Wednesday, November 23, 2011

Adventrx Pharmaceuticals (ANX) Moving New Drugs Along

I do look at pharmaceutical companies once in a while even though they don't really fit my portfolio.  I like the challenge of analyzing something new because it forces me to expand my horizons.  Adventrx Pharmaceuticals (ANX) is today's pharma candidate. 

Adventrx has had persistent problems getting the FDA to consider one of its flagship drugs, ANX-530, aka Exelbine.  The FDA cast doubt on Adventrx's ability to produce the drug at its intended manufacturing site in a "refuse to file letter" from March 2010.  The FDA's response letter of August 2011 cast doubt on the authenticity of ANX's most recent trials.  FDA approval for a drug is the single most important factor that makes it commercially viable.  I say that for the benefit of amateur investors and analysts who confuse PR with documentation.  The company's other main products, ANX-188 and ANX-514, appear to be on track with the FDA

Getting those last two drugs through a 24-month Phase 3 trial takes money.  Adventrx held $32.8M in cash as of Sept. 30, 2011 and had only $3.1M in total liabilities.  I'll estimate their monthly burn rate by adding up their four most recent quarterly net losses (sums to $13.172M as of Sept. 30) and dividing by 12 to get about $1.1M.  Dividing that into the company's cash reserves (netted against the liabilities will leave them with $29.7 in cash reserves) means the company has enough cash to last 27 months.  This is reassuring provided the company does not assume any new debt.  It should survive until Phase 3 results are on hand. 

The company has had negative net income, negative retained earnings, and negative free cash flow for three years.  New drugs are a high risk, high reward opportunity.  Adventrx has yet to hit its stride due to problems with ANX-530 but other drugs are in the pipeline. 

Full disclosure:  No position in ANX at this time.