ARYX: Sink or Swim? Print E-mail
By Patrick Crutcher   
Monday, 09 August 2010 04:40
ARYx Therapeutics Inc.(NASDAQ: ARYX) has been slowly drifting downward and appears to have reached a more stable bottom. They are an interesting small-cap biotech with 3 mid-stage drugs that will be ready for Phase 3 trials in the coming months. Only problem is that ARYX has dwindling cash reserves that most certainly will not cover the costs of these trials.

With these problems in mind, in February 2010, ARYX sought out Cowen and Co. to “to explore strategic options for ARYX.  By retaining Cowen, ARYx will explore the possibility of capturing full near-term value for its three lead programs rather than pursuing licensing deals that provide value over an extended period of time.” 

Clearly, they couldn’t find a deal that they could live off of from budiodarone. So ARYX has decided to hang up the “For Sale” sign and see what they can get. ARYX does have assets which some larger pharmaceutical could continue to develop. They have several promising drugs that are going into Phase 3. Below is a brief description of their drugs.

In particular, Budiodarone has blockbuster potential. Budiodarone is an oral anti-arrhythmic agent in Phase 2b clinical development for the treatment of patients with atrial fibrillation. Atrial fibbralation affects more than 6.4 million people in the United States, Europe and Japan. It is estimated that AFIB is responsible for more than 75,000 strokes per year in the United States alone. Their Phase 2b study showed great promise and appears to be the main target in any acquistion.

ATI-7505 is an oral prokinetic drug
that has successfully completed Phase 2 clinical trials for the treatment of multiple gastrointestinal disorders including chronic idiopathic constipation, gastroesophageal reflux disease, or GERD, and functional dyspepsia. It was initially partnered with P&G for full rights and returned to ARYx when P&G exited pharmaceutical development. Again, this appears to be a very promising drug that has proven to be successful in clinical trials and covers roughly 100M patients. Tecarfarin is an oral anticoagulant for the treatment of patients who are at risk for the formation of dangerous blood clots. Unfortunately, tecarfarin would face very stiff competition if developed, especially with MNTA’s generic Lovenox and TEVA’s generic on the horizon.

In May, they updated the investors with a tease when they said, “The company believes that the work with Cowen has progressed well in the last 10 weeks and has generated interest which could result in partnerships on one or more of the three lead product candidates, the sale of ARYx's assets, in whole or in part, or some similar arrangement through which the value of ARYx's assets to stockholders could be optimized.”

They also reiterated that they only have enough cash left to “operate into September 2010, by which time the company expects to have indications about the results of the current strategic process with Cowen. ARYx is also actively pursuing other options for continued funding beyond September 2010, if required.”

This is a tricky situation for investors who might like to cash-in on ARYX if they were to be acquired. Their acquisition could be done on the cheap, since they only have 33M shares and at this point have little leverage in any negotiations. For $33M - $66M ($1 - $2 pps), they could get access to 2 drugs in large markets(ignoring tecarfarin), which seems reasonable based on how much of the developmental work has been completed and market potential. However, investors shouldn’t ignore the possibility that ARYX is on the verge of running out of cash without successfully coming to terms with a buyer. This is a serious risk. Those interested should weigh ARYX’s risk/reward profile carefully.

DISCLOSURE: No positions.

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