A Bracing Afternoon Cortado On A Fine Spring Day With $AZRX Cfo Maged Shenouda

We first met Maged Shenouda in the company of AzurRx CEO Thijs Spoor at LD Micro, a semi-annual small cap investor conference in LA. Easy to get to know, friendly and with a distinct lightness of touch, Shenouda is a genuine Wall Street veteran who’s experienced Dickensian bests and worsts of times….and has been untainted by the cynicism that might infect many.

He’s upbeat because sustained conversations with Laboratoires Mayoly Spindler, SAS, have now led to AzurRx purchasing, for stock, augmented and near-global commercialization rights to lead agent MS1819-SD, a recombinant lipase derived from French cheesemaking yeast Yarrowia lipolytica for oral human use in pancreas exocrine insufficiency. “Basically, the lipase is now ours globally to market,” Shenouda says, conceding merely that one or two nations or territories (the company is not disclosing which) are excluded from the arrangement and that these considerations are unlikely to weight meaningfully on global aggregate sales. Although Shenouda did not say, we surmise that France and possibly French territories might be excluded because Mayoly is a French firm. $AZRX will be paid royalties by Mayoly for sales in those limited regions.

“It’s a significant solidification of our position,” Shenouda adds, “and we’re pleased for shareholders.”

When we’d last discussed the company’s intellectual property position last November with CEO Spoor, Spoor had admitted that ideally he’d like to see the company be on firmer and more lucrative footing there. Now AzurRx owns the entire patent estate pertaining to MS1819-SD, in exchange for which Mayoly is now a partner owning an equity interest in AzurRx. Mayoly will be eligible for certain unspecified future payments from AzurRx based on sales figures.

Based on the new agreement with Mayoly, AzurRx is in complete control of all projects pertaining to drug development. And has forgiven the payment of certain unspecified minor receivables from Mayoly.

Shenoda notes that 48 hours ago, the company completed a capital raise of $2.8M: shares were floated at $2.13, representing a 17 percent discount to 60-day VWAP; no warrants were issued. The company’s present cash burn is approximately $400,000 per month, and Shenouda would prefer at this juncture deferring on specifying whether he foresees cash now on hand sufficing til year end. A fair interpretation of this, I believe, is that this thrifty company is in dealmaking mode, has reasonable expectations of positive and price-moving data at this summer’s Digestive Diseases Week presentation, and will have a full data read on its present efficacy trial later in the summer. Possibly the company foresees a takeover prior to a need to raise further capital; however, those notions are mine and not based on any statement made by Shenouda. BioPub will attend DDW.

Shenouda feels that right now the biggest obstacle to share sales is persuading potential investors of the pill burden argument. For patients with pancreas exocrine insufficiency, sole present therapeutic options involve ingesting large capsules of digestive enzymes purified from slaughtered pigs and possessing low specific activity. These preparation are undesirably contaminated with proteolytic enzymes (possibly inducing a fibrosing colopathy) and unneeded amylase.

For practicing clinicians, the pill burden argument is mostly no-brainer. Compliance/adherence estimates for present pancreatic enzyme replacement therapy often range from 25 to 40 percent…..yet practicing clinicians know this number is bogus and that real world compliance nears zero. Swallowing multiple capsules at every meal rapidly exhausts deglutition function and causes nervousness and anxiety. Patients slip off into the dark, skip the capsules so as not to ruin the meal experience, and live with defecatory urgency, loose feces, and not-infrequent self-soiling….in addition to progressive undermining of their own nutritional status.

A recent Oppenheimer note assigned $AZRX an $8 PT (12-18 months). In a survey of relevant prescribers, 19/22 physicians reported they’d change without resistance from present pancreas enzyme regimens to a regimen like Azur’s that incurs no more than 2 capsules per meal. $AZRX’s capsule is smaller than currently marketed agents, and 22/25 surveyed physicians agreed that in this instance “size matters” as regards regimen adherence. Most prescribers also appear now to appreciate the irrelevancy of pancreas replacement therapy containing proteolytic enzymes and amylase. Pancreas exocrine insufficiency is functionally a disease of lipase deficiency. We tend to view Oppenheimer’s price target as rather conservative, based as it is merely on a presumed peak market penetration of 25 percent by 2029. Their analysts aren’t gastroenterologists, and BioPub‘s, which are, view those as unrealistically low numbers.

$AZRX insiders own nearly 36 percent of the company. CEO Spoor owns 100,034 shares. CFO Shenouda owns 42,500 shares. Edward Borkowski, about whom you’ll hear more from Cleveland in an upcoming analysis of AzurRx capital structure, directly owns nearly 300,000 shares. The company has 17.67M OS with a float of 11.34M shares. Market cap hovers around $45M. The global exocrine pancreas insufficiency market is predicted to attain $2.85B by 2023.

Mmm, good coffee, Maged. Let’s swig another next time you have a free moment, shall we?

[Disclosures: The author has a long position in $AZRX and will not trade in such shares for 7 business days following publication. Copyright 2019 BioPub and KSS; all rights reserved. May not be reproduced without permission. No investing advice or solicitation intended. Personal diligence is due before investing in any stock. Neither BioPub nor its editors has a pecuniary relationship with either $AZRX or its officers.]

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