Nothing new in today's newsletter re AVX - to be fair with FP, they are more knowledgeable in the resources sector than in the biotech one... Here it is:
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Although institutional investors benefited the most, capital raisings have proved a lucrative source of returns over the last year. With the worst of the crisis now passed and balance sheets in considerably less stress, that is not likely to be the case next year. As we highlighted last week though, biotech battler Avexa has decided to round out the year’s capital raisings with another of their own.
We think the company’s SPP (Share Purchase Plan) is an attractive opportunity and recommend that Members take it up in full.
As Members may recall, Avexa is developing an HIV treatment known as Apricitabine, or ATC. ATC has the potential to transform Avexa, enabling the company to gain a share of the US$7 billion HIV market.
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ATC’s phase III trial is currently closed and the 24-week data is under evaluation. From an historical perspective, all HIV drugs that have entered phase III testing have proceeded to commercial release. The strength of ATC’s results to date certainly supports our view that the drug will not prove the exception to the rule.
During the 48-week phase IIb trial, ATC reduced the virus to undetectable levels among more than 90% of infected patients. The virus typically becomes immune to drugs used against it, meaning patients must then switch to a new product to retain control of the infection. On this front, ATC is also proving highly effective, with no indication of resistance to the drug after the 48-week period.
In terms of the latest capital raising, management raised $8 million from institutional investors on 30 November 2009, through the issue of 57.1 million ordinary shares at $0.14 per share. Management intends to raise up to a further $3 million through the SPP.
The SPP is limited to a maximum of $15,000 per shareholder and a minimum of $1,000. Permissible amounts within this range are restricted to $1,000 intervals.
As is normally the case, shareholders will not have to pay brokerage or other fees through the SPP.
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Avexa held cash of approximately $10 million prior to the capital raising and $18 million prior to the SPP. Given the SPP’s 20% discount to the stock’s current market price, the SPP is unlikely to fall short of its upper limit. Avexa’s subsequent cash balance of $21 million is therefore reasonably certain. Management expects this to satisfy the company’s working capital requirements until mid-2011.
The timing of the capital raising has come as somewhat of a surprise, given that Avexa previously had sufficient funds through to June 2010. A capital raising did not seem likely until after the release of results from ATC’s recently closed Phase III study in the first quarter of next year.
The phase III data should prove sufficient for third parties to determine whether they wish to partner Avexa in the vaccine’s commercialisation. Were Avexa running low on funds, however, potential partners could adopt a vulture type approach in order to extract a cheaper deal.
Having discussed the matter with CEO Dr Julian Chick, he confirmed that strengthening Avexa’s negotiating position is a factor behind his decision to strengthen the balance sheet. The recent strength of the company’s share price and indeed the broader market is also likely a factor in Dr Chick’s decision to act now.
Looking ahead, the outcome of Avexa’s efforts to secure a partnership with a major pharmaceutical company will be the primary determinant of the stock’s price action next year. The likelihood of a positive outcome is of course highly dependent on the phase III data.
The other potential upside catalyst that we have previously identified in relation to Avexa is the possible collaboration with Tibotec. Both companies entered a six-month exclusivity period in May 2009, in relation to Avexa’s early stage HIV Integrase project. The collaboration would be a significant boost to Avexa, given the wealth of knowledge and experience Tibotec has in the HIV field.
The six-month deadline expired in November without an agreement. Encouragingly though, both companies are still exploring the possibility of a collaboration and will extend the option agreement.
In short, the upside potential that ATC could deliver for Avexa remains very much on the table. That being the case, we continue to view the company favourably from a risk/reward perspective. This is particularly so gi
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