A Deeper Dive Into AzurRx BioPharma’s Acquisition Of First Wave Bio; Low Up-Front Terms Are Very Shareholder Friendly (NASDAQ: FWBI)

AzurRx BioPharma, Inc.'s (NASDAQ: FWBI) value-proposition was already excellent. But, after acquiring First Wave Bio, Inc. last month in a stock and cash transaction, it got even better. 

Better still, favorable terms to AzurRx add firepower to its development pipeline and create shareholder value with the majority of the acquisition price set as milestone payments in the future. And, if AzurRx is to pay those milestones, it will be a drop in the bucket to what stays in the company coffers. Thus, while the deal had a hefty headline price tag, diving deeper into the agreement shows just how creative AzurRx was in building shareholder value sooner than later. 

This is the crucial part of the deal- although AzurRx included a $229 million figure in its announcement, that's the likely end result from a program that could potentially generate multiple FDA approvals and brings a potential blockbuster drug to market for several clinical indications. For now, though, AzurRx got a lot for relatively little, figuratively speaking. Moreover, the deal's structure breaks down well for investors, and current share prices present a compelling opportunity as a result. Here's how the agreement reads.

A Low Upfront Cost For Substantial Assets

First off, it's a win-win deal, with both AzurRx significantly enhancing its targeted pipeline and First Wave Bio getting validation for a well-built set of assets. Better yet, it only took a small amount of upfront capital to secure the deal. 

According to filings, AzurRx paid $3 million in cash upfront, gave stock valued at $4 million, and expects to pay another $15 million in cash spread out over the next six months. The first $7 million is due roughly 45 days from now, and the remaining $8 million is to be paid at the end of the first quarter in 2022. Hence, while a potential $229 million payout may be in play in the long run, the better way to look at the transaction is that AzurRx got a tremendous boost in pipeline assets for about $22 million total. 

The difference between the two can only benefit both companies, with milestone payments translating to a substantially more positive impact on FWBI. Thus, when former First Wave Bio owners get that potential $207 million in back-ended milestones spread out over a number of years, the FWBI assets would likely be worth considerably more.

Keep this in mind, too. AZRX structured the deal favorably for its shareholders, spreading payments over six months with minimal upfront share dilution. The back-end dilution on share count can be even less based on the milestone payment structure. Even better, what AZRX received as a result of the deal can be a game-changer for the company in the near term.

Part of The Trend

That's especially true following news from Merck about molnupiravir on the antiviral front. They think they are close to using that drug to create a pill-based treatment to combat COVID-19. While great news for patients needing treatment, it's also a validation for FWBI assets.

Like Merck's approach through molnupiravir, FWBI believes it can develop a better treatment option through its Niclosamide platform, an antiparasitic drug showing promising antiviral and anti-inflammatory treatment potential. And while FWBI's primary focus is on GI disorders, don't think they won't capitalize on that drug's potentially inherent abilities as a broad antiviral treatment. 

In fact, they already are . Its niclosamide is also demonstrating its advantages as an antiparasitic with a safe and well-tolerated profile for treating human patients. And unlike ivermectin in animals, niclosamide is supported by long-term data showing its benefits as well as safety on millions of human patients for over four decades. Hence, for the vaccine skeptical, it can be a potentially ideal alternative.

Should FWBI's niclosamide be getting more attention? Absolutely. But, those that follow biotech typically know that Big Pharma has a way of earning headlines, warranted or not. Still, it's important to note that Merck didn't develop the drug; they partnered to get it. And those same opportunities exist for FWBI, especially when Big Pharma is acquiring new drugs instead of developing them.

Remember, too, the hype generated last week from Merck's headline is that its drug candidate kept Covid patients out of the hospital. And doctors appear excited about the drug as well, noting that a regimen of pills, even one involving taking multiple pills over several days, is likely to face significantly less resistance from patients who are avoiding current antiviral Covid-19 treatments, primarily those delivered intravenously. 

The best part of Merck's news, whether its drug proves out or not, is that it opened the discussion of a need for better and alternative treatment platforms. In that respect, FWBI stock should have followed. And when FWBI provides an update on exactly why its niclosamide can be a superior treatment, it likely will.

Broad Targeted Pipeline

But, that's only one opportunity that was brought to light through Merck's recent headlines. FWBI's extensive pipeline is the ultimate value driver for near and long-term growth. And combined with its ongoing studies, the value can be substantial. 

In fact, the now combined assets position FWBI better than ever to leverage its substantial IP and clinical-stage programs to develop novel, gut-targeted, small molecule therapies for autoimmune inflammatory bowel diseases (IBD) and other severe conditions. And its programs target a substantial patient population.

