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.

Brief - CYT Update, AVX coverage soon, Technical Analysis RoC

Three items on today's brief

1. CYT Update
2. AVX coverage soon
3. Technical Analysis RoC

1. CYT Update
--------------
CYT was analysed in Oct 07 with recommendation to buy up to 55c. Today's bid, offer is 47c vs 51c - a difference in opinion between buyers and sellers. Interesting news today is that Acom Capital doubled their shareholding in CYT and now holds about 12.7% (up from 11.2%). Other news since the original coverage include the commencement of PhII trials and raising of $5m capital. Recommendation is unchanged.


2. AVX coverage soon
----------------------
Avexa announced the commencement of PhIII trials. The share price increased but have not leaped yet. It has over $70m in cash and last quarter cash burn was about $5m. Looks promising. Coverage to be initiated soon - the figures here will be finalised later.


3. Technical Analysis RoC
--------------------------
Rate of Change indicator for technical analysis does seem to be a leading indicator. Note that different stocks need different "days" for the Rate of Change (RoC). The following 2 gold stocks CRK(10days), DGR are at the turnaround point, ie. RoC graph crossing the zero level - signal to watch and prepare for action. If it crosses to positive - go Long, if crosses to negative - go Short.

More detail of this method to be explained later.

Analysis - CUV - Clinuvel

Price($) 0.33
NTA ($) 0.22
P/NTA 1.52
Team 4
BurnPeriod 5.42
ProductPipe 12.6
ForeignMarket 3
Cash:Debt Debt Free



Previously known as Epitan, Clinuvel (CUV) is an "Australian biopharmaceutical company developing its photo-protective drug CUV1647 as a preventative treatment for a range of UV-related skin disorders as well as in cancer related treatments." Essentially 1 drug CUV1647 but with 5 applications. The product index is exceptionally high for a biotech at 12.6 (above 5 is good). This is due to CUV having over 2 pipelines in Ph III, 1 in PhII and 2 ready to start PhII.

On a quarterly basis, a few interesting financial patterns can be seen. The receipts have reduced from over $200k per quarter from 07Q1 to $0 in 08Q1. Although the receipts are relatively small compared to operational spending - this fact is interesting to note, suggesting that the operations that is earning income has stopped, perhaps to focus on trials. The 2007 Annual Report claims that the funding is sufficient for clinical trials until end of calendar year 2009. Fy07, including 08Q1, is one of CUV's highest spending period with investment spending of about $50m, and capital raising of $60m from equity.

This results in significant dilution of shareholders value with 302.15m shares and worth 3.3 cents a share. Hence the Price to cash is about 10 times - extremely risky. From the analysis of quarterly statements, if operational outflow remains at similar level with no large investments, then current cash level would last for another 5 quarters, 4 quarters short of CUV's prediction. In general, we consider cash lasting 8 quarters to be quite safe, and about 4 quarters to require a wait-and-see approach.

The management index of 4.0 is a about average but note that 2 PhD directors (excluding the current 4) have resigned. This may or may not reflect CUV's development into a late clinical stage company. Clinuvel has a presence in the US and Europe market by having offices there which are involved in clinical operations to an extent. The market exposure of 3.0 is slightly below desirable but not unacceptable.

In terms of product development, CUV has an excellent advanced stage pipeline with a product index of over 12 points. In general, we consider an index value above 5 to be good. CUV has two products undergoing PhIII and others at PhII or earlier. Biotechs at PhIII usually command good valuation with higher multiples over its NTA as will be considered shortly. The risk is that an unsuccessful trial, especially in PhIII, that fails will lead to extremely negative shareholder sentiment - a reduction of share value of 70% is not impossible.

All 5 of its top products currently in trial are based on a single compound CUV 1647. The advantage nature of several of these trials have de-risked safety issues related to this compound. Only efficacy of these drugs now need to be proven beyond PhIII and the multiple pipelines represent good diversification and increases of probability of compounds to market. The products range from protection against sun poisoning, sun intolerance to skin cancer related products.


The share price has been plunging from a high of over $1.2 in April 07 to the current value of about $0.35. Management believe this value does not account for any of its product potential at all. One speculative reason is the its 20% shareholder Absolute Capital Management (ACM) may have been affected by the credit meltdown of recent months. Apart of any unforseen financial obligation to ACM, the worst case scenario of the collapse of ACM is a sell-off of its holding in CUV. Despite this we believe the value of CUV should hold itself independent of its shareholders. At least 2 analyst reports value CUV to have a target price of over $1.00 (Analyst reports can be seen on the CUV's website).

