AGENIX LIMITED (AGX) * Further details on Page 17 ** All ... · VTE, haematological malignancies...

KEY POINTS Since the appointment of a new Board over two years, ago,

Agenix Limited (ASX Code: AGX) has worked stridently towards

re-establishing itself both operationally and financially. The company‟s has two business divisions that are both at different stages of development:

1. Medical Diagnostics: AGX is progressing an internally-developed patented monoclonal antibody diagnostic called ThromboView® (TBV), which detects venous

thromboembolisms (VTE) in the body. 2. Innovative Pharmaceuticals: AGX is developing a next-

generation Hepatitis B therapy for commercialisation in China.

3. Examining Options for ThromboView® Phase III trials

FDA clinical trials conducted to date indicate, including three Phase I trials and two Phase II trials, that ThromboView® is well tolerated at low dosage and is effective without significant safety concerns.

The company plans to use its trial data from Phase I and Phase II clinical trials to undertake a low-cost China SFDA Phase III trial and is seeking a partner to commercialise ThromboView®.

AGX believe that gaining SFDA regulatory approval will lower Phase III trial costs to ~A$5 million, compared to an estimated ~US$50 million required to complete two full Phase III US FDA human clinical trials. At the end of the SFDA Phase III trial, AGX believe it will have a best practice (GxP) data package that can be

used to obtain regulatory approval for Thromboview® in other markets. Product Strategy - ThromboView®

AGX is positioning ThromboView® to twin its unique diagnostic abilities with novel oral anticoagulants, which has the potential to

address the many unmet needs of VTE, in particular recurrent VTE, haematological malignancies and surgical complications. Further, anticoagulants are in increasing demand as a treatment for other areas such as cancer thrombosis and arterial thrombosis. ThromboView® is also considered to have an advantage over competing technologies for detecting blood clots. Notably, recent

research on the main competing method, CT scans indicates that it is unsuitable for repeat testing because the much higher

radiation doses with CT may ultimately result in an increase in the number of radiation-related cancer cases – and cancer-related mortality.

AGENIX LIMITED (AGX)

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SPECULATIVE

3 December 2010

Share Trading Info

ASX Code AGX

Current Share Price (cps) 2.2

Trading Low /High (Rolling Year) 1.7c - 4.7c

Mkt Captalisation (undiluted) $m 16.6

ASX Listing Date Oct 1987

Issued Capital (m)

Total Ordinary Shares* 753.8

Listed Options (ASX Code: AGXO)** 28.4

Unlisted Options 10.7

Total Diluted Securities 792.8

* Assuming rights issue & share offer are

fully subscribed

** All options are out of the money

Board of Directors*

Nicholas Weston Executive Chairman

Anthony Lee Non Executive Director

* Further details on 7

Major Shareholders

Annmac Investments P/L 20.2%

Mr Tang Wen Sen 12.5%

OKS ASX Inc 5.8%

Pacif ic Superannuation 5.0%

Chris McNamara Non Executive Director

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4.5

2-Dec23-Nov12-Nov3-Nov25-Oct14-Oct5-Oct24-Sep15-Sep

Price (cps)Volume ('000)

AGX 3-month Price Chart

Price

Volume

Agenix Limited (AGX)

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Bayer has estimated that the global market value for anticoagulants will reach US$12-15 billion per year.

Seeking SFDA Regulatory Approval for Hepatitis B Drug

The acquisition in September 2010 of a Hepatitis B and HIV-1 drug candidate called AGX-1009 (demonstrated to have a low toxicity profile and high oral bio-availability) provides AGX with a footprint into the Chinese Hepatitis B market. It is estimated that of the

350 million to 400 million individuals worldwide infected with Hepatitis B, approximately 130 million carriers are in China, with 10 million chronically infected. Furthermore, the incidence of

Hepatitis B in China is still increasing. AGX is seeking State Food and Drug Administration (SFDA) regulatory approval for AGX-1009. The company expects to

complete the clinical trial application before June 2011 and receive SFDA approval for clinical trial process by December 2011.

It is estimated that AGX-1009 can be brought to market by 2017-2018, by utilising the old hands at navigating the SFDA channels that AGX has access to in China.

Stronger Relationships in China

AGX‟s presence in China was, under a previous board, beset with

difficulties after a dispute between two pharmaceutical companies it had acquired has i) impacted on the company‟s operations in China and ii) compounded the financial difficulties brought on by

the fraudulent activities of a former Executive. Recognising that China is crucial to AGX from the viewpoint of the development of both ThromboView® and its Hepatitis B products, the company has engaged high-class personnel in China, including Dr. Danyi Zhang to its Scientific Advisory Board to oversee the strategy for the commercialisation of ThromboView®.