The enhanced First Wave BioPharma portfolio is advancing treatment candidates targeting new indications for several IBDs representing multi-billion dollar commercial market opportunities. In the U.S. last year, more than 850,000 ulcerative colitis diagnoses and 625,000 Crohn's disease diagnoses were made. Moreover, these patient populations and markets are expected to grow significantly over the next decade, putting FWBI in the right markets at the right time to capitalize on a significant market and sometimes unmet medical need.

And that pipeline includes its proprietary formulations of niclosamide, whose novel anti-inflammatory mechanism of action, non-systemic absorption, and safety benefits are showing extraordinary potential to treat significant unmet clinical needs for IBD patients, especially in the mild-to-moderate disease categories.

Even better, the added intellectual firepower and IP assets complement the program and put new IBD treatment indications in play. Combing the sum of its parts, FWBI is in its best position in history to develop and bring to market treatment-changing drugs that can do more than treat substantial unmet needs- they can create significant shareholder value in the process.

Accretive First Wave Bio Acquisition

The coming weeks and months could prove that point, with expectations for FWBI to leverage its proprietary formulations of niclosamide to bring best-in-class treatment to patients. Updates could be imminent.

That program utilizes that small molecule drug, which has antiviral and anti-inflammatory properties, to target multiple GI conditions. The better news from a valuation perspective is the robust intellectual property (IP) portfolio that is added to the mix. FWBI owns the method of use and delivery of its formulations as treatments for various autoimmune, inflammatory, and viral conditions. It can be a powerful asset for licensing and partnerships.

Remember, too, FWBI is also advancing a prior in-licensing deal to develop two niclosamide therapeutic indications – for COVID-19 related GI infections and for immune checkpoint inhibitor-associated colitis and diarrhea (ICI-AC) in advanced-stage cancer patients. 

Thus, for what FWBI received, its planned $15 million cash payment over the next six months looks much more attractive from a shareholder's perspective. Even better, investors get the benefit from a combined internal development pipeline that includes three new clinical IBD indications in ulcerative proctitis (UP) and ulcerative proctosigmoiditis (UPS), ulcerative colitis (UC), and Crohn's disease (CD). Hence, investors can see why FWBI expects to pay millions more down the road once these programs reach milestones. The better news- FWBI wins as well.

There's still more to like. 

Advancing Antiviral Studies And Platforms

First Wave BioPharma is also leveraging its new wealth of data supporting niclosamide's antiviral and anti-inflammatory capabilities. And recent data in treating ulcerative proctitis supported the broader potential for niclosamide in multiple inflammatory bowel diseases, where FWBI expects its niclosamide formulations to offer significant advantages over other currently available treatments. And that includes comparisons to steroids, 5-ASAs, and biologics – especially in the mild-to-moderate disease stage. 

Better still, its niclosamide formulations are orally delivered, explicitly targeted to the areas of the GI tract where the disease-causing inflammation occurs, and avoid the risk of steroid-related immunosuppressant complications. Additionally, the manufacturing process for its niclosamide products can be scaled up to supply large populations quickly. 

Moreover, its enhanced portfolio, including interest in the IBD therapeutic space, now presents a pipeline spanning six indications, all making progress in clinical-stage programs. And the better news from a cost perspective is that its programs are all built around its two proprietary technologies -- niclosamide, and adrulipase (FW-EPI), which continue to show promise in treating exocrine pancreatic insufficiency (EPI), a life-threatening digestive disorder seen in patients with cystic fibrosis and chronic pancreatitis. 

Thus, the totality of FWBI puts a lot in play that can drive shareholder value substantially higher in the coming weeks, quarters, and years. Even better, some bear-term potential catalysts may be in sight.

Much To Like At FWBI

The bottom line - with multiple clinical trials advancing and others expected to start soon, along with a strong portfolio of long-lasting patents protecting niclosamide use for COVID-19 GI infections, ICI-AC, and the IBDs, the next set of quarters should be rich in milestones. Better yet, catalysts. 

Still, the entirety of the FWBI proposition makes its stock a compelling consideration today, especially to those liking near ground-floor positions in companies that can change a treatment landscape.

And with Merck opening new discussions and FWBI having a drug candidate to join the conversation, updates from FWBI could advance its own interests, and shareholders, by highlighting a potentially better treatment solution. 

Thus, with the assets now under management from an acquisition that cost $18 million in cash over time plus some stock, combined with ongoing clinical programs that can create substantial near and long-term value, the investment proposition in FWBI is more than compelling; it's timely.


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