Alchemia spending to boost fondaparinux profits

Alchemia (ASX:ACL) has revealed an extra $10 million investment to reduce production costs and maximise profits after acknowledging that market competition has delayed the profitability of generic fondaparinux in the US.

Alchemia is set to receive its first profits from the sale of its anticoagulant product in the US.

The company is awaiting the receipt of $125,535 from its US marketing partner for the product, Dr Reddy's Laboratories.

This sum reflects Alchemia's first share of the profits from US sales of the product, now that the development costs borne by Dr Reddy's have been repaid out of the profits.

Alchemia's generic fondaparinux has a market share of 42% of the US retail sector. Dr Reddy's made net sales of the product of $33 million in FY12.

But the product is facing challenges in the US market, with growth constrained by the presence of an authorised generic for fondaparinux.

To help improve profitability in the face of this competing product, Alchemia said it had invested with Dr Reddy's to help improve the proprietary manufacturing process used to produce its version, with the aim of reducing the cost of the active pharmaceutical ingredient.

The $10 million investment cost will be split equally, but Alchemia's share will be deducted from its net quarterly profits at a rate of $500,000 per quarter for the next 10 quarters.

Alchemia CEO Pete Smith acknowledged that it was receiving its first slice of fondaparinux profit later than expected. “The presence of the authorised generic has delayed the point at which the product became profitable,” he said.

But he added that a reduction in active ingredient costs “should ensure that the profitability of the product will be in line with our expectations.”

Dr Reddy's is currently applying for CE Mark approval to also sell Alchemia's fondaparinux in the EU, which would also increase profitability.

Alchemia will next month seek shareholder approval for a plan to spin off its oncology business and the subsidiary's HyACT chemotherapy drug delivery platform into the standalone Audeo Oncology.

Alchemia (ASX:ACL) shares fell 10.28% in Monday's trading to $0.480 following the announcement.