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E = Estimate
Sources: Company Reports; Legg Mason
What attracts Macary is AVI's technology and the broad range of diseases its drugs presumably could treat, including avian flu. Once AVI's technology is "proven in one area," he says, Wall Street and the drug industry will take notice. That could come with the Phase I/II trial involving AVI's hepatitis C drug. AVI is taking on a difficult disease — a leading cause of liver failure — that may affect 200 million to 300 million people worldwide, including as many as four million in the U.S.
Hepatitis C represents a multibillion-dollar opportunity for any company that can come up with a better treatment than the current standard, a long, toxic and costly regimen involving Interferon and ribavirin that is ineffective in about half of patients. Many drug companies are working on hepatitis C drugs, including Vertex Pharmaceuticals (VRTX
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AVI has developed treatments for a range of bio-terror threats, including the Ebola and Marburg viruses, anthrax and ricin, as well as West Nile virus and dengue fever. A U.S. Senate committee has approved an appropriation of $22 million to the company to pursue these drugs.
If the funds materialize in 2006, it will help AVI move forward with the testing necessary to seek FDA approval. The company has a strong relationship with the U.S. Defense Department and its top lab, the U.S. Army Medical Research Institute of Infectious Diseases (USAMRIID), at Fort Detrick, Md. AVI's Ebola and Marburg treatments have been effective in animals, including primates, but haven't yet been tested in humans.
AVI also has had success in preclinical experiments with a drug to combat the flu. The company now wants to expand its research to animals, and later to humans.
Wall Street analysts generally are cool to AVI, partly because the history of antisense drugs hasn't been a happy one for investors. The FDA failed to approve antisense cancer drugs from Genta (GNTA) and Isis Pharmaceuticals (ISIS) in the past two years, casting a pall over any biotech company pursuing such therapies.
One of AVI's biggest critics on the Street is Legg Mason biotech analyst Edward Nash, who has a Sell rating on the stock. "So we ask ourselves, why would investors invest in AVI with no near-term hope of profitability when they could invest in other biotech companies that have near-term, late-stage clinical, and/or commercialization milestones," Nash wrote in a recent note, titled "AVII: AVI (an) is for the birds."
AVI's situation could change dramatically if its hepatitis C drug trial meets the company's goal of substantially reducing the viral count in diseased patients. Major drug companies are desperate for products, and hepatitis C is considered one of the largest opportunities. Biotech firms with promising drugs, even those not yet in Phase III trials, are reaching lucrative deals with Big Pharma. AVI's chief executive, Denis Burger, says the company is likely to partner with one of several big drug makers if the hepatitis C trial goes well.
AVI was formed in 1980, and its drug platform is supported by more than 100 patents. The company's top executives and directors have significant experience in the drug and biotech industries. Burger, who has been AVI's CEO since the company went public in 1997, acknowledges it's a show-me story. "With the high-profile antisense failures, the Street is leery of the word antisense. Pharmaceutical companies and investors are leery," he says.
Burger says AVI's third-generation Neugene technology differs fundamentally from antisense drugs developed by rivals. AVI drugs use a patented, synthetic chemical backbone to deliver their gene-blocking payload. This structure is designed to prevent the human body's tendency to break them down before they reach target cells.
Antisense drugs also have to overcome other biochemical hurdles, including the ability to cross cellular barriers and then block specific genetic targets. The drugs need to work without causing severe side effects, as safety has been a problem with rivals' drugs. "We've completed 11 human clinical trials involving 250 patients, and we've not had a single drug-related adverse event," Burger says.
AVI can develop a drug quickly once it knows the genetic code of the target virus. With the flu, it strives to target a critical section of the virus that is common to multiple strains. Because the flu virus mutates, a new vaccine must be developed yearly.
Small Firm, Big Targets
AVI Biopharma is developing drugs based on its patented anti-viral technology to combat hepatitis C, which lacks strong existing treatments, and a variety of bioterrorist threats, including Ebola.
Sources: Company Reports

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If its technology works, AVI could develop drugs for a host of ailments that have a genetic cause. GlaxoSmithKline (GSK), for instance, is using AVI's technology to develop a treatment for muscular dystrophy. Other applications could include diabetes and multiple sclerosis.
In 2004, a worker at the USAMRIID lab was stuck by a needle while working with Ebola, prompting fears the worker might contract the deadly disease. AVI formulated a drug within days that got special FDA approval, though the worker proved to be unharmed. AVI was then able to test the drug in primates who were given a fatal dose of Ebola, and 75% survived.
The U.S. government is eager for drugs to combat a range of bio-terror threats because few treatments now exist. Ebola, which causes a hemorrhagic fever that is usually fatal, largely has been confined to central Africa. It is transmitted through direct contact with the blood or bodily secretions of those afflicted. The fear is that terrorists could produce an airborne form of Ebola and then seek to infect a city.
If AVI's Ebola and other bio-terror treatments are deemed sufficiently promising, the government could commission the company to produce a significant amount of the drugs for stockpiling. The government already has an $877 million contract with VaxGen (VXGN), a California biotech, to make 75 million doses of an anthrax vaccine. The advantage of AVI's treatment over a vaccine is that it can be used immediately when an outbreak of the disease occurs. Vaccines typically aren't effective for those who already have contracted a disease, and they can take weeks to provide immunity to healthy people. The chief of immunology at USAMRIID, Sina Bavari, said recently that favorable animal tests involving AVI drugs "represent important progress for the potential treatments of these deadly bio-threats," according to an AVI press release.
The Bottom Line
AVI BioPharma's shares trade for $3, but could soar if the company's flu, hepatitis and restenosis drugs move toward FDA approval. That could also lead to a deal with Big Pharma.
One of the knocks against AVI is that it lacks a major drug partner. In 2001, AVI traded up to $12 share after it partnered with Medtronic (MDT), which planned to use AVI's restenosis drug for a new stent. That partnership lapsed in 2004 without producing a drug-coated stent, and its failure has been interpreted as a sign that the AVI drug isn't effective. Drug-coated stents from Boston Scientific (BSX) and Johnson & Johnson (JNJ) now dominate the market. Stents are used as scaffolding to hold open arteries after they've been cleared of blockages. Drug-coated stents have reduced the incidence of restenosis, or the reclogging of arteries, compared with bare-metal stents.
In Europe, AVI is testing its drug in conjunction with bare-metal stents, commonly used on the continent, to see if the combination can achieve similar success at much lower cost. The AVI drug is injected.
A U.S. Phase II trial in 2003 found that AVI's Resten drug, when delivered via catheter, was effective in preventing restenosis. "It's a very good drug," says Dr. Nicholas Kipshidze, a physician and researcher at Lenox Hill Hospital in New York, which conducted the 2003 trial. "We got very good results with inferior delivery. It's less toxic than any other drug we are using. I still believe that Resten will play a role in the stent" market. Kipshidze consults for AVI, but doesn't own stock.
The Street has written off AVI's restenosis drug, just as it has downplayed the potential of its other products. The biotech industry is full of hype, hope and frequent disappointment. Like most biotechs, AVI amounts to a lottery ticket. But, in this case, the payoff just might be huge.