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CHEXF: Initiating Coverage of Avivagen, Inc.; Combating Antibiotic Resistance at the Source…

By David Bautz, PhD



We are initiating coverage of Avivagen, Inc. (OTC:CHEXF) with a valuation of $2.50. Avivagen is developing products to support animal health, which includes replacing antibiotics in livestock feeds with proprietary compounds that promote the growth and overall health of the animal through support of the host’s innate immune system. Avivagen discovered that β-carotene polymerizes with oxygen into a unique class of compounds (oxidized β-carotene, OxBC) that promote immunological health and are the basis of Avivagen’s OxC-beta™ technology. Antibiotic resistance is a growing worldwide public health problem, and since 80% of antibiotics are used in livestock feeds in the U.S., replacement of antibiotics in animal feed may help alleviate the rise in antibiotic resistant organisms. In addition, regulatory agencies worldwide are calling for the decreased use of or outlawing the use of antibiotics in livestock feed. Numerous studies conducted by Avivagen and its partners has shown that supplementation of feed with parts-per-million levels of OxC-beta Livestock can be used as a replacement for growth-promoting antibiotics while offering the same or better growth and health benefits without contributing to the development of antibiotic resistant organisms. OxC-beta Livestock is currently approved in six countries, including the U.S., and registration activity is ongoing in several Asian countries, including China.

Combating Antibiotic Resistance at the Source

Each year, at least 2 million individuals in the U.S. contract a serious infection involving a bacterium that is resistant to one or more antibiotics, with at least 23,000 people dying each year as a result of antibiotic-resistant infections. The rise in antibiotic resistant bacteria is the result of the overuse of antibiotics, with approximately 80% of antibiotics sold in the U.S. utilized for livestock growth promotion. Avivagen’s proprietary OxC-beta technology is a non-antibiotic solution for growth promotion in livestock by enhancing the innate immune system and has no risk of promoting antibiotic resistant organisms.

$1 Billion Market Opportunity

Approximately 32,000 feed mills produce approximately 1.1 billion metric tons of feed every year and the global animal feed market is projected to reach approximately $37 billion in 2022. Even with only very small amounts of OxC-beta Livestock premix required (providing 2 g of the OxBC active/ton of animal feed), this represents an enormous potential market opportunity

Gaining Market Share in Asia

Of the approximately 1.1 billion metric tons of animal feed produced annually worldwide, Asia accounts for approximately 35% of that total. Avivagen is focusing on Asia for initial commercialization efforts for OxC-beta Livestock as a number of successful trials have already been conducted in that region. The company has multiple distribution partnerships in place in the region and is actively working toward attaining regulatory approval in China.

Growth Strategy in Place

Avivagen has a three-pronged growth strategy to capitalize on the enormous potential for OxC-beta Livestock: 1) maximize the company’s current partnerships by driving adoption and increasing new applications; 2) support expansion of new markets through regulatory approvals in additional countries; 3) add distribution deals in approved markets to reach the maximum number of customers as possible.


We value Avivagen using an EV/EBITDA multiple based on projected revenues of OxC-beta Livestock. We believe Avivagen is laying the groundwork for a very steep growth rate in revenues in the coming years through a combination of new market opportunities and market expansion. For example, the company is making steady progress on sales in the Philippines and we believe it is only a matter of time before sales begin to ramp up considerably in Asia and other parts of the world, particularly as additional data showing the benefits of the OxBC technology is published.

Due to the fact that Avivagen has a limited commercial history, the financial forecasts we have prepared are educated guesses and are heavily reliant on the company continuing to execute on its business plan to get OxC-beta Livestock approved in as many jurisdictions as possible, signing distribution agreements in each of those jurisdictions, and continuing market expansion through adoption of OxC-beta Livestock by major animal producers.

Our model estimates sales of OxC-beta Livestock of CAD$50 million in 2024, as we believe the company will hit an inflection point following the adoption of OxC-beta Livestock by multiple major animal producers over the next couple of years. Using an EV/EBITDA ratio of 16 (which is derived from the average for pharmaceutical companies found here) and an EBITDA of CAD$21 million leads to an EV of CAD$336 million. Using a discount rate of 20% (derived from CAPM) we arrive at a present day EV of approximately CAD$135 million. The company has approximately CAD$3.5 million in debt, CAD$1.9 million in cash, and CAD$7 million in potential financing from warrant exercises. Accounting for that leads to a NPV of CAD$140 million. Dividing this by the fully diluted share count of 44.2 million leads to a valuation of approximately CAD$3.20 per share. Using the current exchange ratio of $1 CAD = $0.76 USD leads to a valuation for CHEXF of approximately $2.50.

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