunteers to determine if it is acutely toxic. Phase 2: Various doses of the drug are tried to determine how much to give to patients. Phase 3: The drug is typically tested in double-blind, placebo controlled trials to demonstrate that it works. Sponsors typically confer with FDA prior to starting these trials to determine what data is needed, since these trials often involve hundreds of patients and are very expensive. Phase 4: These are post-approval trials that are sometimes a condition attached by the FDA to the approval. The legal requirements for safety and efficacy have been interpreted as requiring scientific evidence that the benefits of a drug outweigh the risks and that adequate instructions exist for use. An NDA is reviewed by a multidisciplinary team of physicians, statisticians, chemists, pharmacologist/toxicologists, clinical pharmacologists, and microbiologists. The FDA has six months to take an action on a priority application and 10 months for a standard application. Most applications are either discussed with an FDA consultant or at a meeting of the Oncologic Drugs Advisory Committee (ODAC).
The New Drug Application (NDA) is the vehicle in the United States through which drug sponsors formally propose that the FDA approve a new pharmaceutical for sale and marketing
57
Nomura | Alchemia
March 30, 2012
Common reasons for rejection of a NDA This includes: Negative trials; Claims based on exploratory subgroup analysis; Non-inferiority (switch) but control arm not-established; A posteriori defined non-inferiority margins Marginal activity, safety issues; Lack of randomized control trial (RCT) this is the most common reason for rejection; and No dramatic activity An open-label trial or open trial is a type of clinical trial in which both the researchers and participants know which treatment is being administered. This contrasts with single-blind and double-blind experimental designs, where participants are not aware of what treatment they are receiving (researchers are also unaware in a double-blind trial). Open-label trials may be appropriate for comparing two very similar treatments to determine which is most effective. Although prospective definition of response criteria is critical in any clinical trial, independent confirmation of response by an expert review panel is perhaps more important in the open-label, nonrandomized studies that frequently form the basis of New Drug Applications.
An open-label trial or open trial is a type of clinical trial in which both the researchers and participants know which treatment is being administered
58
Nomura | Alchemia
March 30, 2012
59
Nomura | Alchemia
March 30, 2012
60
Nomura | Alchemia
March 30, 2012
Appendix A-1
Analyst Certification
We, Zara Lyons and David Stanton, hereby certify (1) that the views expressed in this Research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.
Issuer Specific Regulatory Disclosures

The term "Nomura Group Company" used herein refers to Nomura Holdings, Inc. or any affiliate or subsidiary of Nomura Holdings, Inc. Nomura Group Companies involved in the production of Research are detailed in the disclaimer below.
Issuer name Alchemia
Ticker ACL AU
Price AUD 0.52
Price date 29-Mar-2012
Stock rating Buy
Sector rating Not rated
Disclosures
Previous Rating
Issuer name Alchemia Previous Rating Not rated Date of change 30-Mar-2012
Alchemia (ACL AU)

