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1 Avenue Therapeutics, Inc. August 15, 2017 BUY (ATXI, $6.77) IV Tramadol for Post-Operative Pain Derisked Late Stage Development Combined with Low Abuse Potential, a Strong Positive Given the Current Opioid Epidemic: Initiating BUY/$15 TP Jonathan Aschoff, Ph.D jaschoff@opnresearch.com Caroline Zhang czhang@opnresearch.com We are initiating coverage of Avenue Therapeutics, Inc. with a Buy rating and 12 month target price of $15. Avenue s lead candidate, intravenous (IV) tramadol for post-operative pain, has already proven itself as effective for pain as an oral drug in the US and as an oral and IV ex-us. Avenue will begin its Phase 3 program for IV tramadol in 3Q17 and in light of the drug s history, we view the remaining clinical development as being at the low end of risk spectrum. We believe that late stage clinical development of IV tramadol is well timed given the current opioid epidemic in the US. While tramadol is an opioid, it is a weak opioid and as such it has a low enough abuse potential to be a DEA Schedule 4 drug, by contrast to Schedule 2 pain drugs such as morphine, hydromorphone, oxycodone, fentanyl. Tramadol alleviates pain through multiple means including weak mu-opioid receptor agonism, serotonin reuptake inhibition, and noradrenalin reuptake inhibition. This combination of effects should confer a commercial advantage to tramadol over more addictive, traditional opioids. In the US, pain management related only to surgery represents a large market in excess of $1B. In 2015, there were about 32 million inpatient treatment days in the US when only considering IV opioids. In the same year, approximately 51 million US hospital reimbursement claims for injectable opioids were submitted, which included 16 million hospital inpatient stays and 35 million outpatient visits. To be conservative, despite the drug s differentiated profile, we have only projected a 5% peak market penetration, and yet are still able to make a compelling investment rationale with only a $10 projected cost per dose. When a patient is initially responding well to a given drug in a hospital setting, it is generally good practice to send them home with that same drug, a possibility in the US should IV tramadol receive FDA approval. Currently, tramadol is only approved in the US as an oral, but with an effective IV formulation, hospitals would have the ability to discharge a post-operative patient with pain medication they already know works for that patient, an arguably better approach than switching them to an entirely different drug with which the patient has no experience. Avenue had about $34.7M in cash at the end of 2Q17, after a $38M initial public offering in 2Q17 that was almost entirely funded by National Securities Corp., sufficient to support its activities through at least 2018, by our projections. Please see pages for Important Disclosures 1

2 Valuation We derive our 1-year target price of $15 for Avenue via a DCF analysis, assuming a 15% discount rate that is applied to all cash flows and the terminal value, which is based on a 4 multiple of our projected 2023 EBITDA of about $113 million. Avenue focuses on the development and commercialization of a Phase 3, intravenous (IV) formulation of tramadol for the treatment of moderate to moderately severe postoperative pain. We base our valuation for Avenue solely on our forecasted revenue from IV tramadol in the US, where the company intends to independently pursue approval and commercialization of the drug. Positive topline data from the Phase 3 bunionectomy trial is expected in 2Q18, which, if affirmed by the Phase 3 abdominoplasty and safety trial results in 2Q19, would support a New Drug Application (NDA) filing for IV tramadol by YE19, and subsequent drug launch in late Upon regulatory approval in the US, we forecast IV tramadol to achieve a mid-single-digit market penetration, which we view to be conservative given its differentiating qualities. With approximately 300 million injectable analgesic units prescribed in the US each year, and a projected conservative $10 treatment cost per dose for IV tramadol, we forecast the drug to attain peak US sales of about $217 million in Avenue business overview As a subsidiary company of Fortress Biotech, Inc., (NASDAQ: FBIO-NR-$3.93), Avenue is a New York-based, specialty pharmaceutical company that was incorporated in The company focuses on the development and commercialization of an IV formulation of tramadol for the treatment of moderate to moderately severe postoperative pain. Avenue expects to commence its Phase 3 trials with IV tramadol for bunionectomy in 3Q17 and abdominoplasty in 3Q18, and anticipates reporting topline data for these two pivotal trials in 2Q18 and 2Q19, respectively. Meanwhile, the company also plans to initiate an open-label safety trial in 4Q17 and complete it in 2Q19. If results are