fp update ... rather positive

.... and confirming my previous posting.

Avexa’s cash balance stood at $20.5 million at the end of 2008. This is approximately equivalent to Avexa’s rate of cash burn in the final 6 months of the year. Management expect a slower rate of expenditure in the 6 months to June 2009 though, having brought forward some costs into the first half. Even so, Avexa will require a capital injection this year, most likely through some form of strategic partnership.

The value attributable to ATC, and Avexa’s negotiating position of course strengthens as the product’s testing progresses. In terms of which, 96 week phase 11b testing data will be released within the next few days, but the more critical milestone is the completion of phase III testing.

Phase III testing is the final stage of development before pharmaceutical products are cleared for commercial release. In the case of ATC, the product could be declared viable after the successful completion of 24 week data. Although Avexa does not have sufficient funds to take testing this far, the company will reach the 16 week data point in the second quarter of this year.

--> Mr Chick confirmed in a recent conversation with us that Avexa is in talks with multiple parties. This is positive, given that management will need to spur some form of competitive bidding process in order to extract a favourable outcome from the negotiations. The completion of 16 week phase III data in the next few months should be the catalyst to ramp-up partnership negotiations and secure full development funding.

In the absence of competing interests, however, the risk remains that potential partners could adopt a vulture like approach and simply wait for Avexa’s cash reserves to run dry. If this occurs, Avexa may have to suspend their trials and conserve cash until a favourable offer transpires. Certainly, given most companies’ stricter capital controls, securing the necessary investment is not the forgone conclusion it once was.

In summary, the risks attached to ATC’s development from a testing standpoint have reduced over the last year. Despite this though, the availability of financing to complete testing has become a more significant stumbling block. The next few months will therefore prove critical in determining whether management can deliver on ATC’s value for shareholders.

Given the hugely lucrative potential of ATC and Avexa’s depressed stock price, we continue to believe that the upside potential outweighs the downside risks. Avexa will remain held in the FP Portfolio.