Venaxis Inc (NASDAQ:APPY) Deal With Strand Is A Game Changer

Last year was pretty quiet for Venaxis Inc (NASDAQ:APPY). The only news to come out of the company was the sale of its corporate headquarters. Many were wondering what was going on with the company and there was a great deal of speculation that something major was in the works. Well, this week we found out that the company was working on a merger with Strand Life Sciences. We think this deal is a game changer for APPY.Venaxis has entered into a series of agreements for a transaction with Strand Life Sciences Private Limited (Strand LS) and its shareholders. Strand Life Sciences is a privately held India-based genomic profiling company that uses next-generation sequencing (NGS) technology aimed at empowering cancer care. Strand Life Sciences' StrandAdvantage pan-cancer panels provide medical oncologists a comprehensive understanding of genomic changes in solid tumors in days, providing information that can be used by the physician in developing a targeted treatment plan. Strand Life Sciences' comprehensive knowledge base of genomic variants linked to FDA-approved targeted cancer therapies and drugs in open clinical trials provides clinically actionable treatment options, enabling clinicians to develop a truly personalized treatment regimen for cancer patients.

Assuming participation by 100% of the Strand LS shareholders, the effect of the transaction will be that Strand LS shareholders and the employees and directors who are option-holders in Strand LS will own directly and beneficially approximately 68% of the combined enterprise and the current shareholders of Venaxis will own approximately 32%. To comply with certain long-term holding period requirements under Indian tax law, the transaction is expected to be completed in two closings. The first closing will occur upon receipt of the necessary approvals from the Venaxis shareholders, receipt of all other required approvals and satisfaction of identified closing conditions. The second closing will occur approximately six months later. At each closing, Venaxis will enter into resale registration rights agreements with the Strand LS shareholders participating in such closing. The boards of each company have unanimously approved the transaction, however this transaction is subject to Venaxis shareholder approval.

At the first closing, Venaxis will own a majority of the shares of Strand LS, will change its name to Strand Life Sciences, and will change its NASDAQ trading symbol. As part of the first closing, following Venaxis shareholder approval, a Venaxis subsidiary will enter into an asset purchase agreement with Strand U.S. in which it will acquire substantially all of the assets and liabilities of Strand U.S. in exchange for cash consideration paid to Strand U.S.

Following approval by the Venaxis shareholders and satisfaction of the other closing conditions, at the first closing, Dr. Vijay Chandru, the co-founder and current Executive Chairman of Strand LS, will serve as Executive Chairman of the combined company's Board of Directors, Steve Lundy will become the Chief Executive Officer of the combined company and Jeff McGonegal will continue as CFO. The initial combined board will consist of seven members with four from Strand LS and three from Venaxis.

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Strand is indeed an interesting company. The company provides bioinformatics solutions with advanced visualization, predictive systems modeling, data integration, and scientific context management components to transform raw data into actionable insights. The company employs 200 people, mostly in Bangalore, India, and services both the research and clinical markets.Strand enjoys three advantages over the competition globally: superior software analytics, superior curation of gene variants, and a major cost advantage for DNA test interpretation. When combined, Strand is finding a rapidly growing demand for its StrandOmics software platform, which hospitals and service providers can use to service their patients and healthcare clients. With every sequence and gene test, the company’s cloud database gets more valuable with related metadata, which can be used to improve future analytics, thereby creating an additional demand for StrandOmics.Strand has developed the most advanced software for analyzing DNA sequences. Today, 1,400 research institutions worldwide use Strand’s software under the product names GeneSpring (marketed by Agilent) and Avadis (marketed by Strand). The company reached profitability in 2007, and in early 2013, the company began to service the clinical market in India. It opened its own DNA sequence and gene panel wet lab in Bangalore, India, and in December, the company opened a lab which it operates in the 1,400-bed Mazumdar-Shaw Cancer Center in Bangalore. By the end of 2013, Strand was servicing the gene testing and DNA sequence analysis needs of over 100 hospitals in India, and in 2014 it has begun to expand into the US market.At present, over 2,000 research laboratories worldwide (about 30 percent of the global market share) are licensees of Strand’s technology products, including the El Camino Hospital (US), Institut Curie (France), Mazumdar-Shaw Medical Foundation (India), TrovaGene, Inc, (US), and Narayana Hrudayalaya (India). With 200 employees, including a strategic team in the US, the Bangalore-based company offers services to over 1,200 life sciences research institutions worldwide. Ninety percent of its sales comes from global markets, including the US (40 percent), Europe (20-30 percent) and Japan (20 percent).Earlier this year, Strand received a patent in the US for its two-year-old virtual liver product, HepTox. It allows the pharmaceutical industry to trace the side effects of drugs on the liver by cutting down on time, and expenditure associated with animal and human trials.CEO Steve Lundy commented on the transaction with Strand.

"We are pleased to announce this transaction and are excited by the significant opportunity we believe it presents for shareholders of Venaxis and Strand LS. The combined company will benefit from Strand Life Sciences' 15 year successful history of technological expertise in genomic profiling, bioinformatics and data curation. Our initial focus will be to improve patient outcomes through the use of the StrandAdvantage pan-cancer gene panel, which was commercially launched in the United States in 2015. The combined company is expected to be focused on the continued commercialization of StrandAdvantage, as well as the development of additional oncology-related diagnostics."

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Currently trading at just an $8.9 million market cap with over $18 million cash on its balance sheet, Venaxis is not only undervalued, but is primed for growth with its deal with Strand Life Sciences. We expect big things from the combination of Venaxis and Strand Life Sciences. We will be updating Insider Financial with the latest developments on this merger. Be sure to sign up today and stay up to date on APPY!

Disclosure: We have no position in APPY either long or short. We have not been compensated for this article.