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May 27, 1999
RECOMMENDATION: BUY
Valentis, Inc. (Nasdaq: VLTS)
Valentis Merges with PolyMASC Creating a "Biologics Delivery" Company; Reiterating BUY Recommendation
Market Data:
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VLTS Corporate Information:
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Recent Developments
Valentis Inc. (VLTS) announced yesterday that it had entered into a definitive agreement to merge with PolyMASC Pharmaceuticals plc, a London-based biologics delivery company. We believe this is a very shrewd transaction on the part of VLTS and is consistent with the Company’s strategy to expand its capabilities in gene therapy (and thus DNA delivery) into a broad array of biologics delivery systems. We continue to believe that VLTS is undervalued at current levels and recommend purchase for those investors tolerant of the risks associated with small-cap equity investments.
The PolyMASC technology: Many problems arise when attempting to deliver peptides, proteins and other large molecules to the human body. Not only are the substances rapidly cleared from the body, but they are also frequently viewed as foreign and can illicit an immune response from the body or have other toxic effects. Due to poor bioavailability of these substances, large initial doses are often given intravenously, creating toxicity. Subcutaneous administration can overcome this problem, but there is often a large loss of dose at the injection site. PolyMASC has developed a PEGylation technology, by which polyethylene glycol (PEG) chains are coupled to molecules to essentially hide the substance from the body’s immune system and from the degradation process, allowing delivery of the therapeutic. Historically, the PEGylation process has had problems of its own, including poor conservation of biological activity and certain toxicity issues. PolyMASC has solved these problems by creating novel and proprietary methods for linking PEG to the molecules. Through this more mild PEGylation process, bioavailability, solubility and biological activity are all enhanced and, due to the unique coupling process, the toxicity problems resolve. This technology is also extremely versatile and can be applied to the delivery of proteins, peptides, peptidomimetics (peptide-like small molecules), antibodies, antibody fragments, liposomes, viral gene therapies and replicating viruses.
The Agreement: As a result of the merger, which was unanimously approved by the boards of both companies and still must be approved by PolyMASC shareholders, VLTS will issue approximately 4.4 million shares worth about $20 million. Each PolyMASC shareholder will receive 0.209 shares of VLTS for each share and is expected to close during the third quarter of 1999. PolyMASC will become a wholly owned subsidiary of VLTS. The new London facility will focus primarily on the development of delivery systems for peptides, proteins, antibodies and liposomes, while the Texas facility will focus on plasmid-based gene therapies and the California facility on manufacturing, clinical development, viral-based gene therapies and replicating viruses.
Strategic Implications: We believe this agreement significantly broadens VLTS’s technology portfolio and evolves the company from being a pure gene delivery company into a biologics delivery company. With the worldwide market for biologics expected to approach $30 billion by the year 2008, we feel VLTS is well poised to take advantage of this large and growing market. In addition, the Company already has an impressive list of corporate partners–we expect this transaction to further enhance VLTS’s ability to attract additional corporate partners interested in biologics delivery. We expect a steady flow of positive news events from VLTS over the next 12 months and anticipate continued stock appreciation.
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 VLTS. For a complete description of risks and uncertainties to the Companies’ businesses, see the "Risk Factors" section in the Companies’ SEC’s filings, which can be accessed directly from the SEC Edgar filings at www.SEC.gov on the internet. Other potential risks include:
- Market risk: Investors should consider technical risks common to many small-cap or micro-cap stock investments, including liquidity levels, small float, risk of dilution, dependence upon key personnel, dependence upon single products or technologies, and the strength of competitors that may be larger, better capitalized and hold dominant market positions.
- Business risk: VLTS is developing unproven products. The field of gene therapy has significant potential value, but is very new and rapidly evolving. The Company expects to incur operating losses over the next few years, and there is no assurance that the Company will ever achieve profitability. The Company is dependent upon collaborations with partners, and there is no assurance that the Company will enter into favorable partnering terms, if at all.
- Regulatory risk: There are no gene therapy products approved by the FDA in the market, and there is limited data on the safety and efficacy obtained from clinical trials. There is no guarantee that VLTS will ever develop a viable product, and even if successfully developed, there is no assurance that it will be accepted by the FDA, or be commercially successful.
- Competitive risk: There is no assurance that VLTS’ product will have better efficacy than other drugs on the market, if they get to the market. The gene therapy industry is changing very rapidly, and more competition will inevitable come as the industry gets larger.
Sources for Additional Information
The following are website addresses offering related information, and links to other sources of information.
www.Valentis.com Valentis’ Home Page
www.SmallCapsOnline.com SmallCaps Online’s site for company information and research
www.nih.gov National Institutes of Health
www.nhgri.nih.gov National Human Genome Research Institute
www.FDA.gov US Food and Drug Administration 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 or its affiliates has 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 its affiliates or persons associated with SmallCaps Online LLC or its affiliates 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.