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March 3, 1999
RECOMMENDATION: BUY
Access Pharmaceuticals, Inc. (OTC: AXCS)
Access to Acquire HIV and HTLV Programs of Virologix;
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 signed a definitive agreement to acquire Virologix Inc., a private anti-viral company for an undisclosed amount of AXCS stock. The closing of the transaction is contingent upon the approval by Virologix’ shareholders and the completion of a private placement of AXCS stock. We think this is an extremely positive event for AXCS, as it further diversifies AXCS’ portfolio, adds additional product opportunities in large markets and (assuming the completion of the private placement) increases the AXCS stock float. Most importantly, it may provide the capital necessary to seek a relisting on the Nasdaq Small-Cap Market.
With this acquisition, Access enters the anti-viral market (see below), a large, underserved market, and adds to an already impressive product portfolio. Because of this announcement, and several recent announcements of advancements of clinical programs (see research update 1/12/99), we 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.
Virologix
Virologix is a privately held pharmaceutical company focused on the development of treatments for HIV and vaccines to prevent HTLV-I and HTLV-II infection. Working primarily with Rockefeller University and the University College Dublin, Virologix’ HIV program has a compound ready to enter the clinic and have substantially completed the preclinical studies of the HTLV vaccines.
HIV: Virologix’ HIV program focuses on the development of inhibitors to the human enzyme topoisomerase I (topo I), a critical enzyme involved in HIV infection and replication. Using a different mechanism than the current reverse transcriptases and protease inhibitors, it is possible that topo I inhibitors could represent an important new class of HIV therapy, particularly when used in conjunction with other therapies. Several topo I inhibitors are already on the market as cancer treatments; Virologix has acquired rights to two issued U.S. patents and two patent applications covering the use of topo I inhibitors in HIV. Following preclinical studies on one of these compounds, a Phase I/II trial has been designed and Virologix is currently in discussions with several entities to manage this trial. The Company also has access to a library of topo I inhibitors, with which it hopes to be able to further optimize compounds for additional clinical trials. With over 30 million people infected with HIV worldwide, this represents a potential large new market opportunity for AXCS.
HTLV-I and HTLV-II: Though lesser known than HIV, HTLV (Human T-Cell Leukemia Virus) infects the T lymphocytes of the human immune system and is associated with a number of severe clinical disorders. Approximately 10-20 million people worldwide are affected with HTLV-I or HTLV-II. The infection is most prevalent in Southern Japan, the Caribbean, Intertropical Africa and Central and South America (particularly Brazil), and is spread primarily through breastfeeding, homosexual transmission, contaminated blood products, blood transfusions, transplants and sharing of contaminated needles by IV drug users. Although the population of carriers is high in certain geographic regions, only approximately 2-5% of infected individuals develop HTLV-related disorders. The two types, I and II, are similar and because diagnostic tests often to do not differentiate between the two, it is difficult to breakdown the disease populations. Vaccines have been developed using recombinant DNA techniques against both HTLV-I and HTLV-II infection. Animal studies have demonstrated high antibody titers and protection against viral infection for both vaccines. These vaccines appear ready to enter the clinic–we are anticipating that the company will seek partners to further clinical development. With no vaccines currently available, we believe the HTLV markets represent a large, untapped potential for Access.
Virologix has also done work on an enhanced kit designed to increase the efficiency of PCR and cDNA kits used in research, diagnostic and forensic labs. The Company is pursuing patents surrounding this technology.
Conclusion
We continue to believe that AXCS is a technology-rich company with significant potential. With one approved product, four programs scheduled to enter pivotal clinical trials during 1999 and two additional product candidates to enter early-phase clinical trials within twelve months, AXCS has depth rarely seen in an emerging pharmaceutical company. The acquisition of Virologix, we believe, only adds to AXCS’s depth. Access 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 |
The information in this report has been obtained from sources that we believe to be reliable, but we do not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation by SmallCaps Online LLC for the purchase or sale of any securities. SmallCaps Online LLC may have performed investment banking, consulting or other services for or may solicit investment banking, consulting or other business from, any company mentioned in this report. SmallCaps Online LLC or persons associated with SmallCaps Online LLC may at anytime be long or short any of the securities referred to herein and may make purchases or sales thereof while this report is in circulation or posted on the SmallCaps Online LLC website at www.SmallCapsOnline.com. This material, or any portion thereof, may not be reproduced without prior permission from SmallCaps Online LLC. SmallCaps Online LLC is not responsible for the contents of this document that is intended for electronic transmission and could be thus subjected to tampering or alteration. Copyright © 1999 by SmallCaps Online LLC. All rights reserved.