fat prophets on avx

The HC readers of this thread won't find anything new in today's analysis of FP. Which, I guess, is positive.

They remain confident that they will find a partner, which is good too.

I also like the bit on Epzicom.

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The main game hasn?t changed

Avexa?s stock price came under heavy selling pressure following the expiration of the HIV Integrase option period with Tibotec. The news has little bearing on the primary case for investing in Avexa, which is for the potential commercialisation of ATC. We therefore view the negative response as overdone.

The HIV Integrase program is at the preclinical stage of development, compared to the separate ATC program for which the final phase III study has closed. The aim of the program is to develop a product that inhibits HIV Integrase. HIV Integrase is the enzyme that is responsible for a key step in the HIV virus?s replication.

Pharmaceutical heavyweight Merck?s Raltegravir is currently the only Integrase inhibitor that has achieved approval from America?s FDA (Food and Drug Administration). Although Raltegravir is effective in treating HIV, viral mutations have emerged that appear resistant to Raltegravir. As a result, Avexa is assessing compounds that work in a different way to Raltegravir and therefore inhibit Raltegravir resistant viruses.

Johnson & Johnson subsidiary Tibotec entered an exclusive agreement with Avexa last year, aimed at reviewing the potential for collaboration on the HIV Integrase program. There is no doubt that collaborating with Tibotec would have been a positive for Avexa. Tibotec has extensive experience in the field of HIV treatments and its involvement would have accelerated the program?s development.

In the event however, Tibotec has decided not to partner Avexa and its option expired on March 2 2010. Avexa reported that Tibotec decided to let the option expire ?due to potential future conflicts with its own internal programs?. Moving forward, Avexa will remain in contact with Tibotec on a non-exclusive basis, while also having the freedom to discuss a potential collaboration with other parties.

While the HIV Integrase program could offer considerable future value, it is still at an embryonic stage. As such, the program is immaterial to Avexa?s valuation as it stands today. Avexa?s most valuable asset is of course ATC, on which the expiration of Tibotec?s option has no bearing.

In order to provide a gauge of ATC?s potential value, it is useful to look at the level of sales that existing products achieve. ATC is in a class of HIV products known as nucleoside reverse transcriptase inhibitors, or NRTIs. UK Pharmaceutical giant Glaxo is a major supplier of NRTIs, having launched its flagship 3TC compound back in 1995.

As Members may recall, Avexa compares ATC?s test results to 3TC and ATC consistently outperforms its currently available rival. Due to its age, 3TC is no longer at the forefront of Glaxo?s HIV product suite and the compound is due to lose patent production in the US this year. Nevertheless, Glaxo still managed to haul in sales of more than $200 million last year alone.

Bear in mind though, that 3TC is a mature product. In order to prolong its commercial life, Glaxo has combined it with another of the company?s drugs to form an alternative offering, Epzicom. Epzicom?s 2009 sales revenue came in at more than $900 million. This compares to Avexa?s current market capitalisation of around $90 million.

Valuing Avexa on the basis of the successful commercialisation of ATC would involve many assumptions, which would undermine the result. However, we can confidently say that should ATC achieve commercial release, Avexa will clearly support a significantly higher valuation than is currently the case.

etc....

And it finishes by a BUY recommendation at the current sp.