positive, Avenue plans to submit its NDA for IV tramadol by YE19 and commercialize the drug in 2020, if approved. Avenue also plans to develop additional products in the acute and intensive care hospital space. Postoperative pain market opportunity for IV tramadol As an indispensable component of a functioning healthcare system, surgical care plays a crucial role in managing diverse health conditions, including injuries, obstructed labor, tumor resections, infectious and cardiovascular diseases. According to the most recent data collected by the National Center for Health Statistics, approximately 48 million surgical procedures were performed in the US in 2010 (Ambulatory Surgery Data From Hospitals and Ambulatory Surgery Centers: United States, 2010). For the in-patient setting, over 70% of patients who underwent surgical procedures experienced acute postoperative pain, and less than half of them reported adequate postoperative pain relief before they were discharged (Apfelbaum et al, 2003). Results from recently published literature that surveyed 300 surgical patients demonstrated that over 75% of patients experienced moderate to extreme pain immediately after surgery, 80% had adverse events, and 39% had moderate to severe pain after the first postoperative analgesic dose with 74% experiencing high levels of pain after being discharged (Gan TJ et al. Curr Med Res Opin. 2014; 30(1):149-60). Additionally, the study showed that postsurgical pain remains as the dominant pre-surgical patient concern. In addition to being inhumane, inadequate pain control may result in increased morbidity or mortality. Surgical operations have been shown to induce a variety of immunological disturbances in humans both in vivo and in vitro, and the patients typically experience a generalized state of immune-depression during the postoperative period. Research has demonstrated that surgical procedures may weaken host defenses, and thereby stimulate bacteria invasion and tumor cell metastasis. On the other hand, research has also suggested that efficacious and safe analgesia may minimize the negative immune system effects and reduce the adverse event rate, leading to increased patient satisfaction, earlier mobilization, fewer pulmonary and cardiac complications, reduced risk of deep vein thrombosis, faster recovery with less likelihood of neuropathic pain development, and earlier patient discharge from the hospital, thereby reducing overall cost of care. As a result, effective postoperative pain management is an essential component of surgical care. Pain management represents a large market. According to the IMS Charge Detail Master Database, in 2015, there were about 32 million inpatient treatment days in the US using IV opioids. In the same year, approximately 51 million US hospital reimbursement claims for injectable opioids were submitted, which included 16 million hospital inpatient stays and 35 million outpatient visits. Overall US sales of injectable postoperative pain drugs reached about $1 billion in 2015 with the overwhelming majority of doses administered being low cost generics, totaling approximately 300 million injectable units sold in Current therapeutic modalities mainly consist of systemic opioids, nonsteroidal anti-inflammatory drugs (NSAIDs), acetaminophen, locally administered drugs, and non-pharmacologic techniques, with opioids being the mainstay of pain therapy (Exhibit 1). The most commonly used opioids in the postoperative and acute pain settings are morphine, hydromorphone and fentanyl. The widely prescribed IV August 15,

3 formulations of NSAIDs include diclofenac, ketorolac, and ibuprofen, and their use is associated with increased post-surgery bleeding, peptic ulcer disease and renal impairment, as well as hepatic side effects. Regarding IV acetaminophen, although the drug appears to cause fewer adverse events at the recommended dose than other pain drugs, it likely would lead to more severe issues in the case of overdose, such as severe liver damage. In the US, acetaminophen overdose is not uncommon. On average, acetaminophen overdose sends as many as 78,000 Americans to the emergency room annually and results in 33,000 hospitalizations per year. Acetaminophen is also the nation s leading cause of acute liver failure, according to data from an ongoing study funded by the National Institutes for Health. Also, non-pharmacological techniques demonstrate inferior efficacy in pain management, compared to other therapies. For years, although not superior in their entirety, opioids have remained as the most commonly prescribed drugs for acute, chronic and palliative care globally. Originating from a plant indigenous to the Indochina region called the papaver somniferum, the plant s sap (opium) is comprised of approximately 12% morphine, an alkaloid that is a frequently processed chemical used to produce heroin for illegal drug consumptions, as well as for medical