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Business Update
Avivagen, Inc. (VIVXF) is developing products to support animal health, which includes replacing antibiotics in livestock feeds with proprietary compounds that promote the growth and overall health of the animal through support of the host's innate immune system. Avivagen discovered that -carotene polymerizes with oxygen into a unique class of compounds (oxidized β-carotene, OxBC) that promote immunological health and are the basis of Avivagen's OxC-beta™ technology. Numerous studies conducted by Avivagen and its partners has shown that supplementation of feed with parts-per-million levels of OxC-beta Livestock can be used as a replacement for growth-promoting antibiotics while offering the same or better growth and health benefits without contributing to the development of antibiotic resistant organisms.
OxC-beta Approved in China
In May 2022, Avivagen announced that OxC-beta received approval for use in China. This is a major milestone for the company as China was ranked as the number one feed-producing country in the world in the 2022 Alltech Agri-Food Outlook with a total production of 261.4 MMT in 2021. In addition, China experienced the largest increase in feed production (by tonnage) during the year, showing there is still considerable room for growth in the market.
The approval of OxC-beta in China comes as a result of working closely with COFCO Biotechnology Co. Ltd., an agreement the company first announced in December 2019. COFCO is a multi-billion-dollar company and a leading supplier of agricultural products in China.
New Distribution Partner in Vietnam
Following the approval of OxC-beta in Vietnam in February 2022, in May 2022 Avivagen announced it signed a new distribution agreement with Nong San Viet Co., Ltd (VIET ACC) as a distribution partner to support the continued market expansion of OxC-beta in Vietnam.
VIET ACC was founded in 2005 and has become a leading distributor of feed ingredients and additives to major producers in Vietnam, with a focus on poultry and swine. Vietnam is the largest feed market in Southeast Asia, with annual feed consumption in excess of 32 MMT in 2020. Swine and poultry account for 38% and 21.6% of the total feed market, respectively.
OxC-beta Toxicology Evaluation Complete
In June 2022, Avivagen announced the successful completion of a series of toxicology tests for fully oxidized beta-carotene (OxBC), the active ingredient in OxC-beta. These tests were not required, as there have been no reports of product-related adverse events from OxBC or OxC-beta, however they were conducted by Avivagen to reinforce OxBC's use as a very safe ingredient in a wide range of products and to provide additional formal evidence to support continued regulatory approval and adoption in new jurisdictions.
The toxicology tests consisted of three separate studies, all of which were conducted in rats.
1) The first test showed that in rats the maximum tolerated single oral dose of OxBC and the LD50 were 5,000 and 30,079 mg/kg body weight, respectively.
2) The second test was a 14-day, repeat dose acute oral toxicity test and it showed No Observable Adverse Effect Level (NOAEL) for OxBC or 1,250 mg/kg body weight.
3) The third test showed no mortality or morbidity following oral administration of OxBC of up to 1,875 mg/kg body weight once daily in male and female rats for 90 consecutive days followed by a 28-day recovery period.
There were no treatment-related adverse events reported on body weight, feed consumption, hematology, coagulation, hormones, or other clinical chemistry parameters. In addition, no gross pathological abnormalities or histopathological findings were observed.
For reference, the NOAEL of 1,875 mg/kg body weight exceeds by several thousand times the daily level of approximately 0.5 mg/kg body weight of OxBC that is used in supplementing livestock, canines, felines, and humans.
Recent Orders in Multiple Jurisdictions
In August 2022, Avivagen has announced multiple sales orders in jurisdictions around the world.
On August 3, 2022, Avivagen announced a significant order for OxC-beta from AB Vista. The 1.2 tonne order will be shipped to Brazil, where AB Vista is running multiple trials with several different poultry and cattle producers.
On August 11, 2022, Avivagen received a four tonne order of OxC-beta from one of its most important customers in Asia, which is in line with previous shipments fulfilled in 2021.
On August 19, 2022, Avivagen announced it secured an order from a promising new customer in the Mexican dairy industry. The customer, a thirty-year old, family-owned business with a history of high-quality dairy products, will order 220 kg/month of OxC-beta over a three-month period beginning in September 2022.
Financial Update
On June 15, 2022, Avivagen filed an interim financial statement and the MD&A for the second quarter of fiscal year 2022 that ended April 30, 2022. Revenues for the second quarter of fiscal year 2022 were CAD$88,438, compared to CAD$159,614 for the second quarter of fiscal year 2021. The decrease was due to lower sales of OxC-beta.
Operating expenses for the second quarter of fiscal year 2022 were approximately CAD$1.3 million compared to approximately CAD$1.2 for the second quarter of fiscal year 2021. The increase was primarily due to impairment expenses recognized on inventories. Comprehensive loss for the second quarter of fiscal year 2022 was approximately CAD$1.3 million compared to approximately CAD$2.2 million for the second quarter of fiscal year 2021. The decrease was primarily due to lower finance costs due to an adjustment on the Corporations ACOA liabilities.
Avivagen exited the second quarter of fiscal year 2022 with approximately CAD$1.5 million in cash and cash equivalents. Subsequent to the end of the quarter, Avivagen closed on the second and third tranche of a previously announced non-brokered private placement offering for gross proceeds of approximately CAD$0.54 million. We estimate that as of the date of this report Avivagen had approximately 74.2 million shares outstanding and, when factoring in stock options and warrants, a fully diluted share count of 101.2 million.
Conclusion
The recent sales announcements by Avivagen are a good sign for the company heading into the second half of 2022. We look forward to continued updates from the company regarding additional commercial partnerships and sales as the year progresses. After incorporating the recent financings into our model, along with the current exchange rate between the Canadian and US dollar, our valuation now stands at $1.00 per share.
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