Funding difficulties see Avexa turn to mining

Biotechnology and mining collide with Avexa's (ASX:AVX) decision to invest nearly $10 million in a US coal mine, motivated in part by difficulties securing funding for development of HIV drug ATC, according to chairman Ian Kirkwood.

Avexa earlier this month revealed plans to spend US$4 million ($3.82 million) on a 25.5% stake in Coal Holdings USA, and to loan up to a further US$6 million to the venture at a 6% interest rate.

The investment and loan represents the majority of Avexa's $16 million of cash reserves as of the end of FY12. The company is expecting to earn US$12.5 million pre-tax per year over the 15-year life of the mine from its 25.5% share.

In an Open Briefing interview, Kirkwood said Avexa directors conservatively estimate it will need between $30 million and $40 million to take ATC through phase III trials to marketing approval.

He said the board has decided that the company is unlikely to be able to mount a big enough capital raising to raise the funds, “given the current market capitalisation of Avexa and current risk averse equity capital markets.”

ATC, or apricitabine, is an experimental nucleoside reverse transcriptase inhibitor (NRTI). The product has had a difficult development history, with Avexa being forced to temporarily suspend development in 2010 after the last of its potential partners backed out.

Kirkwood said the number of large pharmaceutical companies active in the area of HIV drug development shrank considerably since work on aprcitabine began, making it difficult to secure a large enough out-licensing deal to fund phase III trials.

Avexa has therefore modified its commercialisation strategy – the company is no longer seeking co-development partners, and instead plans to build up a potential sales network for the drug with potential regional specialist pharmaceutical sales and marketing company partners.

Investing in the mine represents an alternate route to securing funding for the clinical development, Kirkwood said.

While Avexa does not expect to receive its first cash flow from the mine for around 18 months, Kirkwood said the company has enough cash and liquid investments on hand to continue its clinical programs in the interim.

These programs also include development of HIV Integrase inhibitors, as well as anti-bacterial compound AVX13616.

Avexa (ASX:AVX) shares were trading 9% higher at 2.4c as of around 3pm on Wednesday.