Further trial results of AVX's lead HIV compound apricitabine (ATC) indicate an even higher probability of clinical and commercial success. Dr Pedro Cahn presented the results to the International AIDS Society meeting in Sydney. Dr Cahn, one of Avexa's lead investigators for ATC, is also President of the International AIDS Society.
Subscribers interested in the technical aspects of the presentation should read the announcement. Dr Cahn described ATC's significant activity against a wide range of drug resistant HIV strains, its extremely good side-effect profile, and the absence of mutations conferring resistance to ATC.
Significantly some 16 out of a possible 17 patients have elected to enter the extension study after completing the 48 week study. This suggests ATC is providing benefit to patients with HIV and helping in the treatment.
AVX is a speculative stock. It does not have revenues and earnings and value derives at this stage almost exclusively from one drug development program. Should the program fail or another treatment render the drug obsolete then shareholders will lose the vast majority of their investment. Our assessment is that ATC has at least a 95% chance of reaching market.
All HIV drug candidates - around 30 - that have entered Phase 3 trials have reached market. AVX is now in the advanced stages of Phase 2 and showing continued positive results. A large-scale Phase 3 trial is scheduled to begin in around six months, with commercialisation likely in late 2010.
Similar drugs in the market suggest ATC will generate annual sales of ~US$500m, although the actual level could vary significantly. AVX will pay royalties ~15% (an estimate because not disclosed) of sales to UK company Shire Pharmaceuticals from which it licensed the ATC program. Valuation is inherently imprecise. We value AVX based on what we believe a large pharmaceutical company with a distribution infrastructure would pay for the drug. At the conclusion of the Phase 2 trial we estimate this to be around $1.40. This assumes ATC generates peak sales of A$500m in 2014, a drug life of 11 years, a 15% royalty to Shire and a discount rate of 15%. On this basis the current share price significantly undervalues the stock. We retain our Speculative Buy recommendation. 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
AVX Price at posting:
0.0¢ Sentiment: Buy Disclosure: Not Held
