Addex Extends Its Runway With CHF 20 Million Investment By BVF

Last year's failure of GERD candidate ADX10059 enabled BVF to buy in at a value price, but Addex won't make mistake of focusing primarily on one asset again.

Less than a year after halting its lead program due to liver toxicity signals, Addex Pharmaceuticals has lined up two new sources of financing in two weeks and plans to go forward with a pair of Phase II trials for its new lead program, ADX48621 in Parkinson's disease.

Most recently, Addex announced a CHF 20 million ($20 million) investment by Biotechnology Value Fund Sept. 15. Addex says the cash infusion will enable it to advance several programs, along with '621, while leaving it less vulnerable to another stock price decline should one of its programs disappoint. BVF was able to buy into the Swiss company at a bargain price because of last December's failure of gastroesophageal reflux disorder and migraine candidate ADX11059.

Addex's share price dropped by about 75% after it pulled the plug on ADX11059 one month after announcing the molecule, an allosteric modulator of metabotropic glutamate receptor 5, had met all primary and secondary endpoints in a Phase IIb study as monotherapy in GERD. Routine safety monitoring from another Phase IIb trial of the compound in migraine prevention had shown higher-than-expected abnormalities in liver function tests (Also see "Safety Concerns Doom Addex's Lead ADX10059 On Eve of Partnership" - Pink Sheet, 15 Dec, 2009.).

Financing Extends Cash Runway By A Year

Addex had reported CHF 57 million on hand at the end of the second quarter and says it did not need the BVF investment to get '621 through Phase II in both Parkinson's dyskinesia and dystonia. In addition, on Sept. 7, the Michael J. Fox Foundation awarded it a $900,000 grant to help finance a Phase II study of '621 in levodopa-induced dyskinesia suffered by Parkinson's disease patients (Also see "Addex Wins Michael J. Fox Foundation Funding To Take Its Dopamine Side Effect Therapy Into Phase II Testing" - Pink Sheet, 7 Sep, 2010.).

Addex expects the dyskinesia study will begin during the fourth quarter, while the dystonia trial should commence in early 2011. The BVF investment should increase Addex's financial runway into 2013, CFO Tim Dyer said in an interview, and the company expects data from the two trials around the end of 2011.

"This money is now giving us an extra year and the flexibility to drive forward a number of other very interesting drug candidates coming off our platform," he said. "I think the main reason why we raised this money is that we didn't want to have to slim down our operation and focus on a couple of binary events, or become overly reliant on the need to find partners."

"We don't want to get ourselves into a position where we have to [accept] sub-optimal deal terms," Dyer added. "Raising this money gives us more choices."

Addex held an R&D day in May during which it tried to generate partnership interest for its pipeline of 15 clinical and preclinical, orally available allosteric modulators (Also see "Scrappy Addex Has A Plan For Reviving Faith In Its Allosteric Modulators" - Pink Sheet, 13 May, 2010.). Currently the firm is going it alone on '621, but is partnered with Merck on two preclinical programs for Parkinson's disease and schizophrenia.

Beyond '621, Addex also has ADX71149, an mGluR2 allosteric modulator for schizophrenia and anxiety partnered with Ortho-McNeill-Janssen, moving into Phase II and plans to move two other programs into Phase I testing next year: ADX71943, a GABA-B receptor allosteric modulator for chronic pain, and ADX68692, a follicle stimulating hormone receptor allosteric modulator for endometriosis and benign prostatic hyperplasia.

BVF structured its investment as 593,567 new registered shares in Addex for CHF 6 million and the issuance of six-month mandatory convertible notes for CHF 14 million. The transaction was priced at $10.18 a share, a 12 percent premium over Addex's volume weighted average share price during the five trading days prior to Sept. 14.

When the transaction closes, the new registered shares will comprise 9% of Addex's outstanding shares, while the convertible notes will become 1,371,069 new shares on March 14, 2011, representing 17% of the firm's outstanding shares.

Dyer said the transaction was structured that way because of Swiss laws intended to ensure that companies use their available capital in "the most efficient manner." He called BVF's investment a validation for Addex and said the company, which went public in May 2007, did not consider a follow-on public offering because of weak market conditions.

Departing Investors Created Value Proposition For BVF

BVF told "The Pink Sheet" DAILY its interest in Addex was based on the company's complete pipeline, not just the '621 program. Citing the high qualify of Addex's science, BVF said the Swiss firm became an even more compelling investment opportunity after the failure of ADX10059 caused some of its existing investors to depart.

The San Francisco private equity firm made its first move into Addex in February when it bought out an exiting venture capital company's 6.6% interest.

BVF doesn't usually pay a premium over current trading price when investing in a company the private equity firm said, but Swiss law had an impact on the offering. Still, the premium will be a small price to pay if the investment works out the way BVF projects - it generally looks for companies that it thinks will provide between a 5x and 10x return on investment.

-Joseph Haas ([email protected])