The Investor's View/Croesus: The London Stock Exchange's Alternative Investment Market (AIM), set up to provide a market for younger and/or smaller companies, has been an enormous success. The once fledgling market now boasts several hundred listings across a wide spectrum of industrial sectors.
In April 2005, the Irish Stock Exchange launched the Irish Enterprise Exchange (IEX), based on the AIM template and designed to meet the needs of small and mid-sized companies. An important feature of the IEX listing rules is that they are complementary to the AIM admission rules, thereby allowing Irish companies the option of co-ordinating admission to both markets using the same timetable and essentially the same admission document.
After a slow start, the IEX has now reached critical mass, with a little under 30 companies listed. The range of industrial sectors represented has broadened and includes housebuilder Abbey, food company Donegal Creameries and the three demerged Fyffes entities.
The IEX, with its lighter regulatory touch, also provides the market for a small number of exploration companies such as Ovoca Gold and Providence, as well as recruitment companies CPL Resources and Newcourt Group.
To list on IEX, a company does not need a trading record and therefore early-stage development companies can use the market to raise development capital.
One such company, AGI Therapeutics, reported its maiden set of audited accounts on Wednesday. AGI listed on IEX and AIM on February 27th, 2006, and, in the process, raised gross funds of €42.5 million through a placing of new shares at a price of €1.26 each.
After the placing, the directors held 24.3 per cent of the equity with venture capital companies ACT, Seroba, Delta and Merlin holding a further 29.5 per cent of the company.
These strategic shareholders agreed to a 12-month lock-up period post the listing and a further 12-month period of "orderly market arrangements", should they decide to sell all or part of their shareholdings.
AGI is a speciality pharmaceutical company focused on the development and commercialisation of differentiated drug products for gastro-intestinal (GI) diseases and disorders.
The company has a portfolio of product candidates derived from its known molecular entity approach to drug re-profiling and development.
Known molecular entity is a re-profiling methodology used by the company to identify existing therapeutic drugs which typically have been marketed for a number of years, have established safety profiles and can be developed for new clinical indications or with improved profiles in their existing clinical indications.
In this way, AGI seeks to reduce the risk, time and cost of new product development as compared to the development of new chemical entities.
Founded in late 2003, AGI set about developing six product candidates targeted at a range of gastro-intestinal diseases. All of these initial six candidates reported clinical results during 2006 or early 2007.
Arverapamil, AGI-003, is the lead development programme and is the primary focus of development during 2007. The company is targeting areas of the gastro-intestinal therapeutic drug products market for its product candidates where there are currently unmet medical needs or where the effectiveness of existing drug therapies can be further improved.
AGI reported an operating profit loss of €5.2 million which was a little higher than its broker, Davy, had forecast. R&D spending was €3.5 million, compared with Davy's €6 million forecast, although the underspend is mainly timing-related. Net cash is a healthy €40 million, meaning AGI is financially well positioned to complete its product development plans.
As well as its financial statements, AGI also released positive news regarding arverapamil, where it has concluded a successful pre-IND (Investigational New Drug) meeting with the US Food and Drug Administration (FDA). The meeting was held to allow the FDA to review the current data package on arverapamil, to discuss the requirements for an arverapamil IND, and to agree on the design and scope of the Phase III clinical trial programme as well as the full development programme to support the submission of an NDA (New Drug Application) under FDA's 505(b)(2) regulations.
This green light for Phase III development is the most important piece of news released this week. It will provide more regulatory clarity to investors and potential licence partners, and it now means that AGI has its lead product in late stage trials.
The shares are trading at €1.80, well above the listing price of €1.26, but below a high of €2. It will be at least 2008 before the company turns profitable and therefore share price movements will be dependent on news regarding the development pipeline. AGI's broker, Davy, has a share price target of €2.75, which is probably an achievable medium-term target if AGI can successfully roll out its product development plans.
Investors will probably have to wait until much later this year for any significant development news and therefore short-term performance from the shares is unlikely. In the longer term, AGI is an interesting, high-risk investment that offers potentially high rewards for those investors willing to be patient.