use in certain regions. The goal of postoperative pain management is to relieve pain while keeping adverse events to a minimum. Although conventional opioids have demonstrated strong efficacy in controlling pain, unfavorable adverse events, including sedation, nausea and vomiting, respiratory complications, hypotension, constipation, and pruritus, have been observed, severely limiting patients satisfaction with their pain management. In addition, subsequent treatment for undesirable opioid adverse events, such as nausea and vomiting, may involve the use of antihistamines, which have been linked to the worsening of other complications, such as sedation and respiratory depression. In particular, respiratory depression poses a major life-threatening risk, and although the incidence of postoperative opioid-induced respiratory depression has been estimated to be only about 1%, the large number of patients treated with opioids with is indicative of its severity. Furthermore, the use of conventional opioids have been associated with drug addiction, since research demonstrates that, on average, 1 out of 15 patients who take opioids for acute pain becomes a chronic opioid user. As a result, despite of the extensive use of numerous currently approved drugs for postoperative pain, there remains a significant unmet need for safe and effective treatments. Notably, multimodal treatment for postoperative pain management is commonplace and on the rise, thereby leading to more drug combinations rather than opioids being increasingly phased out with each new non-opioid approval. Avenue therefore plans to maximize the therapeutic window and address the large unmet need. Exhibit 1: List of main competition that IV tramadol may face, if approved Opioids NSAIDs Other non-opioids Approved Developmental Approved Developmental Approved Developmental morphine, hydromorphone, fentanyl Source: Company documents Olinvo (Phase 3), Dsuvia (NDA), Zalviso (Phase 3) diclofenac, ibuprofen, ketorolac IV meloxicam (Phase 3) acetaminophen, exparel HTX-011 (Phase 3), Posimir (NDA) IV tramadol established efficacy and safety with less addiction risk As previously explained, although conventional opioids provide efficacy in pain management, their safety issues, along with addiction risk, remain as clinical concerns that may prevent a more complete treatment success. Tramadol is a synthetic dual-acting opioid that exhibits weak opioid agonist properties. The drug provides a mechanism of action through the inhibition of serotonin and noradrenaline reuptake, as well as the blocking of nociceptive impulses at the spinal level. As an approved oral drug, as well as in parenteral formulations including IV, intramuscular and subcutaneous, tramadol has been globally prescribed for more than three decades. Notably, in the US, only the oral formulation of tramadol has been approved, with no parenteral formulations available. In particular, oral tramadol was first launched in the US in 1995 for moderate to severe pain in adults, and has established a favorable efficacy and safety profile. According to data provided by Symphony Health Solutions, each year there have been over 40 million prescriptions for tramadol and tramadolcontaining drugs in the US since Real world evidence has shown that, although with limitations and contraindications including nausea/dizziness, a history of seizures and concomitant use of serotonergic drugs, tramadol use results in fewer adverse events from respiratory depression, hemodynamic disturbance, and immune dysfunction than with other more conventional opioids. The drug also causes minimal gastrointestinal side effects, such as constipation, when compared to other opioids. Most importantly, by contrast to conventional opioids, tramadol is associated with a relatively low risk of addiction and abuse. The US Controlled Substances Act defines tramadol as a Schedule 4 controlled substance, as compared to the Schedule 2 controlled substance rating for multiple conventional opioids, including meperidine, morphine, hydromorphone and oxycodone. Notably, Schedule 4 drugs are categorized as such due to their low potential for abuse; whereas Schedule 2 drugs have a much higher abuse potential. August 15,