Sufficient Funding

AGX is seeking to boost its current cash reserves (approximately $1 million) through a non-renounceable rights issue and share

offer, which if both fully subscribed, will raise a further $2.4 million. In addition, the cash balance should be boosted by a

further $2.9 million in recoveries due from China by the end of this year. (See page 13) The company also has access to a $5 million funding facility with Fortrend Securities.


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1.1 Overview

ThromboView® is the company‟s lead indicator and is an internally-developed patented monoclonal antibody diagnostic that detects venous thromboembolisms (VTE), a serious life-threatening condition in the human body. VTE includes deep vein thrombosis (DVT) – a blood clot in a deep vein (usually in the leg) – and pulmonary embolism (PE) – a blood clot in the lungs. These clots often break apart and travel

through the bloodstream, blocking blood flow to vital organs.

AGX believe that ThromboView® is the only test for DVT and PE to differentiate active blood clots from benign inactive blood clots. ThromboView® uses radiolabelled antibodies which bind to a unique biomarker to locate active clots in the body. To date, AGX have spent

around A$37.5 million on developing the product, including the successful completion of three FDA Phase I trials and two FDA Phase II trials in the US and Canada. Trial results to date indicate that ThromboView® works without significant safety concerns and at much lower radiation dosage levels to the lungs and breasts than its main competitor, computed tomography (CT).

Patents for ThromboView® have been awarded in the US, Australia, New Zealand, Singapore and most recently, the European Union. These

patents run until 2022. Registration of its China patent is due shortly.

1.2 The Need for ThromboView

1.2.1 Background on DVT and PE

DVT is a common major complication in orthopedic surgical patients as

well as patients with cancer and other chronic illnesses. PE is a blockage of the main artery of the lung or one of its branches by a substance that has travelled from elsewhere in the body through the bloodstream. Venous thrombi, the cause of DVT, are intravascular deposits that

usually form in regions of slow or disturbed blood flow in large venous

sinuses; in valve cusp pockets in the deep veins of the calf; and in venous segments that have been exposed to direct trauma. Venous thrombi may break off to form PE. There are several mechanisms involved in the formation of DVT and PE, including activation of blood coagulation, venous stasis and vascular injury.

Figure 1: Large thrombus in the femoral vein of the leg Figure 2: Pulmonary Embolism (PE)

Source: AGX Presentation


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1.2.2 Unmet Needs in VTE

In the US, of the 2 million people diagnosed with DVT each year, 600,000 progress to PE, where PE is fatal in 200,000 of these cases. In the EU, blood clots exceed 1.5 million events annually and are responsible for killing 544,000 people each year – more than breast cancer, prostate cancer, HIV/AIDS and road traffic accidents combined. It is also estimated that 50% of DVTs and 30% of PEs are

undiagnosed and that 30% of VTE patients develop recurrent VTE within 10 years. A patient with previous proven DVT has a permanently elevated risk of

developing a further event and up to one third of patients will re-present within a year with symptoms suggestive of recurrent

thrombosis. (Previous thrombosis may damage the deep venous valves causing reflux and increased stasis leading to a higher likelihood of recurrence).

The case-fatality rate of DVT, mainly due to fatal PE, ranges from 1% in young patients to 10% in older patients and is highest in those with underlying malignancies. VTE has been increasingly associated with

arterial thrombosis; this risk is higher in patients who have an apparently unprovoked VTE episode and in those with residual thrombus on follow-up ultrasound scan.

Patients with haematological malignancies have the highest risk of

venous thrombosis, followed by lung cancer and gastrointestinal cancer. Between 10 and 20% of patients with thrombosis have a

known malignancy at the time of the thrombosis and 2–5% will be diagnosed shortly after. The presence of a malignancy increases the risk of thrombosis around 5-fold and the risk of venous thrombosis is highest in the first few months after the diagnosis of malignancy.

1.2.2.1 VTE Arising from Surgical Complications

During hip or knee replacement procedures, the large veins of the leg that carry blood back to the heart are damaged which significantly increases the VTE risk for patients undergoing such major orthopedic surgery. In fact, venous blood clots occur in 40-60% of patients undergoing major orthopedic surgery and not receiving preventative

care.

An estimated 815,000 hip replacement procedures were performed in the US and Europe in 2005 while the number of knee replacement procedures was estimated to be 761,000. But the threat stretches beyond orthopedic surgery: Blood clots are one of the leading causes of global disease and death in many patient populations, including those with atrial fibrillation at risk for stroke, those at risk for heart

attack and acutely ill hospitalised patients, such as those with cancer.


