Here's Chardan's 'Conviction Sell' On Axovant

According to a note out Wednesday, Chardan Capital Markets has a conviction sell rating on Axovant Sciences Ltd AXON.

Citing concerns of overpricing RVT-101 following Axovant's IPO, mixed biopharma data in-lab and consensus estimates as "implausibly high," the firm has a price target of $8.00 on the issue and reiterated its Conviction Sell rating.

Chardan: Maintain Conviction Sell, PT of $8

According to the report, data by Pfizer (unrated by Chardan at this time) has raised concerns for a similar compound, Axovant's RVT-101, "The recent close of the phase II Alzheimer's disease (AD) development program by Pfizer (unrated), involving Pfizer's 5-Ht(sub)6 antagonist, strongly highlights the risks associated with AXON's RVT-101, another 5-HT(sub)6 antagonist."

Related Link: Piper Jaffray Defends AXON, Says Probability Of RVT-101 Success Is Not Compromised

The note explained further, "[T]hrough the same mechanism of 5-HT(sub)6 antagonism, to us Pfizer's failure re-emphasizes the risks about this and any class of drugs in the treatment of AD. We therefore reiterate a Conviction Sell rating on AXON, as we continue to believe AXON valuation ignores both PhRMA's tally of 123 AD drug failures from 1998 to 2014, with no NME approvals since 2003, and Inside Science's tally from 2000 to 2012 of 1 approval out of 244 compounds tested in 413 AD clinical trials, generating a failure rate of 99.6 percent."

Justification

Chardan summarized and outlined its justification for the reiterated Conviction Sell as "reasons driving our believe that consensus AXON estimates are implausibly high:"

• Valuation Ignores Drug Failure Rates: Chardan stated, "Valuation ignores both PhRMA's tally of 123 AD drug failures."
• Valuation Ignores Competition: "Valuation ignores that 24 or more other AD drugs in late-state clinical development," the firm elaborated.
• Consensus Assumptions: In particular according to Chardan, "consensus assumes terminal growth beyond the expiry of RVT-101's U.S. composition of matter patent (2024)."
• Previous Failures: "Nelotanserin represents another previously failed asset for Axovant," the company explained.

Chardan concluded, "Despite our concerns on RVT-101, there are precedents where large-cap companies sold or licensed products for modest amounts, and the products later became commercial successes. Though such deals are clearly exceptions, rather than a rule, AXON could prove to be one of the exceptions. Further, because large amounts of clinical data are not disclosed to the public, better data than we expect would have a materially positive impact on our AXON projections and target price."

At time of writing, Axovant was trading essentially flat on the day at $13.71.