Pat McKeough recently replied to an Inner Circlemember looking for an opinion on Avivagen Inc. While the company has the cash to continue research on its alternatives to livestock antibiotics, it faces other challenges, says Pat.
Q: Hello Pat: I wonder if you would give me your analysis and opinion of the company Avivagen Inc. (VIV). Thanks very much!
A: AVIVAGEN INC. (symbol VIV on the TSX Venture; www.avivagen.com) aims to sell replacements to the antibiotics now fed to livestock. It will initially concentrate on the two largest feed segments—swine and broiler poultry. Avivagen operates out of the partnership facilities of the National Research Council of Canada, in both Ottawa and Charlottetown.
For companion animals (“pets”), the company has already created two branded lines of products—Vivamune Vital Health3 Chews and Oximunol Chewable Tablets. Both are meant to improve or maintain quality of life for pets, although Avivagen has yet to bring the products to market.
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The use of antibiotics to promote growth in beef cattle, swine and poultry has been banned for over 10 years in Europe. More recently, those antibiotics have raised concerns among health authorities and consumers in North America. That’s led to demands for bans here. The company believes that creates a market for its future products.
Avivagen’s exclusive technology to replace antibiotics is known as OxC-beta (fully-oxidized beta-carotene). It believes that OxC-beta can act as a non-antibiotic feed additive to enhance productivity in swine and poultry by improving the conversion of food to body tissue.
The company is using up its cash at a rate of about $500,000 per quarter. It holds cash of about $3.4 million (from a share sale in July 2016), so it has enough to keep its research and development going through 2017. That also takes away the immediate need to sell shares at today’s low price. Any such sale would dilute current shareholder interest.
While the company is positioned to meet any increasing demand for antibiotic-free meat, its OxC-beta technology will require regulatory approval before Avivagen can commercializes it. In most markets, it could take several years to win those approvals. Other applications for OxC-beta, such as pet nutrition, may require less data to win regulatory approval. Still, they will need considerable marketing resources and an effective marketing campaign to attract buyers.
Right now, Avivagen is focused on trial testing OxC-beta in Asian markets, such as the Philippines and Vietnam. Regulations are less stringent there. But it’s uncertain how successful the company will be in proving the product’s value to consumers.
Inner Circle recommendation: We don’t recommend shares of Avivagen.
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