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1.3 Advantages over Current Diagnostic Technology The current methods for detecting blood clots include ultrasound, ventilation-perfusion scans, CT scans and MRI. The most widely used diagnostic technology is the CT scan. Ultrasound is a non-invasive „sonar‟ test that uses high-frequency sound waves to check for blood clots in the thigh veins. However, the

test is problematic when used on patients who are obese or who have trauma to the legs. Ventilation-perfusion scans use small amounts of radioactive material

to study ventilation and blood flow in the patient‟s lungs. The tests are considered to have limited accuracy and patients are often required to

undergo further testing in order to determine the correct diagnosis.

1.3.1 CT Scans

The use of CT scans has increased dramatically in the last decade or

more. ThromboView® has an advantage over CT scans given that recently published research indicates that CT is not suitable for repeat testing as the higher frequency of scans, variation in radiation doses may ultimately result in an increase in the number of radiation-related cancer cases – and cancer-related mortality. Two studies, published in the Archives of Internal Medicine, attempted

to quantify the effect of CT on cancer incidence and mortality. The first study, conducted by Rebecca Smith-Bindman, MD, of the

University of California, San Francisco, and colleagues, was a retrospective cross-sectional study examining the radiation doses used with the 11 most common types of diagnostic CT scans. Data were examined for 1,119 consecutive adults between January and

May 2008. Results identified a mean 13-fold variation between the highest radiation dose and the lowest for each CT study type. The study concluded that just one CT coronary angiogram, on average, delivers the equivalent of 309 chest radiographs and that one in every 270 40-year-old women undergoing CT coronary angiogram will

develop cancer from the procedure. This compares to one in every

8,100 women who had a routine head CT scan at the same age. In the second study, Amy Berrington de González, PhD, an adjunct

assistant professor at Johns Hopkins Bloomberg School of Public Health, and colleagues constructed a risk model to estimate age-specific cancer risk for each CT scan type. Data were derived from the

National Research Council‟s “Biological Effects of Ionizing Radiation” report, national surveys and insurance claims. They found that approximately 29,000 future cases of cancer could be due to CT scans that took place in 2007. Abdomen, pelvis, chest, head and CT angiography were the largest contributors to the risk. About 35% of these cancers were from CT scans in people when they

were aged 35 to 54 years. Lung cancer was the most common radiation-related cancer, followed by colon cancer and leukemia.


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1.3.2 Pulmonary Angiogram (PA)

A pulmonary angiogram is considered an accurate method of diagnosing PE as it provides a clear picture of the blood flow in the arteries of the lungs. The procedure requires the insertion of a catheter into a large vein and threaded through the patient‟s heart into the pulmonary arteries. A special dye is then injected into the catheter and an X-ray or CT is taken as the dye travels along the arteries in the

patient‟s lungs. The risks of this procedure are a temporary change in the patient‟s heart rhythm and possible kidney damage from the dye in patients with decreased kidney function. Due to the associated risk of death, this test is not frequently used in clinical practice.

1.4 How ThromboView Works

A small amount of ThromboView(TBV) , usually 0.5mg is injectedintravenously into the body

Step

1

2 TBV binds tightly with fibrin

Technetium lights up on a standardimagingcamera

Radio labelled monoclonalantibodies are then injected intothe patient to treat the condition,requiring little reponse from thepatient's immune system

Technetium indicates thepresence and location ofany freshblood clots

3

Fibrin is a protein present inactive blood clots

4

Each type of antibody willtarget only one specifictype of antigen, resulting inlimited or no adverseeffects from using thevarious treatments

TBV is bound to an imagingagent called technetium


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1.5 Clinical Trial Results to Date Following the successful completion in 2009 of FDA Phase II trials for ThromboView®, the company is presently assessing options to conduct Phase III human clinical trials. An outline of the trials conducted to date is summarised below.

Table 1: Summary of Clinical Studies for Thromboview®

(TBV)

Source: AGX Presentation, Company Reports

1.5.1 Phase I Trials

Phase Ia trials were completed in June 2003. The trial, conducted at

Royal Brisbane Hospital, involved injecting four ascending doses of ThromboView® into 32 healthy patients. All four dose levels of ThromboView® were well tolerated, with no serious side effects reported.

There were two further Phase I trials conducted, each on patients with DVT and PE. The first of these trials, the Phase Ib DVT study, was

carried out on 26 patients (aged between 18 to 75) diagnosed with DVT and was designed to evaluate the safety of increasing doses of ThromboView® (at 0.5mg, 1.0mg and 2.0mg) when administered as a single intravenous dose. The lowest dosage level (0.5mg) was used in subsequent clinical trials, as there was no evidence that any one dose

level of ThromboView® provided an advantage over others.

In summary, the results confirmed the safety in the administration of ThromboView®, which was well tolerated, did not cause an immune response, was rapidly cleared from the circulation via the kidney, and had comparable dosimetry to other diagnostic antibody fragments.

