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ATXI: InvaGen Acquisition Spices Up Quarterly Report

By John Vandermosten, CFA

NASDAQ:ATXI

READ THE FULL ATXI RESEARCH REPORT

Avenue Therapeutics (ATXI) released third quarter 2018 financial results and submitted their Form 10-Q to the SEC on November 14. The day prior to the quarterly submission the company announced a transformative acquisition with Cipla subsidiary InvaGen Pharmaceuticals. The deal will provide sufficient capital to advance the company to its anticipated target action date for IV tramadol and a final buyout if IV tramadol is approved with its expected label. We see this transaction as favorable for shareholders as it allows the company to focus on its objective without the distractions or dilution risk of capital raises and also allows shareholders to participate in upside following the full acquisition of shares through contingent value rights tied to annual net sales and gross profit targets.

3Q:18 Financial Results

Avenue’s third quarter expenses were $2.6 million, down 8% compared to the prior year’s level. Research and development costs of $1.8 million slipped 11% on the completion of the bunionectomy study earlier in the year partially offset by an increase in spend on the advancement of the safety study. There were also new costs in the quarter related to preparation for the upcoming abdominoplasty study. General and administrative expenses were $0.8 million and fell 3% as higher marketing expenses were more than offset by lower legal expenses. Net loss was ($2.6) million or ($0.25) per share compared to ($2.9) million or ($0.30) per share in 3Q:17. No revenues were reported in the quarter.

Interest income in the quarter was $13 thousand. Cash balance stood at $4.8 million as of September 30, 2018 after 3Q:18 cash burn of ($4.1) million.

InvaGen Capital Raise and Acquisition

On November 13, 2018, Avenue announced an acquisition with InvaGen Pharmaceuticals which will initially provide $35 million in capital for a one-third stake in the company. Following FDA approval and the desired label, InvaGen will complete its acquisition of the company for an estimated $13.92 per share plus contingent rights to payments related to revenue and profit levels. Additional details will be available in a proxy that we anticipate will be available before year end. We discuss the deal in detail in our earlier article.

Key Events

‣ Initiated Phase III Bunionectomy Study – 3Q:17
‣ Initiated Safety Study – 4Q:17
‣ Topline Readout from Phase III Bunionectomy Study – 2Q:18
‣ KOL call for Intravenous Tramadol – 2Q:18
‣ Avenue & InvaGen Announce Transaction – 4Q:18
‣ Initiate Phase III Abdominoplasty Study – 4Q:18
‣ Close of Avenue & InvaGen Transaction – 1Q:18
‣ Topline readout of Safety & Abdominoplasty Study – mid-2019
‣ Submit NDA for IV tramadol – Year-end 2019
‣ Target action date for IV tramadol – 4Q:20
‣ Close of Avenue / InvaGen transaction – 2Q:21
‣ Potential contingent consideration for shareholders of record – 2021+

Summary

We update our model to reflect third quarter results and maintain our target price of $19.00 per share. We will adjust our target price to reflect the new capital contribution and the outstanding share count when it closes. The proposed transaction with InvaGen reduces the risk profile for Avenue by eliminating capital constraining delays in trial progress and shareholder dilution. We anticipate that the proposed timeline above will progress as expected with Phase III results available next summer and an FDA response by late 2020.

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