For three decades AVI BioPharma, Inc. (NASDAQ: AVII), an RNA-based therapeutics developer, has offered investors little more than potential but the biotech drug company may have finally turned a corner with its recent positive news regarding the treatment of Duchenne muscular dystrophy (DMD) as well as its government funded tests targeting the H1N1 virus. Now the question is will investors overlook the fact that AVII has never produced an FDA-approved drug and once again bet on the company’s potential?
It’s an interesting proposition for investors as AVII apparently has the inside track on a treatment for the rare genetic disorder DMD and if they can get FDA approval for clinical trials in the U.S. and actually manage to bring their drug to market then the company’s fortunes could swing dramatically. Of course getting to market could take years but the company’s drug, AVI-4658, has shown remarkable promise in a small study conducted in the U.K. That promise is based on some patients actually displaying a restoration of dystrophin levels, a necessary protein for muscle function and repair.
While the genetic disorder DMD may be rare that may only serve to increase the value of AVI-4658 as it would likely result in a significant price tag and because the administration of the drug would be ongoing revenue from the drug would be recurring.
Of course generating revenue is at a premium for AVII at present and with no drugs on the market there is concern regarding their ability to carry the hefty price tag of gaining FDA approval for AVI-4658. As it stands now, the majority of AVII’s money is coming in the form of government grants but that too has produced positive news for the company as it develops a drug to combat a potentially virulent outbreak of the H1N1 virus. AVI BioPharma recently inked a contract with the U.S. Defense Threat Reduction Agency (DTRA) to continue its studies of the drug AVI-7100 as a medical countermeasure against the pandemic H1N1 influenza virus, a contract that could be worth up to $18 million.
Last month the company announced in a press release that their studies have “demonstrated statistically significant reductions” of the virus, a positive sign that AVII is heading in the right direction. It was also noted by Interim CEO J. David Boyle II “These H1N1 results build on the significant success we’ve had applying our RNA-based technologies and advanced proprietary chemistries, such as PMOplus, to anti-infective therapeutic candidates.” In addition to the DTRA contract AVII has also been awarded $4 million in funding from the DTRA Transformational Medical Technologies Initiative, an extension from an existing contract to continue their preclinical development of their lead influenza drug candidate against H1N1, as well as expanded preclinical evaluation against H5N1 (avian flu) and drug resistant H1N1 and H3N2 flu strains.
More good news for the company came earlier this month when the United States Patent and Trademark Office issued AVI a patent granting key claims covering the use of phosphorodiamidate morpholino based oligomers (PMOs) as antibacterial agents. The patent contains broad claims for the use of peptide-conjugated phosphorodiamidate morpholino oligomers (PPMOs) to target the acyl carrier protein (AcpP), a gene considered essential for bacterial growth in both gram positive and gram negative bacteria.
What that patent does is further strengthen AVII’s position in the advancement of new RNA-based therapeutics, a position Boyle believes could bring added value to the company as he stated, “We believe that RNA-based therapeutics employing our advanced PMO chemistries can become an important new category of antibacterial agents. Instead of directly targeting proteins like most traditional antibiotics, our PMO-based compounds target key microbial RNAs to inhibit protein expression at the gene translation level. By leveraging our differentiated capabilities, AVI plans to rapidly advance novel antibacterial candidates in this increasingly important therapeutic area.”
Adding to the value of AVII, the company’s RNA-based approaches are unique in that their technologies can be used to directly target both messenger RNA (mRNA) and precursor messenger RNA (pre-mRNA) to either down-regulate (inhibit) or up-regulate (promote) the expression of targeted genes or proteins. With this unique RNA antisense-based technology platform the company believes it has built a pipeline of potentially transformative therapeutic agents.
Most of AVII’s positive news has come since an April shake-up at the company resulted in the departure of CEO Leslie Hudson and changes to the Board, both at the request of a group of shareholders. While AVI BioPharma said little about the reasoning behind the shake-up Michael Casey, chairman of the AVI board stated “This agreement reflects the Board and management team’s focus on serving the best interest of all AVI shareholders and building on the strong foundation we have in place.”
The departure of Hudson may have been part of “serving the best interest of all AVI shareholders” but it came with a cost as indicated by the company’s June financial report which indicated an operating loss of $7.7 million for the second quarter, up from a loss of $5.1 million in the second quarter in 2009. That $2.6 million difference was attributed to a one-time charge for severance and stock compensation costs related to Hudson’s departure. For the first half of 2010 the operating loss was $15.4 million compared to a loss of $8.6 million during the same period in 2009. That difference was attributed to a $0.9 million decrease in revenue, a $2.7 million increase in research and development, and a $3.2 million increase in general and administrative costs.
As important as the government contracts have been to AVII it is obvious that the company still finds itself in need of money as evidenced by its paltry revenue of $5.2 million for the first half of 2010, a decrease from $6.1 million during the same period in 2009. It is likely AVII will need a large investment partner help finance their drug development and remain viable. That large investment partner would actually do more than just provide financing though; they could actually help restore some credibility to a company that has failed to live up to its shareholders hopes.
It’s hard to imagine that a company that has put out this much good news over the past several months is trading around the $1.81-$1.87 range, below its 50-day moving average of $1.99. However AVII is well above the 200-day moving average of $1.57, a sign that investors may once again be ready to throw backing behind the biotech company and hope they finally reach their potential.