4 Having demonstrated efficacy and safety as an oral formulation in the US, as well as both oral and parenteral formulations in the EU and other territories, we believe IV tramadol has advantages over other therapies. Tramadol s long-history should facilitate physician adoption, as a majority of them are already familiar with the drug. In addition, given the available oral formulation, we believe that approval of the IV formulation would make oral tramadol a logical step-down therapy, allowing patients to receive IV tramadol while in the hospital, and if effective and well tolerated, better adhere to the same therapy by taking the oral formulation when discharged, reducing the potential of not responding well to a different pain drug used at home and therefore possible hospital-readmission. Importantly, IV tramadol provides a similar pharmacokinetic profile to that of the oral formulation at steady state, ensuring a smooth transition for patients to receive such step-down therapy. Oral tramadol has also proven its utility in patients who are at high risk of developing cardiopulmonary dysfunction after surgery of the thorax or upper abdomen, and in instances in which the use of non-opioid analgesics are contraindicated. Since tramadol has a differentiated safety profile that is associated with fewer adverse events, it could be a suitable choice for at-risk patients with poor cardiopulmonary function, including the elderly, the obese and smokers, and patients with impaired hepatic or renal function, as well as in patients for whom NSAIDs are not recommended or need to be used with caution (Exhibit 2). In a recent survey with 30 US anesthesiologists, 77% of participants indicated a favorable initial impression of IV tramadol as a potential new IV analgesic. Also, results demonstrate that surveyed anesthesiologists perceive a switch rate to IV tramadol as high as 40% for patients that would otherwise be taking IV morphine, and to add IV tramadol to a multimodal treatment scheme for 41% of their patients receiving multimodal treatment. Exhibit 2: IV Tramadol opportunity Source: Company documents Clinical development of IV tramadol Clinical advancement performed by Revogenex In 1Q15, Fortress Biotech obtained the worldwide exclusive license to develop IV tramadol from Revogenex (private). Previously, Revogenex conducted multiple studies with IV tramadol, including nonclinical pharmacokinetic and toxicity studies in dogs, a Phase 1 dose-proportionality trial, evaluating both maximum and cumulative exposure to IV tramadol compared to oral tramadol, as well as a QT/QTc (TQT) trial, examining whether IV tramadol has any effect on prolonging the QTc interval in healthy volunteers. QTc estimates the QT interval at a heart rate of 60 bpm, allowing comparison of QT values over time at different heart rates and improves detection of patients at increased risk of arrhythmia. Results of these preclinical studies and early clinical trials demonstrated that IV tramadol exhibits a consistent pharmacokinetic, pharmacology and toxicity profile as compared to oral tramadol. August 15,

5 PK study for IV tramadol Typically, Phase 2 trials are required to demonstrate proof-of-concept for efficacy of an investigational drug, in order to determine the optimal dosing regimen, as well as to perform an initial safety assessment in the intent-to-treat patient population. However, since oral tramadol has been widely used for more than three decades in the US, and IV tramadol has been approved in many countries, Phase 2 trials were not required by the FDA. Instead, pharmacokinetic models and a safety trial were performed to determine the Phase 3 dose and a dosing regimen that mimics drug exposure with oral tramadol. Specifically, in 2016, Avenue completed a pharmacokinetic trial for IV tramadol in 18 healthy individuals, in which, a series of patients blood measurements, including systemic exposure, maximal and minimal levels of drug concentration in the blood and their time courses, were performed to evaluate how well the drug was handled by patients. A three-way crossover design was implemented, where each participant received both IV tramadol at two different doses on a patient-controlled-analgesia basis and oral tramadol. As a result, IV tramadol 50 mg administered at hours 0, 2, 4, and once every 4 hours thereafter was determined as the dosing regimen that provides a similar C max and AUC to that of 100 mg oral tramadol given every 6 hours at steady state (Exhibit 3). Exhibit 3: Mean tramadol plasma concentration vs. time curve for IV 50 mg and oral 100 mg Source: Company documents Comparison studies for tramadol In several comparison trials, parenteral or oral tramadol proved to be an effective and well tolerated analgesic agent in the perioperative setting. Its overall analgesic efficacy was similar to that of morphine or alfentanil and superior to that of pentazocine. The drug had a favorable tolerability profile in trials, with the most common adverse events (incidence of 1.6% to 6.1%) being nausea, dizziness, drowsiness, sweating, vomiting and dry mouth, and it was without clinically relevant effects on respiratory or cardiovascular parameters at recommended doses in adults or children. Tramadol also has a low potential for addiction (Scott, et al., Drugs Jul; 60(1): ) In particular, a trial assessing respiratory and analgesic effects of meperidine and tramadol was conducted in 48 patients undergoing orthopedic surgery who were randomized to three groups (n=16 each) to receive a single IV dose of 100 mg meperidine, 100 mg tramadol, or saline. Thirty minutes after treatment, patients who requested additional analgesia were rescued with 75 mg diclofenac and morphine as required. Results demonstrated that meperidine and tramadol produced comparable analgesia, with a different time course profile, but, importantly, although, the incidence of nausea and vomiting was higher with tramadol (p<0.02), meperidine induced sedation (p<0.05), respiratory depression (tidal volume, p<0.047; respiratory rate, p<0.004; % O 2 Sat, p<0.036), and hypercapnia (p<0.002); whereas tramadol did not induce sedation and respiratory depression. August 15,