According to the 2007 annual report, it holds about $28m in funds, with another $34m in cash. Ordinarily this is fine. But given the volatility of the share-market in recent times, the significant portion of $28m should be considered in the risky category and potentially worthless. Also note that in the latest quarter 08Q1, it has only over $9.9m in cash.

From the balance sheet point of view, CUV is debt free, as are most biotechs. In the current credit difficulty period, debt freeness is one less item to worry about. The intangibles are only a small fraction of total assets, yet due to the high number of shares, the NTA per share is only $0.21 - i.e Price/NTA of 1.52. This NTA is based on the 07Q4 which was $65.6m. To be conservative, removing the $28m of financial instruments (most likely liquid funds / derivatives) and also accounting for 08Q1 financial spending of $22m, that leaves NTA as about $15m. The revised Price to NTA ratio should be about 6 times, this is higher than desirable of 3 or below.

In summary, close scrutiny indicates that its financial position is not as cash-ready CUV would want investors to believe. Yet, with a number of late stage products in the pipeline, CUV should command a premium. Also taking technical analysis into account of the decreasing share price, the recommendation would be to buy CUV when it stabilizes slightly above half the current price at $0.20.

Recommendation: buy at $0.20 when stabilised.

Analysis - NEU - Neuren Pharmaceuticals

Price($) 0.24
NTA ($) 0.04
P/NTA 6.71
Team 6.4
BurnPeriod 0.39
ProductPipe 9.1
ForeignMarket 2.4
Cash:Debt DebtFree


Here's what Neuren (NEU) has to say about itself:
"...biopharmaceutical company developing novel therapeutics in the fields of brain injury and diseases and metabolic disorders. The Neuren portfolio comprises eight product families targeting markets with large unmet needs and limited competition.
Neuren has four lead candidate molecules—Glypromate , Motiva , NNZ-2566 and NNZ-2591— focused on a range of acute and chronic neurological conditions. The company also has a robust R&D program which includes drug discovery platforms addressing neurology, oncology and endocrinology."

NEU appears to be a strong drug developing company in the following aspects: broad product pipeline with several in advanced stage clinical trials - hence de-risked; a highly qualified scientific team and solid collaboration with overseas counterparts.

Recently purchased Hamilton Pharmaceuticals has added Motiva product line to its research. This product has passed Ph 2b but is now being retested for a new application - about to proceed to Ph 2.
It lead product Glypromate is undergoing Ph III. Its drug NNZ-2566 is in clinical trials with the support of the US Army. A collective score of 9.1 for products is far above the average.

Its management team consist of many scientific personnel which gives a high score of 6.4.Collaboration with foreign researchers such as US Army, Cambridge Uni produces a foreign market scor of 2.4 - almost the average. This is a positive factor considering NEU's products are not in market yet.

Although NEU looks like a scientific winner, its financial standing does not look healthy. Its burn rate for last financial year (Dec based, not June) is NZ$10. By the end of 3rd quarter 2007, cash reserve is only slightly more than NZ$1m. Hence cash flow is a serious problem. As part of its deal to acquire Hamilton Pharmaceuticals, CNF Investments and Vivo Ventures will invest US$3m via convertible notes - but this is only a short term solution to its heavy cash burn.

Another indicator is the price to NTA ratio at 6.71. At the level, the price for NEU is very expensive, even though the share prices has reduced significantly in the near past. For NEU to be inexpensive, all factors being equal, a fair price would be 10c. Watch out for the last quarter of the 2007 year to see the state of funding of NEU, i.e. whether it can raise more funding?

Recommendation: Sell until 15c

Lightning Analysis - Gold - Carrick, Monarch

This is a very quick back of envelope calculation of how the prospective gold of Carrick Gold and Monarch Gold are priced.

crk mon
Shares(m) 112 462.226975
Resource(moz) 3 2.3
oz/sh 0.026785714 0.00497591
$/sh 2.06 0.26
$/oz 76.9 52.3

The numbers show Monarch's gold is priced cheaper by the market. Carrick Gold has had a run-up in recent weeks, due to significant high grade gold found.

Note that this analysis has not taken into account the operations effectiveness, financial standing, etc.

Analysis - PLD - Portland Orthopaedics

PLD - Portland Orthopaedics

Price($) 0.2
NTA ($) 0.06
P/NTA 3.54
Team 5
BurnPeriod 5
ProductPipe 27
ForeignMarket 3
Cash:Debt 13.33

Since the company brief on PLD on this blog a few months ago, I'm finally blogging its analysis here. Note that I still hold shares which I bought at 33c, still believe it is way undervalued.

