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January 12, 1999
RECOMMENDATION: BUY
Access Pharmaceuticals, Inc. (OTC: AXCS)
"Acquires Rights to Amlexanox for Mucositis; Reiterating BUY Recommendation"
Market Data:
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Corporate Information:
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Summary Investment Considerations
Access Pharmaceuticals (AXCS) announced yesterday that it has acquired worldwide rights (ex Japan) to the mucositis indication for amlexanox from Block Drug Company (Block). Amlexanox 5% paste is currently marketed as Aphthasol in the US by Block and is the only FDA-approved product to treat canker sores (aphthous ulcers). Although financial terms of the deal were not disclosed, we believe the terms to be favorable to AXCS, relative to the potential market for an effective mucositis treatment.
We continue to be impressed by management’s ability to achieve publicly announced milestones. As anticipated, AXCS recently announced the commencement of Phase II trials for its Residerm A to treat acne, as well as an agreement with a preeminent European Cancer organization to develop its Polymer Platinate (AP5070) candidate through Phase II trials. We are predicting a steady flow of similar news events throughout 1999, and as such, continue to believe that AXCS shares, which currently trade OTC, are undervalued. We are reiterating our BUY recommendation for investors tolerant of the risks associated with micro-cap, OTC equity investments. Even without mucositis rights, we believed AXCS’ amlexanox program was fairly valued at $5 to $7 per share, or two to three times current price levels. Now with mucositis rights and AXCS’ other products and technologies, we believe that fair value estimate could at least double.
Background on Mucositis
Mucositis involves ulceration of the mouth, including the epithelium of the cheeks, lips, soft palate and ventral surface of the tongue. Mucositis is a common complication of chemotherapy (approximately 40% of patients) and virtually all patients who receive radiation therapy to the head and neck develop oral mucositis. Ulcer sizes can vary from a few millimeters in diameter to greater than one centimeter. They not only cause patient discomfort, but can also lead to difficulties in swallowing, nutritional deprivation and can cause therapy to be interrupted. The ulcers can also provide an entry place for bacteria and fungus to enter the patient. Currently, there are no universally accepted treatments for mucositis, and treatments that are available are not considered adequate. We estimate the US market for a mucositis treatment to be in excess of $250 million. This estimate could, in fact, prove to be conservative should the product be approved for preventative use in cancer patients.
Block had been developing amlexanox for mucositis in a mouthwash formulation under an open IND. AXCS is currently exploring alternative formulations of amlexanox, including a spray and a gel, for this indication. At this time, we believe the FDA will look on additional NDA filings for amlexanox very favorably. Not only is amlexanox already marketed as a 5% paste with a proven safety profile, but the product has been used systemically at significantly higher doses in Japan since the mid-1980’s and also has a favorable safety profile. As such, we believe that, given the safety profile and clinical need, only an abbreviated Phase III package on mucositis will be necessary to gain FDA approval. Management is anticipating an IND filing in the US and UK during the first half of 1999 and we are estimating that amlexanox for mucositis could receive US, UK and European approval during 2001. The Company is currently in discussion to partner marketing rights for the indication.
AXCS continues to develop amlexanox for oral lichen planus, a chronic inflammatory disease that affects the lining of the mouth (oral mucosa). Patients develop oral lesions that can be treated either topically or systemically with corticosteroids, vitamin A or cyclosporine, all of which carry undesirable side effects. AXCS is planning to file an IND in the US and UK in the first half of 1999, leading to possible approval in the first half of 2001.
Other Recent Corporate Developments
Residerm A for Acne: At the beginning of November, AXCS announced the successful completion of a Phase I study on its Residerm A for acne and that a Phase II trial would be commencing shortly. Residerm is a zinc-based drug delivery system that has demonstrated its ability to deliver greater amounts of drug and maintain that drug in the skin, thus reducing systemic absorption and unwanted side effects. The clinical trials are being conducted by Strakan Ltd. of the UK as per a worldwide licensing agreement between the two companies.
