Ottawa biotech firm Avivagen closes $5.3M financing amid U.S. market push

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An Ottawa-based biotech firm that makes a line of natural health products designed to replace antibiotics in livestock feed has announced a multimillion-dollar funding round it says will help pave the way for a breakthrough in the massive U.S. market.

Avivagen (TSX-V:VIV) said Thursday it has closed a private placement sale of secured debentures that will bring in $5.26 million. The company ​– which was founded in 2005 and has racked up more than $27 million in losses while it waits for its products to gain regulatory approval around the world ​– says the capital will help carry it through until it starts to show a profit.

“As a fledgling company, it always takes a lot longer than you think it’s gonna take,” said Drew Basek, the firm’s Toronto-based head of investor relations. “As the saying goes, it takes 20 years to become an overnight success.”

But now, Basek says, Avivagen is ready for prime time.

The firm’s flagship product, OxC-beta, was recently approved for sale in the United States, and last month, the company signed a deal with Ohio-based CSA Animal Nutrition to market the feed supplement to poultry, pig and dairy farmers south of the border.

The agreement will see CSA distribute a minimum of 11.5 tons of OxC-beta in the first year of the deal, 35 tons in the second year and 56 tons in the third year. Considering that Avivagen’s main customer up to now, Philippines-based UNAHCO, bought a little more than nine tons of the product in 2018, Basek is predicting a major uptick in the company’s sales trajectory now that the door to the U.S. market is open.

“Sales are starting to ramp up,” he said. “We’re pretty close to seeing that hockey-stick kind of (growth).”

Indeed, after years of trial and error, Avivagen seems to have figured out how to commercialize an idea whose time has come.

For years, health experts have been calling the rise of antibiotic-resistant “superbugs” a simmering global health crisis. With 70 per cent of the world’s antibiotics consumed by chickens, pigs, cattle and other livestock, often as a way to promote the animals' growth, critics worry overuse of the drugs could make them less effective in humans.

As a result, the chorus of voices calling for an end to the drugs’ use in food production has been growing steadily louder.

The European Union recently banned the use of antibiotics in livestock without a prescription from a vet. Fast-food chains such as Pizza Hut, A&W and others now trumpet antibiotic- and hormone-free meat as a major selling point, while McDonald's – which stopped serving chicken raised with antibiotics in its U.S. locations a couple of years ago – and rival burger chain Wendy's have pledged to reduce the use of the drugs in their global beef supplies.

Avivagen’s solution is a compound derived from carotenoids, organic pigments produced by plants and algae that give fruits and vegetables such as bananas, carrots and tomatoes their bright colours. Various studies have suggested carotenoids can help reduce the risk of various types of cancers as well as conditions such as Parkinson’s disease in human beings, and Avivagen officials say they’ve conducted dozens of tests that prove the natural antioxidants boost the immune systems of livestock, warding off disease without needing to resort to antibiotics.

But gaining broad regulatory approval for OxC-beta has been a major hurdle for the 18-person company, which employs about nine people at its Ottawa head office and R&D hub, with the rest working in Toronto and Charlottetown.

Countries where Avivagen’s products had previously been approved for sale – New Zealand, the Philippines, Taiwan and Thailand – are comparative minnows next to the United States, the world’s second-largest consumer of animal feed, and China, the top global market.

Basek said it took the cumulative weight of more than two dozen studies and millions of dollars in research to finally convince government regulators south of the border to put OxC-beta on the U.S. Food and Drug Administration’s “Generally Regarded as Safe” list for food additives.

“You know that expression, you create a better mousetrap and the world will beat a path to your door? It’s not true,” he said, referring to the company’s long and winding road to commercial approval in the U.S. “Now we’ve got a whole bunch of data behind us. Now we can really sell it down there.”

Basek said Avivagen is also close to getting the green light to market OxC-beta in Mexico and Brazil, the world’s third-largest animal feed market, and tests have been ongoing with partners in China and other Asian countries as well. If all goes according to plan, he said, the firm could hit the break-even point by the end of this year.

“The last hurdle for us, we think, is just having enough money in the bank to make sure,” he added. “Now, everything else is execution.”

Shares in Avivagen were down two cents to 74 cents in late-afternoon trading on the TSX Venture Exchange.