During the study, there were 35 adverse events reported in 15 of the 21 subjects administered, of which three were considered to be “possibly” related to ThromboView® and considered mild-to-moderate in nature. As DVT can break off to form blood clots in the lungs (PE), all evaluable patients had an image taken of the chest. The binding of

ThromboView® to a clot and the corresponding visual signal (known as an increased and focal uptake) appeared in 50% of all patients, with 16

of the 18 lung images considered to be of good quality. Although the diagnosis of PE was not part of the Phase Ib DVT study, symptoms commonly evident in patients with PE (dyspnoea and pleurisy) were documented for three subjects, with one of those subjects also recorded as suffering PE.

Trial/Study Completed Subjects Design Results

Phase Ia June 2003 32 healthy volunteers 4 ascending TBV doses TBV well tolerated

TBV safe & well tolerated

at increasing doses

TBV well tolerated &

capable of detecting PE

High clot detection rate;

Strong efficacy

No adverse side effects

or immune reponse

Phase Ib - DVT June 2005 26 DVT patients 3 ascending TBV doses

Phase Ib - PE March 2006 15 PE patients single TBV dose (0.5mg)

Phase II - PE February 2009

Phase II - DVT February 2007 82 DVT patients

52 PE patients 7 sites in US & Canada, single dose

11 sites in US & Canada, single dose


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A Phase Ib PE trial was completed in March 2006. This safety study

evaluated 14 patients, all diagnosed by computed tornography pulmonary angiography (CTPA) as being positive for PE. The results

indicated that ThromboView® has the potential to be highly beneficial in the diagnosis of PE, as the images acquired demonstrated high correlation between ThromboView® images and CTPA findings. An independent analysis, conducted by nuclear medicine specialists who were unaware of the detailed CTPA findings confirmed a higher-

than-expected sensitivity of ThromboView® for detection of PE and the ThromboView® was also well tolerated.

1.5.2 Phase II Trials

Similarly to phase I trials, Phase II trials were conducted as a DVT

trial and a PE trial. Phase II DVT trials concluded in February 2007 and Phase II PE trials were completed in February 2009. Phase II DVT trials recruited 91 patients 18 years or older presenting

with suspected DVT, of which 82 patients were imaged. The trials were carried out at 11 sites throughout Canada and the US, led by Dr Jeff

Ginsberg and Dr Jim Douketis from McMaster University, Hamilton. The DVT study was designed to assess the diagnostic accuracy of radiolabeled ThromboView® in the detection of proximal DVT (blood clot in the thigh), distal DVT (clot in the calf) and all DVT (thigh and

calf combined). Clots located in the calf are usually much smaller and less prone to embolisation than clots located in the thigh and the trial

sought to fully understand the imaging capability and diagnostic accuracy where clinical management is most likely to be affected – in proximal DVT (as ~15% of calf clots will propagate and become proximal DVT). Results from the study showed that ThromboView® was able to detect

clots in 89% of cases when images were read at the 3-hour imaging timepoint (considered the most appropriate for diagnostic assessment). ThromboView® also confirmed the absence of clots in >95% of all patients who were symptomatic but DVT negative at the 3-hour timepoint. Overall accuracy for proximal DVT was 92% and 77% for any thigh & calf DVT combined. ThromboView® was well tolerated and

no serious side effects were reported.

The Phase II PE study recruited 52 patients, who were at least 18

years old with moderate to high clinical suspicion of acute PE. Of the 52 patients administered with a single 0.5mg dose of ThromboView®, 42 were available for imaging, with five subjects each non-evaluable by CTPA and ThromboView®. The PE trial was conducted at seven sites throughout Canada and US by Professor Timothy Morris from the

University of California San Diego Medical Center. The Phase II PE study was designed to address two major criteria:

i) Accuracy data in a population of PE-positive and negative patients and

ii) Diagnosis in a clinically relevant time (2½ hours) – The study

involved taking an early blood pool image at three minutes, followed by a delayed image at 2½ hours. Images were read by comparing the early blood pool with the delayed image to identify areas of uptake of the radioactive tracer.


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AGX management believes that the trial delivered on both counts. In terms of results, ThromboView® achieved a specificity of 91% and a

sensitivity of 76% in a cohort of 42 patients for an overall accuracy of 83%, measured against CTPA as the reference. The administration of ThromboView® was well tolerated in all patients, none of whom had symptomatic adverse effects related to the ThromboView®. Analysis of blood samples revealed that none of the subjects

administered ThromboView® developed an immune response against the ThromboView® protein.

1.6 The Path to Commercialisation

AGX‟s product strategy is to combine ThromboView® with Novel Oral Anti-Coagulant (NOAC) therapies, as these are better likely to exploit the ability of ThromboView® to detect live blood clots and its suitability for repeat testing to inform when to stop NOAC therapy. The company plans to use its trial data from Phase I and Phase II clinical trials to undertake a low-cost China SFDA Phase III trial and is seeking a partner to commercialise ThromboView®.

