Thursday, February 18, 2010

Swiss Addex Now on BVF's Watch List

Biotechnology Value Fund is making moves. Public records show the high-profile public investor recently grabbed a 6.6% share of the staggering Swiss firm Addex Pharmaceuticals. BVF sometimes makes public its reasons for piling into a stock, but the Feb. 5 document held no clue, and so far BVF hasn't gotten back to us. (We'll keep you posted.)

Allow us to cogitate upon the news. BVF could be making a straight value play. Addex closed today at 11 CHF per share. That's down nearly 75% from a high of 41.95 CHF just before safety data for its lead candidate tanked the stock in mid-December.

Addex pulled the plug on its lead candidate ADX10059, a metabotropic glutamate receptor 5 (mGluR5) modulator, when its Phase IIb data for migraines revealed elevated liver enzymes. Addex immediately halted another Phase IIb, for reflux. The company was expected to pull in a big licensing deal, but hope for that vanished with the safety revelations.

Obviously BVF thinks the company is undervalued. Addex, after all, has generated a pipeline of molecules via its allosteric modulation platform. But how much will it push for managerial and/or strategic change? CEO Vincent Mutel said in December he didn't think the safety failure of '059 was a class effect that would cripple another important compound in Addex's pipeline. It remains to be seen if BVF will attempt to steer Addex's R&D efforts in a different direction.

Given BVF has done its share of cage-rattling recently, it certainly might. Recall the fund used its 30% stake in Avigen to steer the firm into a merger with MediciNova last August. And last week BVF went public with a suggestion that diagnostics firm Celera, of which it owns nearly 10%, spin out the royalty stream associated with the Phase III osteoporosis drug odanacatib.

Merck is developing odanacatib as a potential replacement for its now-generic Fosamax (alendronate), once a $3 billion annual cash cow. Celera, which has reinvented itself several times since its founding by Craig Venter, doesn't do drug development anymore--its main business is developing diagnostic tests, including ones for cystic fibrosis and HIV genotyping. Still it's owed a "mid- to mid-high single digit" percentage royalty on sales if odanacatib comes to market.

BVF wrote in the Feb. 9 filing that, "if successful, the royalty asset could generate tremendous free cash flow for the Issuer’s shareholders and, accordingly, this single asset could be worth a significant multiple of the Issuer's current market value."

Since October BVF has bought about a million shares of Celera, all in the range of $6.09 to $6.30 per share. Shares closed Thursday at $7.01, giving it a market cap of $574 million.

With at least one portfolio company, however, BVF has bided its time. It holds a 16% stake in Facet Biotech but agreed not to tender its shares when Facet development partner Biogen Idec went hostile with a $14.50-per-share bid last fall. In exchange for permission to up its Facet stake above 15% without triggering a poison pill plan, BVF held fast when Biogen upped its offer to $17.50. Biogen dropped its bid in mid-December. -- Alex Lash

Photo courtesy of flicker user kevin.

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