Chart Not Available
AUD 0.52 (29-Mar-2012) Buy (Sector rating: Not rated)
Valuation Methodology Our AUD0.77 TP is based on the risk-weighted valuation of the companys product opportunities. We have valued the generic fondaparinux opportunity in line with our forecasts for the growth of the fondaparinux market in the US market, as well as potential entry into other developed markets. In addition, we have valued other opportunities for ACL, namely HA-Irinotecan. Risks that may impede the achievement of the target price For ACLs leading product, generic fondaparinux, there is still uncertainty around the potential level of growth in most of its prospective markets. ACLs rate of earnings growth is dependent on the sales and marketing support provided by its partner Dr Reddys Laboratories. Should ACL enter further clinical trials in new methods of drug delivery, we note that early results give no real enough indication of a products true viability, and full foresight on future market conditions is difficult to obtain. For irinotecan, there is still a good deal of uncertainty around the viability of ACLs HA-iriontecan in most of its prospective markets. Early clinical trials, although positive, give no real enough indication of a products true viability and full foresight on future market conditions is difficult to obtain. To date, all preclinical and Phase II trials have shown indications for product viability. As it stands, there have been no significant adverse effects or health issues and Phase II trials indicate a product with the potential for market viability. Therefore, we believe this is an investment opportunity for investors with a higher risk appetite.
61
Nomura | Alchemia
March 30, 2012
Important Disclosures
Online availability of research and conflict-of-interest disclosures
Nomura research is available on www.nomuranow.com, Bloomberg, Capital IQ, Factset, MarkitHub, Reuters and ThomsonOne. Important disclosures may be read at http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx or requested from Nomura Securities International, Inc., on 1-877-865-5752. If you have any difficulties with the website, please email grpsupporteu@nomura.com for help. The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by Investment Banking activities. Unless otherwise noted, the non-US analysts listed at the front of this report are not registered/qualified as research analysts under FINRA/NYSE rules, may not be associated persons of NSI, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account. Any authors named in this report are research analysts unless otherwise indicated. Industry Specialists identified in some Nomura International plc research reports are employees within the Firm who are responsible for the sales and trading effort in the sector for which they have coverage. Industry Specialists do not contribute in any manner to the content of research reports in which their names appear. Marketing Analysts identified in some Nomura research reports are research analysts employed by Nomura International plc who are primarily responsible for marketing Nomuras Equity Research product in the sector for which they have coverage. Marketing Analysts may also contribute to research reports in which their names appear and publish research on their sector.
Distribution of ratings (US)

The distribution of all ratings published by Nomura US Equity Research is as follows: 35% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 11% of companies with this rating are investment banking clients of the Nomura Group*. 59% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 2% of companies with this rating are investment banking clients of the Nomura Group*. 6% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 0% of companies with this rating are investment banking clients of the Nomura Group*. As at 31 December 2011. *The Nomura Group as defined in the Disclaimer section at the end of this report.
Distribution of ratings (Global)

