rights issue, page-15

Avexa (AVX) 9.4c

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CRITERION: Tim Boreham | March 25, 2009
Article from: The Australian

HAVING failed to get its mitts on Progen's $70 million cash kitty, Avexa management has turned to plan B - a discounted rights raising - to procure enough funding to keep its HIV drug trials ticking over.

Avexa plans to issue up to 212.3 million shares under the one-for-two offer, to raise up to $14.8 million. The price is struck at 7c a share, compared with last night's 11c close.

With a mere $20 million left in the bank as of last December, Avexa had no choice but to go to market with this dilutive exercise. If the non-underwritten raising succeeds, Avexa buys itself a little more time (and leverage) to find a new partner on more amenable terms.

Early this month, disgruntled Progen holders torpedoed the proposed merger, with Progen opting instead for an extended cash return.

Luckily, Avexa subsequently had some positive 96-week trial data up its sleeve, which fattened up the share price ahead of the raising.

Maybe Avexa will realise its potential. An independent report values Avexa's lead compound apricitabane (ATC) at $151 million to $225 million, which translates to a per-share value of 21c to 41c per share. This factors in the dilution effect of raising $70 million of cash.

In a letter to holders this morning, management talked up ATC as having potential annual sales of $870 million. But there's a long way to go. Even in the unlikely event of holders rushing the offering, Avexa isn't exactly in prime position to drive a favourable partnering deal.

Criterion had Avexa as an AVOID at 6.9c on March 10, after the Progen deal fell over. We see no reason to resile from this stance. Given the offer is renounceable, investors might consider selling their rights on-market if there's any value ascribed to them.

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The Australian accepts no responsibility for stock recommendations. The author does not hold an interest in any of the stocks mentioned. Readers should contact a licensed financial adviser.

http://www.theaustralian.news.com.au/business/story/0,28124,25239871-23634,00.html