AGX believe that gaining SFDA regulatory approval will lower Phase III trial costs to ~A$5 million, compared to an estimated ~US$50 million required to complete two full Phase III US FDA human clinical trials. AGX also believes that, at the end of the SFDA Phase III trial, it will

have a best practice (GxP) data package that can be used to obtain regulatory approval for Thromboview® in other markets.

An alternative strategy being examined by the company include whether ThromboView® can be classed as a Phase III FDA Orphan drug destination, that will also radically cut the cost of taking ThromboView®

to market. An Orphan drug designation by the FDA is given to a drug that has been developed specifically to treat a rare medical condition.

1.7 Potential Market for Anticoagulants

1.7.1 Brief Overview

The Novel Oral Anti-Coagulant (NOAC) therapy market has evolved into

one that is highly focused on both the prevention and treatment of VTE. In addition to addressing the unmet needs of VTE (discussed above), anticoagulants are in increasing demand as a treatment for other areas such as cancer thrombosis and arterial thrombosis.

As an example, both the American Society of Clinical Oncology (ASCO) and European Society have published guidelines requiring the prevention of VTE with anticoagulants for all admitted cancer patients. In 2008, ASCO developed new guidelines that specify that anticoagulants for VTE is to be initiated for all cancer patients who are

hospitalised. Alternative treatments such as low-dose unfractionated heparin (UFH), low molecular weight heparin (LMWH), or fondaparinux may be used, as long as no contraindication or active bleeding exists.

According to ASCO, VTE incidence in hospitalised patients with cancer ranges from 0.6% to 18%. It is estimated that patients with cancer have a 4.1-fold increased rate

of VTE than non-cancer patients, and those receiving chemotherapy have a 6.5-fold increased risk of VTE. Cancer patients account for 20%


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of all patients with VTE and those on chemotherapy make up 13% of the total burden.

1.7.2 Estimated Market Size for Anticoagulants

There are currently three large global pharmaceutical companies that have launched or are in late-stage development of oral anticoagulants. One product is Rivaroxaban (or Xarelto), discussed in Section 1.7.3

below, manufactured by Bayer. Bayer has estimated that the global market value of anticoagulants will reach US$12-15 billion per year. Global sales forecasts by Credit Suisse

for the „thrombosis prevention‟ category are detailed below. Figure 3: Sales Forecasts for Anticoagulants (‘Thrombosis Prevention’ Category)

Source: Credit Suisse

1.7.3 Case Study: Rivaroxaban

Rivaroxaban is an oral anticoagulant invented and manufactured by Bayer; in a number of countries it is marketed as Xarelto and is the

first available orally active direct inhibitor of coagulation Factor Xa.

In September 2008, Health Canada granted marketing authorisation for Rivaroxaban as one 10mg tablet taken once daily for the prevention of (VTE) in patients who have undergone elective total hip replacement or total knee replacement surgery. In the same month, the European Commission granted marketing authorization of Rivaroxaban for the

prevention of VTE in adult patients undergoing elective hip and knee replacement surgery. Rivaroxaban is undergoing review by the FDA. Four clinical studies have shown that oral Rivaroxaban has non-inferior and possibly superior efficacy compared to 40mg per day of the subcutaneous low

molecular weight heparin (LMWH) Enoxaparin in preventing VTE in adult patients undergoing total hip or knee replacement surgery.

However, the risk of bleeding was greater in patients randomized to Rivaroxaban (10mg/day) rather than Enoxaparin (40mg/day) and one patient (out of >6000) randomised to Rivaroxaban died of liver toxicity. The four studies include RECORD1 and 2 (hip replacement) and

RECORD3 and 4 (knee replacement). The RECORD4 study concluded


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that Rivaroxaban was significantly more effective in reducing the occurrence of venous blood clots following knee replacement surgery than Enoxaparin.

In addition, Rivaroxaban is being studied in Phase III clinical trials for stroke prevention in non-valvular atrial fibrillation (ROCKET-AF), prevention of VTE in hospitalised medically ill patients (MAGELLAN), treatment and secondary prevention of VTE (EINSTEIN), and secondary prevention of major cardiovascular events in patients with acute

coronary syndrome.

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2.1 New Hepatitis B Drug – AGX-1009

In September 2010, AGX announced the purchase of a Hepatitis B and HIV-1 drug candidate from the Institute of Medicinal Biotechnology (IMB) of the Chinese Academy of Medical Sciences in Beijing1. The drug, AGX-1009 is one of the drug candidates supported by the Chinese government‟s State Special Funds for important, newly-developed drugs.

Preliminary studies undertaken by IMB show that AGX-1009 has strong

inhibition against HIV-1 and Hepatitis B as well as a low toxicity profile and high oral bio-availability. AGX aims to develop and commercialise the drug as a treatment for chronic Hepatitis B sufferers in China. The patent for AGX-1009 runs until 2026.