The distribution of all ratings published by Nomura Global Equity Research is as follows: 47% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 40% of companies with this rating are investment banking clients of the Nomura Group*. 43% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 45% of companies with this rating are investment banking clients of the Nomura Group*. 10% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 21% of companies with this rating are investment banking clients of the Nomura Group*. As at 31 December 2011. *The Nomura Group as defined in the Disclaimer section at the end of this report.
Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America
The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. Analysts may also indicate absolute upside to target price defined as (fair value - current price)/current price, subject to limited management discretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as discounted cash flow or multiple analysis, etc. STOCKS A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, target price and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including, but not limited to, when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company. Benchmarks are as follows: United States/Europe: Please see valuation methodologies for explanations of relevant benchmarks for stocks (accessible through the left hand side of the Nomura Disclosure web page: http://go.nomuranow.com/research/globalresearchportal);Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia.
Explanation of Nomura's equity research rating system in Japan and Asia ex-Japan
STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price, subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A 'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended' indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company.
62
Nomura | Alchemia
March 30, 2012
Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.
Target Price
A Target Price, if discussed, reflect in part the analyst's estimates for the company's earnings. The achievement of any target price may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.
63
Nomura | Alchemia
March 30, 2012
Disclaimers
This document contains material that has been prepared by the Nomura entity identified at the top or bottom of page 1 herein, if any, and/or, with the sole or joint contributions of one or more Nomura entities whose employees and their respective affiliations are specified on page 1 herein or identified elsewhere in the document. Affiliates and subsidiaries of Nomura Holdings, Inc. (collectively, the 'Nomura Group'), include: Nomura Securities Co., Ltd. ('NSC') Tokyo, Japan; Nomura International plc ('NIplc'), UK; Nomura Securities International, Inc. ('NSI'), New York, US; Nomura International (Hong Kong) Ltd. (NIHK), Hong Kong; Nomura Financial Investment (Korea) Co., Ltd. (NFIK), Korea (Information on Nomura analysts registered with the Korea Financial Investment Association ('KOFIA') can be found on the KOFIA Intranet at http://dis.kofia.or.kr ); Nomura Singapore Ltd. (NSL), Singapore (Registration number 197201440E, regulated by the Monetary Authority of Singapore); Capital Nomura Securities Public Company Limited (CNS), Thailand; Nomura Australia Ltd. (NAL), Australia (ABN 48 003 032 513), regulated by the Australian Securities and Investment Commission ('ASIC') and holder of an Australian financial services licence number 246412; P.T. Nomura Indonesia (PTNI), Indonesia; Nomura Securities Malaysia Sdn. Bhd. (NSM), Malaysia; Nomura International (Hong Kong) Ltd., Taipei Branch (NITB), Taiwan; Nomura Financial Advisory and Securities (India) Private Limited (NFASL), Mumbai, India (Registered Address: Ceejay House, Level 11, Plot F, Shivsagar Estate, Dr. Annie Besant Road, Worli, Mumbai- 400 018, India; Tel: +91 22 4037 4037, Fax: +91 22 4037 4111; SEBI Registration No: BSE INB011299030, NSE INB231299034, INF231299034, INE 231299034, MCX: INE261299034); NIplc, Dubai Branch (NIplc, Dubai); NIplc, Madrid Branch (NIplc, Madrid) and NIplc, Italian Branch (NIplc, Italy). THIS MATERIAL IS: (I) FOR YOUR PRIVATE INFORMATION, AND WE ARE NOT SOLICITING ANY ACTION BASED UPON IT; (II) NOT TO BE CONSTRUED AS AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE ILLEGAL; AND (III) BASED UPON INFORMATION FROM SOURCES THAT WE CONSIDER RELIABLE, BUT HAS NOT BEEN INDEPENDENTLY VERIFIED BY NOMURA GROUP. Nomura Group does not warrant or represent that the document is accurate, complete, reliable, fit for any particular purpose or merchantable and does not accept liability for any act (or decision not to act) resulting from use of this document and related data. To the maximum extent permissible all warranties and other assurances by Nomura group are hereby excluded and Nomura Group shall have no liability for the use, misuse, or distribution of this information. Opinions or estimates expressed are current opinions as of the original publication date appearing on this material and the information, including the opinions and estimates contained herein, are subject to change without notice. Nomura Group is under no duty to update this document. Any comments or statements made herein are those of the author(s) and may differ from views held by other parties within Nomura Group. Clients should consider whether any advice or recommendation in this report is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. Nomura Group does not provide tax advice. Nomura Group, and/or its officers, directors and employees, may, to the extent permitted by applicable law and/or regulation, deal as principal, agent, or otherwise, or have long or short positions in, or buy or sell, the securities, commodities or instruments, or options or other derivative instruments based thereon, of issuers or securities mentioned herein. Nomura Group companies may also act as market maker or liquidity provider (as defined within Financial Services Authority (FSA) rules in the UK) in the financial instruments of the issuer. Where the activity of market maker is carried out in accordance with the definition given to it by specific laws and regulations of the US or other jurisdictions, this will be separately disclosed within the specific issuer disclosures. This document may contain information obtained from third parties, including ratings from credit ratings agencies such as Standard & Poors. Reproduction and distribution of third party content in any form is prohibited except with the prior written permission of the related third party. Third party content providers do not guarantee the accuracy, completeness, timeliness or