Ann: Update to 2009 capital raising - Placement t, page-17

re: Ann: Update to 2009 capital raising - Pla... Hi naira

I am not sure if there is a new Huntleys report as if there is I'd like to see it too. The only one I could find is from June 2007 (still very interesting) and we at a time where much of what was being projected is now where we are.

Apologies if this is not what was requested.

Here it is...

[Avexa is a developer of anti-infective drugs. Its lead
compound apricitabine (ATC) for HIV has generated strong
early Phase II results leading to a further re-rating by the market. Management and directors are good quality.
Funding is sufficient to take the compound to market.
The stock in inherently difficult to value because of the
difficulty of estimating the market potential and lifespan of future products. The stock is only suitable for risk tolerant investors. Share price takes a breather, but no change to fundamentals AVX has stalled and weakened after hitting highs of over $1.00 following the release of promising preliminary data from Phase II trials of lead anti-HIV compound apricitabine (ATC).

This is typical of a company in late stages of development
of a technology or a mining company that has delineated
an orebody and is building the mine infrastructure before
starting to mine. There is a lack of news to maintain the
interest of early stage investors/speculators who, particularly in bull markets, may have enjoyed spectacular returns. Such investors easily become bored/concerned when the share price slows, and are then inclined to sell, placing pressure on the price. The greater the early gains, the more potential there is for the stock to be sold down. Assuming the company has real potential then after sometimes extended doldrums the stock attracts the attention of a different set of investors. This group tends to be more sophisticated, informed and patient, and with more moderate return expectations.

In AVX’s case the capital raising at 53c, well below the then prevailing share price, has magnified the above effect as subscribers to the issue sell the stock down towards the
issue price. With Phase III trials likely to run for two years the drug is unlikely to be in the market before 2010, too long a wait for many bull market punters. Tax loss-selling is no doubt magnifying the price weakness.

Assuming Phase III trial success, AVX will pass important
earlier milestones that reduce development risk and
should boost the share price. These include the release of
comprehensive and later Phase II data, distribution deals, the reporting of preliminary Phase III trial data, and development milestones for other compounds. A takeover bid would have the most dramatic impact and in our estimation is quite likely.

Regardless, an increasing number of investors will become
more interested in the stock as the launch of ATC nears. A
year from launch, the prospect of several hundred million
dollars of high margin revenue will begin to attract a lot of attention.

Given the stock’s deep discount to valuation we would
expect professional investors to take advantage of this
opportunity to accumulate cheap stock. We note recent
director buying, but admittedly no sign as yet of professional investors establishing or adding to existing stakes. In fact substantial shareholder, listed biotech incubator Circadian Technologies has reduced its holding. But this does not surprise as CIR’s competitive advantage is taking relatively early stage science through the product development phase to the first stages of commercialisation. As an incubator CIR likes to have a significant influence over its investments. AVX is now well beyond that stage. CIR has also been selling down its holding in Optiscan which is at a fairly mature stage of development. We surmise CIR’s selling is to provide funding for its very promising early-stage venture, Vegenics.

The overhang of CIR stock may well have kept potential
buyers out of the market.

More comprehensive data from patients treated with AVX’s
drug for 24 weeks will be released, probably in September.
While the 21 day trial data released in March was compelling, some investors are probably waiting for 24 week data. The same may be said about potential acquirers considering a bid. We repeat the fact that all 30+ HIV candidate drugs that have successfully completed Phase II trials have reached market. AVX is only a few months from Phase II completion.

Recent lab studies conducted by leading HIV researchers
in Canada suggested ATC may be able to maintain activity
against a broader range of drug resistant mutations than
initially anticipated, further increasing sales potential.
The current weakness in the share price provides an
attractive – though still somewhat speculative – opportunity.

We note that in the absence of a bid shareholders may need
to hold until Phase III trials are well advanced – probably
two years from now - to enjoy strong returns. We estimate a
takeover this year would deliver a price between $1.20 and
$1.70 a share. An attractive feature of the company is that
with over $75m in the bank – boosted by the recent receipt of a $4.3m government grant – funding risk is negligible.]