In March I wrote an article with a thesis stating that OXiGENE Inc. (NASDAQ:OXGN) is undervalued, but weak financials, poor historical stock performance and a suboptimal manufacturing capacity would impede the company's progression to the cancer market. I argued that these inefficiencies could prompt management to sell the company at a discount relative to what I believe to be the true value of OXiGENE's lead ovarian cancer product, Zybrestat/Avastin. Unfortunately, due to a lack of fundamental news since the Phase 2 topline readout, it seems that investors have lost interest in OXiGENE stock, which has subsequently reeled from a 4-month downtrend to the mid-to-low $2s (almost pre-readout levels). Nevertheless, I'm reiterating my bull thesis to account for the latest $16 million direct offering and the resignation of OXiGENE's longtime CEO, Dr. Peter Langecker, both of which, in my opinion, alleviate key concerns outlined in my initial report and potentially de-risk an investment made today.
First, at the time of writing back in March, I articulated my concern about OXiGENE's weak financials. OXiGENE's cash position stood at approximately $25 million after exercising 2.9 million warrants, a relatively small figure in comparison to its cash burn of around $8 million per year. Accordingly, the company conducted a $16 million direct offering on May 23, bolstering its cash position to roughly $30 million - $40 million (we will know the precise figure after the Quarterly Earnings Call on August 5). While it's unclear how much funds will be necessitated to progress to Phase 3 development of Zybrestat/Avastin, as well as to satisfy EU requirements for Paraplatin/Taxol, the company has stated that current funds will sustain R&D at least until the end of 2015. Thus, I suspect that investors can be confident that no additional capital raises will take place at least until mid-2015, providing ample time to potentially benefit from the full readout of the Phase 2 data on Zybrestat/Avastin, which should take place at a research conference by the end of 2014. I suspect that the anticipation of this event could send shares higher.
And second, although I didn't predict this event in my original piece on OXiGENE, the departure of longtime CEO Peter Langecker is, in my opinion, a positive sign that OXiGENE management is striving to make serious efforts to increase shareholder value, whether that takes the shape of a lucrative licensing agreement for Zybrestat/Avastin, a buyout or a "lone-wolf" marketing strategy. Indeed, the new CEO, Dr. David Chaplin, has been a member of the Board since 2000, so his expertise has already been realized in many ways (after all, he was one of the innovators behind OXiGENE's current drug technologies), but I believe the message to investors is clear nonetheless: at this stage in the game--as investors await the full readout from the Phase 2 Zybrestat Avastin study, as well as notice from the development of Paraplatin/Taxol in the EU--management will be held accountable for every action and/or inaction moving forward. And with that, I reaffirm my long position in OXiGENE in light of the fundamental improvements outlined above, which should be further elucidated during the August 5th earnings call at 4:30 p.m. ET. I will also be interviewing Dr. Chaplin in the following weeks for additional insight, so stay tuned.
Disclosure: The author is long OXGN. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.