AGX has already received independent confirmation that AGX-1009 does not inhibit Cytochrome P450 (a group of enzymes involved in drug metabolism by the liver) at concentrations well above its likely effective antiviral dose. This clearance reduces a significant risk for the pre-clinical development of AGX-1009, as many antiviral compounds fail to enter human clinical trials because they interfere with Cytochrome

P450. AGX-1009 works by allowing the body to convert it into an active compound that interferes with the function of an enzyme (HBV DNA

polymerase) that is essential for the replication of Hepatitis B. Preliminary testing undertaken by IMB indicates that AGX-1009 will be an effective, once-daily treatment for chronic Hepatitis B patients,

including patients who have Hepatitis B and have developed a resistance to existing drugs. In addition to the IMB, the key partnership AGX have in China is with the Institute of Pharmacology and Toxicology (IPT), a top national pharmaceutical research institution with special emphasis on toxicity

and drug safety. IPT has developed testing and research programs with numerous multinational drug companies, including Novartis. IPT will be handling AGX‟s pre-clinical testing.

1 The purchase price was RMB17 million, or A$2.72 million at the time of purchase.


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2.1.1 Competing Drug – Tenofovir DF

AGX-1009 is the first of what AGX hope will become a portfolio of products for chronic infectious diseases in China. The closest competitor to AGX is likely to be Tenofovir DF, which was approved by the US FDA in 2001 for the treatment of HIV, and on 11 August 2008 for the treatment of chronic Hepatitis B. Tenofovir DF is marketed by Gilead Sciences under the trade name VIREAD, and could be approved by China‟s State Food and Drug Administration by 2014.

Both AGX-1009 and VIREAD belong to a new class of medicine called a nucleotide analog reverse transcriptase Inhibitor (NRTI). VIREAD works

in the same way as AGX-1009 - by interfering with the normal working of the HBV DNA polymerase enzyme.

VIREAD may help lower the amount of Hepatitis B virus in a patient‟s body by lowering the ability of the virus to multiply and infect new liver cells.

2.2 HEPATITIS B MARKET IN CHINA

Of the 350 million to 400 million individuals worldwide infected with Hepatitis B, approximately 130 million carriers are in China, with 10 million chronically infected. Every year, 300,000 people die from HBV-related diseases in China,

with the incidence of Hepatitis B still increasing, from 21.9 in 100,000

people in 1990 to 53.3 in 100,000 in 2003. Although Hepatitis B vaccination is expected to reduce Hepatitis B prevalence to <5% by 2030, it is estimated that ~6 million chronic hepatitis B patients would still require antivirus treatment in China. According to IMS Health, the market size of Hepatitis B in China is RMB

2,745 million (~A$420 million), with the market growing at a CAGR of 44% since 2005. Since 1992, there have been a number of antiviral therapies approved for chronic Hepatitis B, including Lamivudine, Adefovir, Entacavir and Interferon. The duration of therapy for these drugs ranges from 48 to

52 weeks. In China, more than 10 million Hepatitis B patients receive treatment with Lamivudine, Adefovir, Entacavir and Interferon. Table 2: Hepatitis B Drugs in China

Source: AGX Presentation

Global China

Launch Launch

Interferon 1992

Lamivudine 1998 1999

Adefovir 2002 2005

Entecavir 2005 2006

Telbivudine 2007 2007

Hepatitis B Drug

http://en.wikipedia.org/wiki/Gilead_Sciences


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2.3 FUTURE PLANS FOR AGX-1009

The first step for AGX is to pursue SFDA regulatory approval for AGX-1009, by working closely with the SFDA, IMB and IPT. The company expects to complete the clinical trial application before June 2011 and receive SFDA approval for clinical trial process by December 2011. The pre-clinical trial phase is expected to take 1-2 years, to conduct

pharmacokinetics, pharmacology, toxicology, and Chemistry, Manufacture & Control studies for Clinical Trial Application (CTA) filing. Phase I trials are expected to take around two years to complete, with

a fair portion of this time (up to 12 months) needed to obtain the Clinical Trial Permit from SFDA to move into Phase I clinical studies.

The main aim of Phase I trials is to find the maximum tolerate dose, as well as any potential safety issues. Reports of Phase I studies should provide clear information on the pharmacological properties of AGX-1009 and details of adverse events. It is believed that AGX-1009 can be brought to market by 2017-2018,

by utilising old hands at navigating the SFDA channels that AGX has access to in China.

