Alpha Neuron

Situation Analysis: Shares of the UK’s Protherics surged more than 30 percent after the biotech announced that “a number of parties” have expressed an interest in buying the company. Rumors about a possible buyout had already triggered a rise in share value, which prompted the statement.

Protherics recently launched a Phase IIa trial for its Angiotensin vaccine therapy for hypertension. CEO Andrew Heath has already remarked that Angiotensin offers a major out-licensing opportunity. Data from that trial is expected in about a year. CytoFab is in mid-stage development for serious infections, but data from that trial won’t be available until 2010. That leads at least one analyst to doubt that any of the bidding is coming from a blue chip pharma company.

Company Official Announcement

Protherics PLC

Re: share price rise

London, UK; Brentwood, TN, US; 13 August 2008 - Protherics PLC (“Protherics” or the “Company”), the international biopharmaceutical company focused on critical care and cancer, notes today’s rise in the Company’s share price and confirms it has received approaches from a number of parties interested in acquiring Protherics, which the board is considering. However, there can be no certainty that any formal offer will be made, nor as to the terms on which any offer might be made. A further announcement will be made in due course.

In accordance with Rule 2.10 of the City Code on Takeovers and Mergers (the “Code”), Protherics confirms that at the close of business on 12 August 2008, it has 342,159,034 ordinary shares of 2 pence each in issue and admitted to trading on the London Stock Exchange under the UK ISIN code GB00070290.

About Protherics
Protherics (LSE: PTI, NASDAQ: PTIL) is a leading international biopharmaceutical company focused on specialist products for critical care and cancer. Protherics has produced two FDA approved biologics for critical care use which are currently sold in the US: CroFab™, a North American pit viper antivenom and DigiFab™, a digoxin antidote.

Protherics reported revenues of £26.1 million for its year ended 31 March 2008 and a strong cash balance of £37.7 million. The Company’s strategy is to use the revenues generated from its marketed and out-licensed products to help fund the advancement of its broad, late stage pipeline.

Protherics has two major development opportunities in its portfolio. CytoFab™ is being developed by AstraZeneca, for the treatment of severe sepsis, following a major licensing deal announced in December 2005. AstraZeneca is conducting an additional phase 2 programme following changes to the commercial manufacturing process. A new formulation of Angiotensin Therapeutic Vaccine, for the treatment of hypertension, has today commenced a phase 2a study. Protherics also has Page 3 four novel products being developed in a range of cancer indications where it intends to undertake the sales and marketing in the US and/or the EU.

With headquarters in London, the Company has approximately 300 employees across its operations in the UK, US and Australia.

Options for Avalon’s Board

Best Option: Raise debt capital, pledging whatever assets it can, and use that for two purposes:
(a) do the biotech drug development with a strict performance based incremental investment
(b) start a service based revenue stream that can generate some operating cash.

Avalon Board and CXOs have to figure out what services they can offer to the industry, like taking outsourcing work from other larger companies…they should do something extra along with R&D work if they are serious about keeping the company afloat. There are many biotechs struggling in the market doing pure-play R&D, and equity capital won’t come easily especially with no results to show with the previous $30 million from last year.

Second Best Option: Sell the partial rights of work-in-progress research to a larger biotech or pharma who can afford to use the research, and get cash in return.

Either way, existing investors should be very cautious to put more money into the business at this stage.

Background Business Developments

Thursday, August 14, 2008; Washington Post Page D01

 Avalon Pharmaceuticals told investors yesterday that it will not be able to continue operations past this year if it can’t secure more funding. The Germantown biotech said its second-quarter loss narrowed to $5.6 million, from $5.8 million in the comparable period last year. Revenue was $137,000 for the quarter ended June 30, up from $78,000, thanks to its collaboration with Novartis Institutes for BioMedical Research. But Avalon’s cash, equivalents and marketable securities totalled $16.7 million, an amount that restrains its plans.

“We are acutely aware of our need to raise additional capital in the near term and are vigorously exploring a number of options,” C. Eric Winzer, Avalon’s CFO, said during a conference call with investors.  

