Grant Zeng, CFA
Advaxis: balance sheet boosted with secured financing
On May 9, 2011, Advaxis Inc. (ADXS) announced that it has entered into a definitive convertible notes purchase agreement with certain accredited investors, for the purchase of the aggregate principal value of approximately $7.1 million of convertible promissory notes for an aggregate purchase price of approximately $6.0 million. The closing of the sale of the Notes, under the Agreement, is anticipated to occur on or about May 12, 2011, subject to customary closing conditions.
The Notes have an original issue discount of 15% and mature on the one year anniversary of the issue date. Under the terms specified therein, the Notes are convertible, in whole or in part, into common stock at a conversion price of $.15. However, except as otherwise provided in the Notes, only 85% of the initial principal amount of each Note is convertible at any time after issuance and the remainder is convertible at maturity.
In connection with the Agreement, the Company issued a warrant to each investor to acquire up to such number of shares of Common Stock equal to 50% of such number of Conversion Shares, issuable upon exercise of the Note, issued to such Investor as of the Closing Date with an exercise price of $0.15. The warrants will expire in three years. Pursuant to a Registration Rights Agreement between the Company and the investors, the Company is required to file a resale registration statement within 45 days that covers the resale of the underlying shares of both the Notes and shares issuable upon exercise of the warrants.
Advaxis will use the funds to support its operations and its Phase II clinical trials in cervical cancer and cervical dysplasia through initial data reporting this fall. Advaxis also will use the funds to finish GMP manufacture of the prostate and breast cancer versions of its novel immunotherapeutic platform technology.
What does this mean to Advaxis?
As a reminder, Advaxis is developing a live, attenuated Listeria vaccine technology to target various cancer indications.
This technology involves the creation of genetically engineered Listeria that stimulates the immune system to induce antigen-specific anti-tumor immune response involving both innate and adaptive arms of the immune system. In addition, this technology facilitates the immune response by altering tumors to make them more susceptible to immune attack, and increasing the number and maturation of development of specific cells that underlie a strong therapeutic immune response.
The Listeria platform technology is unique and holds advantages over its peers. Advaxis has established a pipeline targeting various cancer indications based on this technology. The Listeria technology has broad applications. By changing the antigen, the Listeria technology can be utilized to target different cancer types or other diseases.
In our initiation report issued on April 11, 2011, we had an Outperform rating on the Company’s shares, but we expressed our concern that cash burn may prevent Advaxis to execute its long term growth strategy.
As of January 31, 2011, Advaxis held only $106,040 in cash. As the Company advances its clinical programs especially the ADXS11-001 candidate for cervical cancer/CIN, R&D spending will soar. This financing will address cash burn issue by boosting the Company’s balance sheet greatly. In the short run, it may dilute existing shareholder base, but it will boost shareholder value in the long run by advancing its clinical programs using the financing.
The Company’s strategy is to license its clinical programs to potential partners after Phase II clinical trials. It should not be difficult to find a deal if the Phase II trial results are positive. In such a case, the cash burn concern can be greatly relieved.
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