Avivagen — Antibiotic-free alternative for animal feed

Avon Protection (AVON)

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1,137.00

22.00 (1.97%)

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Avivagen — Antibiotic-free alternative for animal feed

Avivagen is advancing feed additives based on its OxC-beta (fully oxidized beta-carotene) technology, which improves immune function and promote growth. The recent approval in New Zealand should build upon commercial sales already secured in parts of Asia.

Written by

Pooya Hemami

Analyst - Healthcare

Avivagen

Antibiotic-free alternative for animal feed

Pharma & biotech

QuickView

12 June 2018

Price

C$0.64

Market cap

C$21m

C$1.29/US$

Share price graph

Share details

Code

VIV

Listing

TSX-Venture

Shares in issue

33.4m

Business description

Ottawa, Ontario-based Avivagen is developing and commercializing products based on its OxC-beta (fully oxidized beta-carotene) technology for livestock (reducing use of antibiotic drugs), companion animal and human applications that are intended to support immune function and promote general health.

Bull

OxC-beta sales efforts targeted in jurisdictions with high motivation to eliminate the use of antibiotics and/or with lower regulatory hurdles

Companion animal (pets) and human dietary supplement markets provide upside opportunities to core animal feed targeted market

OxC-beta intellectual property protection into late 2020s

Bear

Heterogeneity in regulatory requirements across different jurisdictions for which OxC-beta approval is sought requires firm to customize each filing and may require studies to be repeated

Competition from existing feed alternatives to antibiotics (probiotics, prebiotics, acidifiers, metals such as copper and zinc, etc)

Limited sales to date and need for future funding

Analysts

Pooya Hemami, CFA

+1 (646) 653 7026

Maxim Jacobs, CFA

+1 (646) 653 7027

Avivagen is advancing feed additives based on its OxC-beta (fully oxidized beta-carotene) technology, which improves immune function and promote growth. The recent approval in New Zealand should build upon commercial sales already secured in parts of Asia.

OxC-beta Livestock intended for global feed markets

OxC-beta Livestock aims to reduce the use of antibiotic growth promoters (AGP) in feed. It has been studied in over 25 trials, with data showing that it can lead to significant weight gain improvements in broiler poultry and swine and protect against certain gastrointestinal afflictions. The use of AGPs in the feedstock of cattle, swine and poultry has been banned since 2006 in Europe. Restrictions began in the US in 2017 as their use has become a source of concern to health authorities and consumers alike. The removal of antibiotics from feeds can reduce the promotion of antibiotic resistant pathogens that can affect human health.

Sales opportunities in feed and other markets

Following approvals in Asia, industrial-scale sales began in FY17, with lead customer, UNAHCO of the Philippines, purchasing 800 kg of OxC-beta Livestock 10% premix, which can supplement c 45,000 tons of commercial feed. Avivagen estimates the global animal feed market for which OxC-beta can be used (in targeted species of poultry, swine and cattle) exceeds 900m tons. It estimates that 10% market penetration in global feed markets can provide up to US$120m gross profit per year, although it must also compete with other non-antibiotic additives. Avivagen also markets OxC-beta supplements for the companion animal market.

Recent approval for New Zealand opens market

Avivagen reported on 30 May 2018 that it has received GRAS (generally regarded as safe) regulatory approval for OxC-beta for use in livestock in New Zealand, representing Avivagen’s first approval outside Asia. With 6.5m dairy cows (c 70% of the US herd size), New Zealand is a significant exporter of dairy products and beef.

Valuation: Current share price implies EV of C$20m

Avivagen had C$3.1m in net cash at 31 January (C$4.1m cash and equivalents offset by C$1.0m in debt), and in the prior 12 months recorded C$0.36m in revenue and an average quarterly operating cash burn rate of c C$1.1-1.2m. Revenue may increase as new approvals and sales wins are obtained, but given the current burn rate the firm may need to raise additional funds by the end of CY18.

Historical financials

Year
end

Revenue
(C$m)

PBT
(C$m)

EPS
(C$)

DPS
(C$)

P/E
(x)

Yield
(%)

10/16

0.01

(2.7)

(0.12)

0.0

N/A

N/A

10/17

0.26

(5.0)

(0.17)

0.0

N/A

N/A

Source: Company data

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Disclaimer

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A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a "personalised service" and, to the extent that it contains any financial advice, is intended only as a "class service" provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited ("FTSE") (c) FTSE [2014]. "FTSE(r)" is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Disclaimer

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison's solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are "wholesale clients" for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document.
A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a "personalised service" and, to the extent that it contains any financial advice, is intended only as a "class service" provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited ("FTSE") (c) FTSE [2014]. "FTSE(r)" is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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