bioshares says avoid avx

I'd be interested in commentary on this Bioshares story on AVX (and Progen). I've stayed in Avexa too long - I'm about ready to exit myself. If there are superior competitor drugs out there, then that explains why no one wants to do any kind of deal with Avexa's drug compound.




Bioshares Number 299 – 13 February 2009 Page 4

299

On December 22, 2008, the board of Progen Pharmaceuticals announced

that it would proceed, subject to shareholder approval,

with a merger with Avexa, developer of the HIV drug candidate,

apricitabine (ATC). ATC is a nucleoside reverse transcriptase inhibitor

(NRTI). The merger would, if agreed by shareholders, be

effected through a court approved scheme of arrangement

Since the announcement of the merger, Melbourne-based cancer

drug developer Cytopia has, along with a significant number of

other Progen shareholders, requisitioned a shareholders meeting.

The Cytopia-led group of shareholders, constituting more than

18% of shareholders, is seeking to offer a full $1.10 buy-back to

shareholders (not capped, but subject to available net cash reserves),

removal of the current board and replacement with three

directors not associated with Cytopia. The Cytopia group has

also asked for its meeting to be held at the same time as the meeting

called to vote on the proposed merger of Progen with Avexa.

The scheduled date of this meeting is March 11, 2009.

While the merger with Avexa may appear as a positive opportunity

for Avexa shareholders, it is negative on several counts for

Progen shareholders. Progen shareholders do not get the opportunity

to be offered a full $1.10 buy back, with the existing Progen

board offering a $1.10 per share capped at $20 million.

A most perplexing issue for Progen shareholders are the capital

requirements of the entity that results from a merger with Avexa.

Merger documents indicate that the merged entity would require

$110 million to complete the current Phase III ATC study beyond

the week 24 primary endpoint (expected mid-2010), complete extension

studies following regulatory approval, conduct a second

Phase III study and market launch preparations.

At issue are the economic merits of ATC. This compound was

assessed by Lonergan Edwards as being worth between $151.4

million to $225.8 million. This valuation can be compared to a licensing

transaction that was announced on February 6 in which

GlaxoSmithKline licensed a non-nucleoside reverse transcriptase

inhibitor (NNRTI) IDX899 from Idenix Pharmaceuticals for a total

deal value worth up to US$450 million. This deal figure excludes

the royalty stream that would flow to Idenix if IDX899 reached the

market.

IDX899 completed a Phase II study in 2008, achieving mean viral

load reduction of 1.8 log10 [32 patients]. Avexa achieved a mean

viral load reduction of 0.8 log10 in a Phase II trial [47 patients].



Why Progen Shareholders Should Vote Against the Progen-Avexa Merger



IDX899 is designed to be orally administered once a day. ATC is

also an orally delivered compound, but taken twice a day. This is

a significant but arguably unfavourable point of difference for

ATC in that a competitor compound has emerged with a potentially

superior drug profile. It is one of a number of factors that

explain, in our opinion, the niche potential for ATC. Other factors

include the emergence of newer classes of drugs, including

integrase inhibitors and CCR antagonists.

Progen shareholders can rightly ask if there can be any substantial

net economic gains by further investing in a compound that

will take another $110 million to get to market and which does not

appear to have taken as yet the interest of potential licensing

partners. This is an issue about which there should be a properly

informed debate.

A further issue for Progen shareholders is that of confidence in

the existing Progen board. The Progen board has presided over

the termination of a Phase III trial of PI-88, yet in our opinion has

offered less than satisfactory reasons for the cessation of the

development of PI-88.

We posed the following questions to the Progen board in

Bioshares 293:

1. How many licensing proposals were rejected by the Progen

board for PI-88 and what was the value and terms of those offers?

2. Why was recruitment in the Phase III trial so difficult to achieve,

given that a global contract research company was employed

and that liver cancer is a disease that has a high prevalence?

3. Was the Phase III trial protocol changed in such a way that

recruitment was hampered?

4. Was negative side effect data from the Phase II prostate cancer

trial, released in February, a major contributing reason for the

cessation of the Phase III trial?

5. Were any senior executives of the firm found to responsible for

the failure to progress the Phase III trial?

It is reasonable for shareholders to expect fair and honest disclosure

by boards of directors on matters of a material nature.

We maintain an Avoid recommendation on both stocks (Progen

Pharmaceuticals and Avexa) in the context of proposed merger.

Bioshares