The worldwide acne market is estimated to be about $1.1 billion, with the US accounting for over $600 million of the total. Residerm A incorporates clindamycin, the most widely prescribed antibiotic for acne. We are expecting Phase III trials to begin in the US and Europe during the second half of 1999.
Polymer Platinate (AP 5070): In November, AXCS announced the signing of a development agreement with the Foundation N.D.D.O. (previously the European Organization for the Treatment of Cancer (EORTC)) to develop Polymer Platinate through Phase II trials. AP 5070 is a soluble, synthetic polymer conjugate formulation of platinum for first-line treatment of solid tumors. The platinates are one of the most widely used groups of chemotherapeutic agents despite their toxic side effect profiles and observed tumor resistance, and make up a growing market of over $800 million worldwide.
AXCS and the Foundation N.D.D.O. are currently planning Phase I trials for AP 5070, which, in preclinical studies, allowed for a 15-fold increase in platinum dosage with significant inhibition of tumor growth. It is hoped that by inhibiting release of the drug in the general circulation that side effects will be reduced.
Conclusion
We continue to believe that AXCS is a technology-rich company with significant potential. With one approved product, two in Phase II development, two products expected to enter Phase II trials in the next 6 months and one product expected to enter Phase I within 12 months, AXCS has depth rarely seen in an emerging pharmaceutical company. The company maintains a low cash burn rate, and plans to maintain this through lucrative partnering and licensing agreements, which should continue into the coming years.
Company Description
Access Pharmaceuticals, Inc. ("AXCS") is an emerging pharmaceutical company developing a portfolio of drugs and advanced drug delivery systems. We characterize AXCS as an emerging pharmaceutical company, rather than a traditional biotech company, as we believe its business model has components that are less risky than the typical one-compound, or one-technology-platform, biotech company. These components include: one FDA-approved product on the market (amlexanox), a unique cancer drug candidate (Polymer Platinate AP5070), one delivery technology (ResiDermÔ ) with multiple products in development and a corporate partner, and a strategy of generating revenues from licensing and royalties, rather than manufacturing in-house. AXCS intends to continue to partner its technology to defray the high costs and spread the risks associated with clinical development of pharmaceuticals, and to take advantage of partners’ expertise in clinical trial progression, manufacturing and marketing.
Risk Considerations
This section of the document is provided to remind potential investors to undertake a prudent level of due diligence prior to making an investment in the securities of Access Pharmaceuticals, Inc. For a complete description of risks and uncertainties to AXCS’ business, see the "Risk Factors" section in AXCS’ SEC filings which can be accessed directly from the SEC Edgar filings at www.SEC.gov on the internet. Other potential risks include:
- Market risk: Like many small-cap and micro-cap stocks, AXCS’ share price is depressed and trading near its 52-week low. Investors should consider technical risks common to many small-cap or micro-cap stock investments and OTC equity investments, including liquidity levels, small float, risk of dilution, dependence on key personnel, dependence on single products or technologies, and the strength of competitors that may be larger, better capitalized and hold dominant market positions.
- Regulatory risk: There is no guarantee that AXCS’ products will be approved by the US FDA or international regulatory bodies for marketing in the US or abroad.
- Competitive risk: The pharmaceutical industry is extremely competitive, in particular because of its large market potential, and many companies are developing treatments for cancer and other areas targeted by AXCS.
Sources for Additional Information
The following are website addresses offering related information, and links to other sources of information.
| www.SmallCapsOnline.com | SmallCaps Online's site for company information and research |
| www.FDA.gov | US Food and Drug Administration homepage |
| www.Cancernet.nci.nig.gov | National Institute of Cancer homepage |
| www.aacr.org | American Association for Cancer Research homepage |
| www.WHO.int | World Health Organization homepage |
| www.AMA-Assn.org | American Medical Association homepage |
| www.SEC.gov | U.S. Securities and Exchange Commission, with links to EDGAR filings |
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