Analysis - AVX - Avexa

Price($) 0.59
NTA ($) 0.19
P/NTA 3.07
Team 8.5
BurnPeriod 11.92
ProductPipe 3.6
ForeignMarket 2
Cash:Debt DebtFree


Avexa is developing drugs for HIV and antibacteria-resistant infections. It has one lead product that has recently obtained successful results in Ph IIb trials. More results for Ph IIb are expected to be released in the early months of 2008. Even so, it has received the green light for Ph III. Entering Ph III itself is an important stage of biotechs - it is the stage where global pharmaceuticals may become a main partner or even take over the junior biotech at a high premium. However, it is also a stage where R&D companies may crash if the Ph III clinical
results are disappointing.

AVX's drug are to target anti-bacteria resistance and its lead product ATC is an antiviral for HIV. Ph IIb results have shown that ATC is able to target current drug resistant HIV, i.e. it works where other drugs have failed. One of its mechanism is to stop the replication of the HIV virus.

AVX cited other products in the pipeline, however they are at the early preclinical stage - hence the low product index of 3.6. Although AVX beliefs that it's approx $70 cash-at-hand is a de-risking factor, the lack of other advance stage products in the pipeline mean that the share price is almost certain to fall below 50%, likely more, if the lead product receives a setback.

AVX has an incredible line up in the Board and management, if PhD's are the only indicator to go buy - which is the case in our analysis since we don't know them individually. The management index is a score of 8.5, almost double the points of what we consider as average. A positive note goes to CEO Dr. Chick who has served since 2004 or earlier and has through the various Phases of clinical trials of ATC.

The Foreign Market index of 2.0 for AVX is relatively low. Its main product is ATC was acquired from a North American company. It currently has collaboration with Shanghai to develop inhibitors that prevent HIV binding to cells. We may suppose AVX's drug is known in the specialist anti-HIV community for its effectiveness, but its lack of commercial association with big pharmas present a risk especially when AVX has openly stated its strategy include looking for partners for Ph III and beyond.

Financially, AVX is debt free which is good. Quarterly cash burn has doubled in the last quarter to almost $6m. This is expected given it is entering Ph III. Cash burn rate calculation of over 11 quarters is based on linear trend. But as Ph III spending will definitely increase, the real cash burn should be greater than that. But given the amount of cash left, it is very likely to last over 1.5 years without further injection - this would bring it to the middle of Ph III. Hence any investment now should be re-evaluated at least in the middle of 2009.

From a technical analysis point, AVX has been quite volatile. A year ago, it was less than 25c, but news of successful Ph IIb pushed it close to 85c, but other concerns, perhaps ability to find a big pharma partner has caused the price to go as low as 45c. The recent low is 50c and news of Ph III entry approval has caused a rise. It price to NTA is currently 3.07 which is on average, but not cheap. Noting that Ph III is a cash burner, expect the P/NTA to increase in coming months, thus making the stock expensive. In conclusion, the share price itself is too volatile and investors sentiment is totally locked into one product of the company. I estimate 2 years before the results of Ph III to be known.

Recommendation: Wait until mid 2008 and buy if the price is 30c or below.