availability of any information, including ratings, and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such content. Third party content providers give no express or implied warranties, including, but not limited to, any warranties of merchantability or fitness for a particular purpose or use. Third party content providers shall not be liable for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including lost income or profits and opportunity costs) in connection with any use of their content, including ratings. Credit ratings are statements of opinions and are not statements of fact or recommendations to purchase hold or sell securities. They do not address the suitability of securities or the suitability of securities for investment purposes, and should not be relied on as investment advice. Any MSCI sourced information in this document is the exclusive property of MSCI Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, re-disseminated or used to create any financial products, including any indices. This information is provided on an "as is" basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI and the MSCI indexes are services marks of MSCI and its affiliates. Investors should consider this document as only a single factor in making their investment decision and, as such, the report should not be viewed as identifying or suggesting all risks, direct or indirect, that may be associated with any investment decision. Nomura Group produces a number of different types of research product including, among others, fundamental analysis, quantitative analysis and short term trading ideas; recommendations contained in one type of research product may differ from recommendations contained in other types of research product, whether as a result of differing time horizons, methodologies or otherwise. Nomura Group publishes research product in a number of different ways including the posting of product on Nomura Group portals and/or distribution directly to clients. Different groups of clients may receive different products and services from the research department depending on their individual requirements. Figures presented herein may refer to past performance or simulations based on past performance which are not reliable indicators of future performance. Where the information contains an indication of future performance, such forecasts may not be a reliable indicator of future performance. Moreover, simulations are based on models and simplifying assumptions which may oversimplify and not reflect the future distribution of returns. Certain securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of, or income derived from, the investment. The securities described herein may not have been registered under the US Securities Act of 1933 (the 1933 Act), and, in such case, may not be offered or sold in the US or to US persons unless they have been registered under the 1933 Act, or except in compliance with an exemption from the registration requirements of the 1933 Act. Unless governing law permits otherwise, any transaction should be executed via a Nomura entity in your home jurisdiction. This document has been approved for distribution in the UK and European Economic Area as investment research by NIplc, which is authorized and regulated by the FSA and is a member of the London Stock Exchange. It does not constitute a personal recommendation, as defined by the FSA, or take into account the particular investment objectives, financial situations, or needs of individual investors. It is intended only for investors who are 'eligible counterparties' or 'professional clients' as defined by the FSA, and may not, therefore, be redistributed to retail clients as defined by the FSA. This document has been approved by NIHK, which is regulated by the Hong Kong Securities and Futures Commission, for distribution in Hong Kong by NIHK. This document has been approved for distribution in Australia by NAL, which is authorized and regulated in Australia by the ASIC. This document has also been approved for distribution in Malaysia by NSM. In Singapore, this document has been distributed by NSL. NSL accepts legal responsibility for the content of this document, where it concerns securities, futures and foreign exchange, issued by their foreign affiliates in respect of recipients who are not accredited, expert or institutional investors as defined by the Securities and Futures Act (Chapter 289). Recipients of this document in Singapore should contact NSL in respect of matters arising from, or in connection with, this document. Unless prohibited by the provisions of Regulation S of the 1933 Act, this material is distributed in the US, by NSI, a US-registered broker-dealer, which accepts responsibility for its contents in accordance with the provisions of Rule 15a-6, under the US Securities Exchange Act of 1934. This document has not been approved for distribution in the Kingdom of Saudi Arabia (Saudi Arabia) or to clients other than 'professional clients' in the United Arab Emirates (UAE) by Nomura Saudi Arabia, NIplc or any other member of Nomura Group, as the case may be. Neither this document nor any copy thereof may be taken or transmitted or distributed, directly or indirectly, by any person other than those authorised to do so into Saudi Arabia or in the UAE or to any person located in Saudi Arabia or to clients other than 'professional clients' in the UAE. By accepting to receive this document, you represent that you are not located in Saudi Arabia or that you are a 'professional client' in the UAE and agree to comply with these restrictions. Any failure to comply with these restrictions may constitute a violation of the laws of Saudi Arabia or the UAE. NO PART OF THIS MATERIAL MAY BE (I) COPIED, PHOTOCOPIED, OR DUPLICATED IN ANY FORM, BY ANY MEANS; OR (II) REDISTRIBUTED WITHOUT THE PRIOR WRITTEN CONSENT OF A MEMBER OF NOMURA GROUP. If this document has been distributed by electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors or omissions in the contents of this document, which may arise as a result of electronic transmission. If verification is required, please request a hard-copy version. Nomura Group manages conflicts with respect to the production of research through its compliance policies and procedures (including, but not limited to, Conflicts of Interest, Chinese Wall and Confidentiality policies) as well as through the maintenance of Chinese walls and employee training. Additional information is available upon request and disclosure information is available at the Nomura Disclosure web page: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx
64

