One definition of alchemy is that it is a process by which paradoxical results are achieved or incompatible elements are combined with no obvious rational explanation.

It is also supposed to be the forerunner of medieval chemistry, based on the supposed transformation of matter, leading to all that glittering gold.

By these definitions, ASX-listed biotech Alchemia, is well named. At 58¢, its shares have climbed 38 per cent since Radar mentioned the stock back in May when it was 42¢.

If there is any alchemy, we would suggest it has been at the hands of the corporate financiers and 19 per cent shareholder Allan Gray (previously Oribis Capital), which is making an absolute motza from the part of the $21 million it pumped into the company this time last year at 24¢ a share.

D-day is approaching for the company as it is about to split in two on December 5, and the question of what a company is worth has never been more vexing, at least for this columnist.

Alchemia's market cap is currently just under $163 million, and we understand that chief executive Pete Smith and his team are racing around the US trying to raise about $US50 million ($A48.2 million) for its cancer treatment, which is supposed to improve the effectiveness of chemotherapy drugs and is in phase three trials.

Alchemia is being split into its fondaparinux drug on the one hand, which is relatively low risk and starting to earn good money (the reason behind all this), and on the other, its high risk cancer R&D.

Alchemia's name and management will remain with the former, while the cancer R&D vehicle will be listed on the Nasdaq and on the ASX and will be called Audeo Oncology. Alchemia shareholders will own 70 per cent, and the new US shareholders will own the remainder.

Fondaparinux (code-named Jane within the company) is a generic version of GlaxoSmithKline's drug used to remove blood clots and deep vein thrombosis. It is being manufactured and distributed by Dr Reddy's and yesterday Alchemia said it received $1.5 million in net royalties for the June quarter.

By all accounts, this business is going well, having increased market share to about 41 per cent at the pharmacy level, and 6 per cent of hospitals. It will need to grow quickly to justify a market cap north of $100 million, and will be based on the effectiveness of Dr Reddy's marketing.

At the current share price, the market is valuing Jane in the order of 40¢ a share, according to Scott Power of RBS Morgans, versus his valuation, which is about the current share price, of 58¢.

Radar's scepticism has more to do with the 40¢ a share valuation of the cancer R&D business, which we think is on the high side, and was arrived at by the underwriters Leerink Swann and Oppenheimer & Co. If Audeo raises the $50 million or so as planned, this values the company, which will have the ASX code AKQ, at $160 million (more or less).

No doubt Alchemia's cancer treatment is promising, and the company says that the recruitment for its final stage trials are going well, but we are talking about the riskiest end of the biotech curve. It's said that the US Food and Drugs Administration would not approve aspirin if it were discovered today.

To our knowledge, Alchemia's (soon to be Audeo's) HA-Irinotecan compound, which at this stage is targeting bowel cancer, does not have the backing of a big pharmaceutical company. For valuation reasons, if a small biotech only has one or two products in development, the incentive is very strong for management to push that product through the various stages of development.

In any event, the $50 million raised will only be enough to fund its phase three program, the results of which are due in the second half of next year. It will need to raise more if it needs to run additional trials. Such is the life of a biotech.

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