2.4 AGX PRESENCE IN CHINA

2.4.1 Background The acquisition of AGX-1009 is not the company‟s first foray into China. In April 2007, under a previous board, the company set up a wholly owned subsidiary Agenix Biopharmaceutical (Shanghai) (ABS) which

then acquired two Chinese pharmaceutical companies: 1. Shanghai Rui Guang Bio-Pharma Development Co. Ltd

(SHRG), a biopharmaceutical development company. SHRG owns a

development pipeline of antiviral drug candidates. The lead candidate, YouHeDing (YHD), targets hepatitis B and has

completed phase III clinical trials in China, subsequently receiving

new drug approval from the SFDA in October 2007, along with a pipeline of other generic antiviral drugs targeting Hepatitis B, HIV/AIDS, colon cancer and liver cancer.

2. Shanghai Yi Sheng Yuan Pharmaceutical Co. Ltd (YSY), a

pharmaceutical manufacturing company. At the time of the acquisition, YSY‟s manufacturing facility had the capacity to produce 50 million tablets annually. YSY carried out the production operations for SHRG.

In July 2008, a dispute arose between YSY and SHRG, as a result of failure to transfer certain shares in those businesses to ABS. As part of

a revised settlement agreement entered into by the current board in April 2009:

Settlement payments were to be made to ABS. As at 28

September 2010, total payments received totaled RMB25 million (approximately A$3.8 million), with further payments of RMB 19 million (approximately A$2.9 million) due by the end of

this year.


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AGX acquired the global rights (except mainland China) to YHD

and the in-principle global rights (including mainland China) to

a pipeline of novel generic drugs, which include a generic version of Hepatitis B drug Adefovir.

An independent expert report has valued the pipeline products at A$16 million, with a time to market of approximately six years after full development in China.

2.4.2 Key Personnel

AGX is currently positioning its wholly owned subsidiary ABS as a niche pharmaceutical operation in China with a focus on the development of both ThromboView® and Hepatitis B products.

Accordingly, the company, under the current board, has already engaged key personnel in order to improve the management skills set and relationship capability in China. The company has recruited a very senior Chairman and legal representative for ABS, Mr Tang Wen Sen; a Chinese/Australian General Manager Mr John Tong and Chinese science and financial personnel and key consultants that have the capability to

strengthen AGX‟s relationships in China. More recently, AGX has engaged Dr. Danyi Zhang to its China Scientific Advisory Board to assist with strategic decisions in commercialising

ThromboView® in China and for global pharmaceutical markets. The company‟s scientific team is led by Professor Timothy Morris from the University of California San Diego Medical Center, who oversaw the

ThromboView® Phase II PE trial. Dr Zhang, a native of China, is the founder and chief medical officer of US-based independent research group VitalStrategic Research Institute (VSRI) and has worked in the biopharmaceutical industry for over 15 years, in the areas of drug development, medical affairs and strategic

planning. Prior to founding VSRI, Dr Zhang was the medical director of global medical affairs at Bristol-Myers Squibb (BMS), where her responsibilities included developing medical strategy for the thrombosis franchise, ensuring strategic integration of science and marketing, and

design and execution of the global clinical development and commercial

plan. Prior to joining BMS, Dr. Zhang spent five years at Wyeth Pharmaceutical leading global strategic planning for the cardiovascular and metabolic franchise. The company‟s scientific advisory board is led by Professor Timothy

Morris from the University of California San Diego Medical Center, who oversaw the ThromboView® Phase II PE trial. The Chief Scientific Officer – Thromboview® project is Dr Mike Gerometta PhD, who has over 20 years‟ experience in the Australian biotechnology industry and was responsible for the chemistry,

manufacturing and controls (CMC), pre-clinical program and patent management for this project. Mike was awarded his PhD in biotechnology from the Queensland University of Technology and has a degree in chemistry from the University of Technology in Sydney.


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33.. KKEEYY FFIINNAANNCCIIAALLSS

3.1 Funding

The company‟s current cash balance is around $1 million, with a further estimated $2.9 million due from recoveries in China (as discussed above). The principle source of funding is via the non renounceable rights issue

& share offer, as well as a $5 million funding facility with Fortrend. Both

of these are discussed in further detail below. If fully subscribed, the rights issue & share offer will raise $2.4 million. Operating cash burn (-A$0.67 million as at September 2010 quarter) is expected to ease, as a result of further reductions in operating costs. In particular, AGX will enjoy a full year benefit of an organisational

restructure undertaken last financial year, which included downsizing its Shanghai office following the deconsolidation of operations from YSY/SHRG, closure of the Singapore office and relocation of the head office to Melbourne. One funding requirement over the next 12 months is the first installment of the AGX-1009 purchase price, which is payable in

installments if performance milestones are achieved.

