Can Anyone Save Affymax, Inc. (OTCMKTS:AFFY)?

AFFY.pngAffymax, Inc. (OTCMKTS:AFFY) is a pharmaceutical company on the OTC Stock Exchange. Having read that sentence, you’re probably expecting that this is just one of the many small cap ventures with big hopes of making a revolutionary product and even bigger zeros in their financial statements. That’s not the case. At least not yet.

Unlike other medical penny stocks like Arch Therapeutics Inc (OTCBB:ARTH) (whose pump is still eagerly awaited) AFFY knew what they wanted to do from the very start. They also knew how to put their plans in motion, hired real experts, entered into collaboration agreements that helped them on their way and all their efforts paid off in March 2012 when their OMONTYS treatment for adult anemia patients with chronic kidney disease received the FDA approval.

Things were going rather well and although 2012 resulted in a net loss, reports show that around 25,000 patients got treated with AFFY‘s drug which suggests that the popularity was growing. Unfortunately, some reports about unwanted and potentially fatal side effects started flying around in February and AFFY along with their partners from Takeda Pharmaceutical Company had no choice but to voluntary recall the product.

An FDA investigation was initiated, employees of AFFY and Takeda were named as defendants in lawsuits and needless to say, the ticker suffered badly. AFFY announced that they are laying off around 75% of their workforce in March and they said that by June 15, all the employees will be relieved of their duties, which prompted the delisting from NASDAQ on the grounds that AFFY is now a shell.

So, what about the future? Well, instead of going directly down the bankruptcy road, the people who run AFFY wished to salvage something from the company and their decision deserves some respect since a lot of people have invested cash in it while it was still going strong. A restructuring plan was put together and financial experts from The Brenner Group (TBG) are in charge of overseeing it. TBG is a strong professional services firm with over 26 years behind their backs which leads us to believe that they really know what they’re doing but even so, saving AFFY will not be an easy task.

We already wrote a couple of articles and we mentioned that, for an OTC company, AFFY do seem to have the comfort of having a respectable amount of cash on their hands. There’s no guarantee that it will be enough, though. The latest 10-Q informs us that the first wave of layoffs cost them over $8.2 million and in the recent weeks a number of 8-K forms were filed where we read about the termination of various contracts with suppliers which will also cost them dearly.

2AFFY_logo.gifOn April 1, 2013 AFFY transferred the responsibility for OMONTYS including the obligations surrounding the recall of the drug and the ongoing FDA investigation to their partners from Takeda, but that doesn’t necessarily mean that there will be no more legal complaints. If costs from the future proceedings do arise, the mission of saving AFFY will become nigh on impossible.

If money suddenly become short (and, considering all the facts, this is a very real possibility), they might turn to toxic financing entities like Magna Group and Hanover Holdings, just like Cereplast Inc (OTCMKTS:CERP) (another company delisted from NASDAQ) did, but we reckon that in the long run, this will adversely affect the performance of the already battered ticker.

All in all, until we see some signs of The Brenner Group steering the company towards recovery, AFFY remains a risky investment. At $1.05 per share, the ticker might also attract the attention of the pumpers who already gave it a go on May 9 when David Cohen sent out a couple of emails in which he talked about the wonders of OMONTYS failing to mention the fact that it’s now recalled. Predictably, the results of the free pump weren’t very impressive and some money was probably lost. That’s why, at this point at least, the only thing that can give AFFY a real push is some positive news coming from the company itself.

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