Portland Orthopaedics designs and manufactures a range of orthopaedic products. Its 3 family of products are DTC, Equator Plus and M-Cor. The latter two have recently gained approval and is selling in the US, though it is still seeking approval here. The number of products already reached market in addition to products in the pipeline has earned PLD a very high product pipe index of 27.0

The primary market for PLD appears to be the US. The advantage is that this occurs a big market but the surge of the Australian dollar is a drawback. Its plans to venture into China and Europe are still progressing. In the US PLD has taken over its own distribution after former distributor Plus Orthopaedics was acquired. At this point, its distribution appears to be going smoothly with increased annual sales revenue of almost 400%. Based on current market penetration, the foreign market index of 3.0 is on the low side.

In terms of cash flow, the last quarter Operating CF loss is almost halved the previous quarter, despite decreasing receipts. This is a good sign if it is able to maintain low operating outflow. Based on the current quarter burn rate and the cash left, it can survive another 5 quarters.

Annual cash flow figures shows an increase operating loss by $3m. Although receipts doubled from $2.4m to $5.7m, payments to suppliers and employers doubled from $5m to $10.8m. Management acknowledged a once-off cost of over $1m but this does not explain the increased loss of over $2m. The write-off is a write-down of stock of the DTC product being superceded by the M-COR product range.

Other financial aspect include a very healthy cash to debt ratio of over 13 times. Its price to NTA is about 3.54 times is considered moderate, or not too expensive. In terms of trend however, PLD has been in a decline since mid June 2007. Technical investors may wait a while more until the price stabilised or swing up before buying.

Recommendation: Hold until downtrend flattens or swing up.



CashFlow Current 06Q2 06Q3 06Q4 07Q1 07Q2 07Q3 07Q4 08Q1
Cash at Start 3897 844 3,652 2,595 4,554 2,685 7,133 5,182 3,897
Receipts 1666 513 461 491 788 789 1,244 2,108 1,666
Operating CF -636 (1,263) (993) (1,041) (1,790) (1,331) (1,909) (1,173) (636)
Investing CF -30 (9) (55) (165) 0 (155) 22 (1) (30)
Financing CF -53 4,081 (9) 3,165 (79) 5,934 (64) (64) (53)
Net Change -719 2,809 (1,057) 1,959 (1,869) 4,448 (1,951) (1,238) (719)
Net Adjustments 0
Cash at End 3178 3,652 2,595 4,554 2,685 7,133 5,182 3,944 3,178

Analysis - CYT - Cytopia

Price($) 0.46
NTA ($) 0.32
P/NTA 1.42
Team 5.5
BurnPeriod 6.86
ProductPipe 4.8
ForeignMarket 2.8
Cash:Debt DebtFree


Cytopia is a drug discovering company with a focus on oncology. Its products are based on developing protein based inhibitors, and had acquired over 10 patents. CYT’s computer based screening allow protein and other structures to be identified quickly whether or not further developments are required.

CYT has the following class of products: CYT997, JAK3, JAK2, FMS. Within these classes of products, there is more than one product. Many of these products are at the very early stages of the preclinical phase, with the exception of CYT997 which has two products about to enter Ph II. The product score of 4.8 is a good figure. Though many of the potential products are before preclinical, the breadth of the pipeline is important in diversifying the risks and is reflected in the score.

The fundamental figures collectively look good. Like many other biotechs, CYT is debt free. But unlike other biotechs, its cash position is good enough for CYT not to be required to report quarterly. From the half year reports, extrapolation of cash burn rate indicates CYT will last more than 1.5 years, in which time CYT anticipates to have several products in Phase II trials. Another major buy prompt is its Price to NTA of about 1.4 – we consider a ratio of up to 3.0 to be a reasonable buy.

Its team score of 5.5 is considered very good. At least 4 members of the management team are scientists, including the discoverer of JAK1 and JAK2 enzymes, Dr Andrew Wilks. The founder of CYT, Dr Kevin Healy is still a member of the directors.

The foreign market score is only 2.8 and is regarded as low. This is not surprising since none of CYT’s products are in market. However, even at the early stage, it can score 2.8 because CYT successfully engaged other pharmaceuticals for collaboration in their research. CYT’s R&D collaboration with Novartis on JAK3 is one of the biggest for an Australian biotech company. Being able to collaborate and receive payments from big pharma at such early stages appear to be the model for CYT and is commendable.

Thing to watch for is the conclusion of Ph 1 of CYT 997 trial (oral) 4th quarter this year.

In terms of technical analysis (for the immediate short term as of 26 Oct 07), the 5 day momentum is heading upwards from a negative position and is on the verge of positive. The general trend from end of July (about 70c) is downward, and for those waiting for an upswing, it may be best to wait for the upswing signal.

Recommendation: Buy up to 55c