To thin its expenses, Avalon will cut a third of its employees, reducing its workforce to about 35 people. The biotech, which focuses on cancer therapies, will stop work on its most advanced drug candidate and focus on AVN316, a drug that inhibits a cell pathway containing several proteins that play a role in the start and spread of cancer.

Avalon has partnerships with Merck and other firms to investigate compounds to fight several ailments, including cancer. Avalon could receive up to $200 million in milestone, regulatory and other payments as part of its Merck agreement, a partnership created last year to attack a target previously regarded as “undruggable.”

The decision to stop work on AVN994, which targets an enzyme that is sometimes overproduced in some cancer cells, especially blood malignancies, surprised analysts. AVN316 is better understood and appreciated by big pharmaceutical companies, Kenneth C. Carter, Avalon’s chief executive, told investors. “We believe our focus on these other programs will provide better shareholder value in the near term and long term,” Carter said.

Last year Avalon raised $30 million in private stock placements to fund its drug pipeline programs. Shares fell 29 percent yesterday, closing at 73 cents, the company’s lowest since going public in 2005.

Slow clinical drug development, which is typical of biotechs, coupled with poor market conditions, have hampered financing, said George B. Zavoico, an analyst with Cantor Fitzgerald in New York. Like small, struggling biotechs before it, Avalon now faces partnering with another company, debt financing or selling itself. But the big drug companies are losing patent protection on high-revenue products. “There is a little bit of reluctance to enter into partnership as easily and generously as when they were collecting billions of dollars off blockbuster drugs,” Zavoico said. “They see their revenue streams tightening up.”

Mobile operator messaging revenues are under threat. Operators are rolling out flat rate data packages to encourage mobile Internet usage and uptake, which is in turn enabling the availability of free, ad-funded online messaging on the mobile handset. Mobile application development is by nature technically challenging. However, the carriers have not helped. Mobile technologies are making mission-critical data (voice, data, video, maps) available on-demand and on-site through mobile networks and devices. Many organizations are planning remote access to their production-level enterprise applications.

Existing Internet Protocol (IP) broadband links (such as DSL or cable) are leveraged to back haul the mobile voice, video, SMS, and data traffic from the home and integrate with an existing 3G Wireless Core Network.

Base Stations are the link between wireless devices and the rest of the world. While many people would recognize the large cellular towers on the roadside as base stations, there are also smaller, lower power base stations for indoor wireless applications.

Base station manufacturers also want to evaluate the new standard. TI partnered with system developers MCS and STx to offer ATCA/AMC-based development platforms that can reduce the OEMs’ time to market. Basestations will require flexible, low cost integrated solutions that are capable of supporting several-standards.

For example, let’s analyze Powerwave Technologies:

Powerwave Technologies, Inc., is a global supplier of end-to-end wireless solutions for wireless communications networks. Powerwave designs, manufactures and markets antennas, boosters, combiners, filters, repeaters, multi-carrier RF power amplifiers and tower-mounted amplifiers and advanced coverage solutions, all for use in cellular, PCS, 3G and WiMAX networks throughout the world.

They have 3 product lines: (1) Antenna systems (2) Base station systems (3) Coverage systemsBase station systems contribute about 67% of the revenue, while Antenna systems and Coverage systems share the remaining.

Powerwave is in a challenging position. The industry has long-term strength, but the short-term is not easy.

Powerwave has two types of customers:
(1) OEM Accounts, contributing about 67% sales and
(2) Direct/Operator Accounts, contributing about 33% sales.

Powerwave has done four acquisitions in the last few years, and in their words: “Notwithstanding our acquisitions, our business remains largely dependent upon a limited number of customers within the wireless communications market and we cannot guarantee that we will continue to be successful in attracting new customers or retaining or increasing business with our existing customers.”

The 67% sales from OEM Accounts creates earning risk because of developments in the OEM side, given that 50% of total sales come from just two OEMs: Nokia Siemens and Alcatel-Lucent. They need to do a couple of things successfully if they are to move into profitability.

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