Acl

Diunggah oleh

Informasi Dokumen

Deskripsi Asli:

Judul Asli

Hak Cipta

Format Tersedia

Bagikan dokumen Ini

Bagikan atau Tanam Dokumen

Opsi Berbagi

Apakah menurut Anda dokumen ini bermanfaat?

Apakah konten ini tidak pantas?

Hak Cipta:

Format Tersedia

Acl

Diunggah oleh

Hak Cipta:

Format Tersedia

Alchemia

HEALTH CARE & PHARMACEUTICALS

19 0 0 -0.11c na na 123.4 7.2 na -1.6 net cash N/A N/A N/A

26 9 9 3.37c na 15.4 8.8 6.3 4.7 45.0 net cash

Source: Company data, Nomura estimates

March 30, 2012

Key data on Alchemia

Relative performance chart (one year)

Source: ThomsonReuters, Nomura research

-13 0 -13 0 -13

-19 0 -19 0 -19

-4.98c -4.98c -4.98c 0.17 0.00

-7.02c -7.02c -7.02c 0.10 0.00

-7.99c -7.99c -7.75c 0.07 0.00

-0.11c -0.11c -0.11c 0.07 0.00

3.37c 3.37c 3.29c 0.08 0.02

March 30, 2012

We forecast revenue from fondaparinux in FY12

FY10 5 0 0 12 18 0 1 0 19 0 37 0 0 1 1 0 4 6 0 0 118 -90 4 32 37

FY11 4 0 0 2 6 0 1 0 17 0 24 0 1 1 2 0 4 6 0 0 118 -103 4 19 24

FY12F 6 0 0 2 9 0 1 0 16 0 26 0 1 1 2 0 4 6 0 0 138 -122 4 20 26

FY13F 7 0 0 2 10 0 1 0 15 0 25 0 1 1 2 0 4 6 0 0 138 -122 4 20 25

FY14F 11 1 0 2 14 0 1 0 13 0 28 0 1 1 2 0 4 6 0 0 138 -119 4 22 28

ACL had net cash of USD23mn as at 31 December 2011

net cash net cash

net cash net cash

March 30, 2012

March 30, 2012

March 30, 2012

Fig. 1: ACL valuation methodology

Valuation (AUDps) 0.62 0.54 -0.21 0.02 0.97 79 0.77

Probability (%) 100.0 61.2

Risk-weighted valuation 0.62 0.33 -0.21 0.02 0.77

Our investment case for ACL

March 30, 2012

Preclinical Phase I 7 years+ 5-7 years c10% 13% cUSD5m cUSD10m

Phase II 3-5 years 21% cUSD20m

Phase III 1-2 years 61% cUSD75m

Dr Reddy's Recruiting Recruiting

Source: Nomura estimates

March 30, 2012

March 30, 2012

Valuing the opportunity for ACL

Valuation (AUDps) 0.62 0.54 -0.21 0.02 0.97 79 0.77

Probability (%) 100.0 61.2

Risk-weighted valuation 0.62 0.33 -0.21 0.02 0.77

Financial summary for ACL

2010A 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

2011A 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

2012F 2.6 0.0 0.0 0.0 2.6 0.0 0.0 2.6

2013F 19.4 0.0 0.0 0.0 19.4 0.0 0.0 19.4

2014F 26.4 0.0 0.0 0.0 26.4 0.0 0.0 26.4

2015F 37.1 7.8 0.0 0.0 44.8 0.0 0.0 44.8

2016F 49.7 18.0 0.0 0.0 67.7 0.0 0.0 67.7

2017F 49.3 28.9 0.0 0.0 78.3 0.0 0.0 78.3

2018F 47.9 38.2 0.0 0.0 86.1 0.0 0.0 86.1

2019F 46.6 42.0 0.0 0.0 88.6 0.0 0.0 88.6

2020F 45.5 43.9 0.0 0.0 89.5 0.0 0.0 89.5

March 30, 2012

2010A (3.1) (5.2) 0.2 (8.1) (0.7)

2011A (6.9) (2.5) (0.4) (9.8) (0.8)

2012F (15.0) (4.0) (1.0) (20.0) (1.7)