The first installment, RMB6 million (~A$929,000 at the current exchange rate) is payable over the next 12 months. Table 3: AGX Balance Sheet

Year Ended June ($m) 2010 2009

Assets

Cash 1.74 0.06

Receivables 0.01 0.01

Other financial assets 3.99 2.51

Prepayments 0.03 0.02

Total Current Assets 5.77 2.60

Property, Plant & Equipment 0.03 0.05

Total Non Current Assets 0.03 0.05

TOTAL ASSETS 5.80 2.65

Liabilities

Payables 1.47 2.07

Financial Liabilities 1.18 0.51

Current Provisions 0.06 0.06

Current tax Liabilities 0.00 0.00

Non Current Payables 0.25 0.50

TOTAL LIABILITIES 2.96 3.14

NET ASSETS 2.85 -0.49


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3.1.1 Rights Issue & Share Offer

In October 2010, AGX announced a non-renounceable rights issue to existing shareholders and new share offer. The rights issue will be on the basis of one new share for every 13.66

shares at 2.5 cents each, with one free attaching option for every five new shares subscribed for under the rights issue. If fully subscribed, the rights issue will raise $1.2 million and the Directors have indicated

their intention to take up all of their rights under the offer. The share offer includes the issue of 48 million new shares at 2.5

cents each and will be available at the end of the rights issue. If fully subscribed, the share offer will raise a further $1.2 million.

3.1.2 Fortrend Funding Facility

In March 2010, AGX secured a $5 million equity drawdown facility with Fortrend Securities P/L. Under the agreement, AGX, at its own discretion, is to issue Fortrend with shares over a 3-year period, with shares to be issued at a 10% discount to the prevailing market price.

A specific condition stipulates that AGX is required to activate four drawdowns within 12 months of the execution of the agreement, with the first three drawdowns to be completed by no later than 24 December 2010.

AGX has made the first drawdown, resulting in the issue of 2.05 million

ordinary shares (@1.98 cents per share) and 512,000 unlisted options to Fortrend. As such, the current balance of the Fortrend facility is $4.96 million.

3.2 Capital Structure

AGX has a tight capital structure and a dispersed share register. The top six shareholders control ~44% of the ordinary shares on issue. As at 27 August 2010, there were 3,901 shareholders, with 2,891 shareholders holding an unmarketable parcel of shares.

Table 4: AGX Capital Structure

Million Expiry

Date

Total Ordinary Shares 753.8

Listed Options

- Exercise Price 30c 20.4 30-Jun-11

- Exercise Price 6c 8.0 30-Jun-12

Total Listed Options 28.4

Unlisted Options

- Exercise Price 1.7c 10.0 04-Jan-12

- Exercise Price 1.7c 0.5 15-Oct-12

- Exercise Price 62.1c 0.2 01-Jan-12

Total Unlisted Options 10.7

Total Issued Securities 792.8

Shares/Options on Issue


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44.. BBOOAARRDD OOFF DDIIRREECCTTOORRSS

DIRECTOR

INTEREST

IN AGX

BACKGROUND

Nicholas Weston Executive Chairman

~3.95m ordinary shares;

10m unlisted options

Mr Weston is a seasoned commercial intellectual property lawyer and the principal of internationally recognised law firm Nicholas Weston based in Collins Street, Melbourne. Mr Weston is also a registered Trade Marks Attorney and holds degrees in law and economics. He is a member of the World Intellectual Property Organization‟s (WIPO) Arbitration and Mediation Center‟s List of Arbitrators and Mediators and also the Center‟s Domain Name Panel. He is a member of the Australia China Business Council. Mr Weston was appointed as Chairman on 22 August 2008 and was made Executive Chairman on 4 January 2010.

Anthony Lee Non Exec Director

4.375m ord shares;

291,666 listed options

Mr Lee has in excess of 15 years international business experience and has been actively involved in business development/marketing, quality control and cost management. Mr Lee holds a degree in economics. He is also involved in project management and is responsible for the management, business development, cost control, and growth of Malaysian companies such as UF Engineers Sdn BHD, a Company involved in major public utilities infrastructure such as highways, Onika Quarry Sdn BHD, a Company operating quarries in Tawau and Semporna and Leeka Holdings Sdn. BHD, a Company involved with palm oil plantations. Mr Lee also holds current Directorships in the aforementioned companies.

Chris McNamara Non Exec Director

~1.96 ord shares;

8,333 listed options

Mr McNamara is a chartered accountant with extensive experience with business operations in Asia, and with

management of property and equity investment portfolios. Mr McNamara started his business career with Ernst & Young progressing to Manager, Entrepreneurial Services Division in both Melbourne and London in assurance, advisory, tax and transaction advisory services. He has solid experience in strategy development, scrutinizing performance of management monitoring risk, financial controls and succession planning.


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DIRECTORY – ALPHA SECURITIES Corporate

George Karantzias

[email protected]

0401 670 620

Research Analyst

John Haddad

[email protected] 0407 219 222

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