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A sixth sense for biotech helps Arix Bioscience turn risk into profit as portfolio value nearly doubles

Analysts at Stifel say the venture capital firm is entering its first extended period of sustained news flow with shares trading at about 45% discount to their £2.53 price target
Top management at Arix Bioscience
Investment gurus at Arix have 14 companies in their portfolio, with a target of around 20 likely to be reached in the not-too-distant future

It’s hard, but not impossible, to turn risk into profit in the biotech sector. Arix Bioscience Plc (LON:ARIX), which specializes in seeding medical innovators, has built a robust portfolio of 14 companies, turning risk into profit.

The company posted strong first half numbers and two of its portfolio companies Autolus Therapeutics (NASDAQ:AUTL) and Iterum Therapeutics PLC (Nasdaq:ITRM) listed on Nasdaq. For the six months ended June 30, the venture capital firm’s portfolio value increased 71% to £121.8mln and delivered a £29.3m profit before tax.

Arix’s skill in spotting biotech winners has everything to do with its ability to tap the right panel of experts, mainly Ph.Ds who are academics and rock stars in the biotech universe.

“We have doctors and scientists on the team and that sort of experience is very important because it is a ferociously technical industry” said Joe Anderson, chief investment officer at Arix Bioscience. “We know what we are looking at and how to assess it, which takes a lot of training and we’ve got an experienced team based in New York and in London, which have capabilities to do that.”

READ: Arix Biosciences’ investee company Iterum kicks off phase III trials of next-generation antibiotic

Investment gurus at Arix spotted Dublin-based Iterum, a clinical-stage pharmaceutical company early and led a led US$65mln Series B financing. The Arix investee company has kicked off the second and third of three Phase 3 clinical trials of its next-generation antibiotic. Lead compound sulopenem is being developed to treat gram-negative, multi-drug resistant infections. The Iterum trials are named SURE 2 and SURE 3. The former will see the drug used to treat complicated urinary tract infections, while the latter will assess sulopenem’s potential in patients with intra-abdominal infections.

Arix, which has 7.4% of Iterum, said it invested in the Nasdaq-listed biotech because it has a “clear” pathway to commercialization.

Iterum’s next-generation antibiotic

“There’s an urgent need for pharmaceutical companies to focus on new antibiotics to combat antimicrobial resistance,” Mark Chin, Investment Director at Arix Bioscience, told Proactive Investors. “So, a tablet-form penem such as sulopenem could address an unmet medical need, as well as reduce hospital stays for treatment and by extension cut costs for insurance companies.”

Chin, who has an MBA from Wharton and an MS in Biotechnology from the University of Pennsylvania, says the potential market for Iterum’s next-generation antibiotic could be “significant.”

In the US alone, there are 25 million cases of urinary tract infection, around 4 million of which are the complex variety. Sulopenem is the only synthetically made antibiotic that can be taken orally or administered intravenously. Previously, these types of drug have been via IV only, limiting their use to hospitals.

Diverse portfolio

“The most mature companies in our portfolio are obviously Iterum and Autolus Therapeutics, which successfully listed on Nasdaq. Autolus is developing next-generation, programmed T-cell therapies for the treatment of cancer,” said Chin, who has earlier worked with Gilead Sciences Inc (NASDAQ:GILD) and Genentech.

“Artios just did a series B financing, and Harpoon just treated its first patient a few months ago on an Investigational New Drug program. There are multiple expected catalysts with some 20 clinical trials across the portfolio,” he added.

BIG PICTURE: Arix Biosciences lines up opportunities as life sciences bound ahead

According to Arix, at least 17 data readouts are expected over the next 18 months from its portfolio companies that are developing gene therapies (LogicBio, OptiKira, Mitoconix and PreciThera), oncology treatments (Artios, Harpoon Therapeutics, Aura and Autolus), and anti-infectives (Amplyx, Iterum, AtoxBio). Arix also has a stake in Verona Pharma (LON:VRP) which has begun a Phase 2 trial of a drug that will be given to people with COPD, a serious lung disease. The initial read-out from this clinical assessment is expected in the first quarter of next year. It’s also the sole institutional investor in epigenetic sequencing and analysis platform, Depixus.

Arix has also invested US$14.2mln for an 11.1% shareholding of Pharmaxis Ltd (ASX:PXS), which is developing new treatments for a range of fibrotic diseases, including non-alcoholic steatohepatitis (NASH), idiopathic pulmonary fibrosis (IPF), heart and kidney fibrosis.

Stifel’s bullish case

Analysts at Stifel said in research note that Arix is entering its first extended period of “sustained news flow” with shares currently trading at a deep discount to NAV. The analysts expected a “step change in frequency and breadth of catalysts.”

“Arix has broadened the shareholder register with new institutions…With the technical overhang now cleared, there has never been a better time to invest in Arix,” wrote Stifel analyst Christian Glennie.

“Nothing yet priced in for positive developments over the summer. Approaching important catalysts – 2x initial Ph 1/2 read outs for Autolus expected Q3 2018,” added Glennie.

Stifel has a Buy rating on Arix Bioscience and a £2.53 price target on the stock. Arix stock was trading at £174.14 on Monday.

War chest for new portfolio targets    

At 30 June 2018 Arix’s cash pile was £137m, which according to Jefferies analysts, will comfortably fund £50 to £60mln of investments this year.

Arix specializes in seeding startup, mid-venture and late-stage healthcare companies. It seeks to invest globally and has an “evergreen approach” to funding, where it gradually infuses capital into a new company. It primarily makes investments from its own balance sheet.

Contact Uttara Choudhury at [email protected]
Follow her on Twitter: @UttaraProactive

-- (Update with share price) -- 

 

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