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Investors save Afyx Therapeutics in last moment

For the second time, the investors in Afyx Therapeutics step in to ensure continued operations after doubling the deficit in 2018. An IPO could be a solution, says investor.

Nishan de Silva trådte til som adm. direktør i Afyx Therapeutics i 2018
Nishan de Silva, CEO of Afyx Photo: PR, Afyx Therapeutics

The obliging investors have come to the rescue of Danish-American biotech company Afyx Therapeutics, previously known as Dermtreat, with fresh millions to ensure continued operations in the short term.

"It enables us to continue the ongoing progress," says Nishan de Silva, CEO in Afyx Therapeutics.

The prospect was less promising in the beginning of June when the company presented its annual report. Back then, the company expected the current liquidity to last until the end of the month.

In 2018, Afyx generated a net loss of DKK -45 million (USD -6.74 million) relative to DKK -26 million the previous year. The independent auditors therefore expressed doubt about the company's ability to continue.

In other words, a significant capital injection was needed to keep the company going and according to the report, the management initiated a dialog with existing shareholders to "ensure liquidity for the company for at least the rest of 2019."

Financed until phase II

The effort paid off.

Via an investment of USD 13 million, the owners of Afyx - two private investors, Novo Seeds, Lundbeckfonden Emerge and Soffinova - recently injected fresh momentum into the company.

"We have handled the issue of going concern so the company is now financed for a good while yet," says Christian E. Eiling, Managing Partner in Lundbeckfonden Emerge.

Before the recent investment, the Danish fund held 10-14.99 percent of the shares in Afyx, similarly to Novo Seeds.

US-based Soffinova Venture Partners is the largest shareholder with between 33.33 and 44.99 percent of the total shares.

It's no secret that this trial will take more time and thus be more expensive than initially anticipated.

Stephan Christgau, Senior Partner, Novo Seeds

The fresh funds are enough to finance the phase IIb clinical trial Afyx Therapeutics initiated in 2018 with the main asset Rivelin. The candidate is to treat oral lichen planus (OLP), a painful chronic disease with no approved treatment.

Afyx previously expected the results of this trial in the first half of 2019 but the timetable has now been delayed.

"It's no secret that this trial will take more time and thus be more expensive than initially anticipated," says Stephan Christgau, Senior Partner at Novo Seeds, adding:

"Therefore, we, Lundbeckfonden Emerge, Soffinova Ventures and one more shareholder recently provided the company with the extra financing needed to continue operations until the middle of 2020 and finish the phase IIb trial."

Expands team

According to Christgau, Afyx has gained momentum and expects to expand the workforce in both Denmark and the US to reinforce the organization and ensure the right competences for further development of the products.

The CEO confirms.

"We will spend the money on financing the large-scale phase IIb trial and on building up the internal organization in Afyx," says de Silva, who succeeded founder and former CEO Jens Hansen last year.

During his first year in the position, de Silva already increased the number of employees from 3 to 8 and, along with that, the staff expenses from DKK 5.1 million to DKK 13 million.

"We hired the new people to support the phase IIb trial that requires more resources due to significantly increased operational activities," he says.

According to the CEO, the new financing was ensured after the presentation of Afyx's annual results in June.

"Therefore, we and the auditors couldn't include the effect of the USD 13 million in the annual report and naturally, and normally for biotech companies, they had to declare going concern in the report," explains de Silva, referring to the term that covers an assessment of a company's abilities to continue operations in the foreseeable future.

New CEO necessary

The USD 13 million come from the same investor consortium that invested USD 17.5 million in Afyx in 2017. Back then, it was described as one of Denmark's largest Series A financing rounds ever for a small biotech company.

But as Afyx matured, the need for leadership skills changed.

It meant goodbye to former CEO Jens Hansen, who first became CFO and afterwards left the management and then the company.

"Jens is a skilled innovator and was good for Afyx in the first years," says Elling and adds:

"But for the next step in the development, we needed someone with international and commercial competences like Nishan's. It was therefore natural for us to hire Nishan and let Jens step down."

"Significant" potential

OLP is a chronic disease characterized by lesions in the mucous membrane in the mouth where it is hard to apply creams, gels or the like.

Rivelin is a patch that sticks to the mucous membrane, and Afyx hopes to have a convenient, comfortable and safe product in the near future.

"Afyx Therapeutics develops a product for patients with oral lichen planus for whom there are currently have no well-tested and approved products available. They have to apply cream in the mouth or on a cotton pad to carry in the mouth," explains Eilling, adding:

"So, there is obviously a need for an approved, safe and efficient product."

We will spend the money on financing the large-scale phase IIb trial and building up the internal organization in Afyx.

Nishan de Silva, CEO, Afyx Therapeutics

Afyx is conducting the phase IIb trial in the US, Germany, Denmark, the UK, Ireland and Canada. The study includes 240 patients who have been separated in four groups - three groups receive different doses of medicine and one receives placebo.

The company expects the first interim data in the middle of 2020. And due to the lacked of approved treatments for OLP and an estimated patient group of approximately 6 million people in the US and Europe, Elling describes the potential as "significant."

"The market size depends on how we choose to conduct the following phase III program, which will define for what label we can file for regulatory approval, the pricing and, for instance, whether we look into other indications," explains the managing partner, adding:

"But, considering the existing treatment opportunities, the potential is quite significant."

IPO is an obvious possibility

However, if the data look promising, Afyx will need more than USD 13 million to continue.

Phase III trials are expensive and if Afyx - as the company hopes and anticipates - reaches phase III, the biotech firm will need to raise minimum a two-digit million sum.

It is yet unknown how the money will be raised but according to Elling, a US IPO is an option.

"An IPO is definitely one of the opportunities for Afyx - especially for a company like Afyx that has a technology, ongoing phase II trials and a US investor," he says.

The US investor, Sofinnova Ventures, has traditionally been a strong actor in life science IPOs during the past 10 years. And 11 of the venture fund's companies have been acquired.

"All options are open for us. And, as it is typical for a biotech company, an IPO is one of them," says de Silva.

Nevertheless, Elling declines to set a more specific time for when Afyx eventually goes public.

"There are many things that indicate that an IPO could be a relevant opportunity for Afyx. But we should be careful to not get ahead of ourselves so let's see what happens in the further development of the company and take it from there," he says but adds:

"But is an IPO an option? Absolutely."

English Edit: Ida Løjmand

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