6 In addition, a multicenter trial comparing tramadol and morphine for pain after abdominal surgery was conducted in 70 patients who received either 100 mg tramadol or 10 mg morphine intramuscularly. Patients were allowed to take up to six doses of tramadol or morphine during the 24-hour trial, and were only permitted to take diclofenac (75 mg) in the first 4 hours, if requesting supplemental analgesic. Results demonstrated that pain intensity was reduced by 36.2% in patients taking tramadol, as compared to 51% with morphine, after the first dose, and pain-free intervals were similar for both drugs. Importantly, tramadol was better tolerated than morphine, which was associated with one case of mild respiratory depression, demonstrating tramadol s more favorable safety profile. A randomized trial designed to compare the efficacy and safety of tramadol and pentazocine in postoperative pain was performed in 50 patients who were undergoing hemorrhoidectomy, traumatological or abdominal surgery. Following a randomization list, each patient was given 100 mg tramadol or 30 mg pentazocine by intramuscular injection at 8-h intervals for 3 days. Results demonstrated that both drugs performed well, significantly relieving pain over the 3 days of treatment (p<0.01 from baseline), with the first dose of tramadol being significantly more effective than pentazocine during the first hour and over the subsequent 5 hours. Regarding safety, no patient reported any adverse events, and complete data on efficacy and tolerability favored tramadol (p<0.01) over pentazocine, further confirming tramadol s favorable safety and tolerability profile. Planned Phase 3 IV tramadol program Avenue plans to conduct two Phase 3 trials to assess the safety and efficacy of IV tramadol, along with one additional safety trial, for analgesia following surgery (Exhibit 4). In particular, in 3Q17, the company expects to initiate the first Phase 3 trial in bunionectomy, enrolling approximately 405 patients who will be evenly randomized to receive one of two doses of IV tramadol, or placebo, for 48 hours. The primary endpoint of this trial is the Sum of Pain Intensity Difference over 48 hours (SPID 48), measuring the overall efficacy of tramadol in reducing pain. We expect Avenue to report topline data for this trial in 2Q18. In addition, upon full completion of the bunionectomy trial in 3Q18, the company expects to initiate the second Phase 3 trial in abdominoplasty, enrolling about 360 patients who will be randomized 3:3:2 to receive IV tramadol, placebo, or standard-of-care morphine. The primary endpoint of this trial is SPID 24, and topline data are expected to be reported as early as 2Q19. An open-label, single-arm, safety trial in approximately 250 patients is expected to commence in 4Q17, running concurrently with both Phase 3 efficacy trials and to be completed as early as 2Q19. If all data are positive, Avenue plans to submit an NDA for IV tramadol in late 2019 and, if approved, to commercialize the drug in Exhibit 4: Phase 3 trial design Source: Company documents August 15,

7 Licensing deals and intellectual property In 1Q15, Fortress obtained a worldwide (with the exception of Canada, Central America and South America with respect to 50 mg and 100 mg IV tramadol HCl injections) exclusive license to make, market and sell IV tramadol pursuant to an agreement with Revogenex, a privately held company in Dublin, Ireland. Fortress paid Revogenex an upfront licensing fee of $2 million and an additional $1 million in 2Q15, and 2 additional milestones totaling $4 million are due upon the completion of certain development goals. Avenue also owes high single-digit to low double-digit royalty payments on any net sales of licensed products. Royalties will be paid on a product-by-product and country-by-country basis until the expiration in each country of the valid patent claim. Fortress obtained the exclusive worldwide rights to US Patent 8,895,622 Intravenous administration of tramadol issued on November 25, 2014 (the 622 patent), and US Patent 9,561,195 issued on February 7, 2017 (the 195 patent), and US Patent 9,566,253 issued on February 14, 2017 (the 253 patent). Additionally, Fortress acquired the rights to an open investigational NDA pertaining to IV tramadol, as well as all supporting documentation and relevant correspondence with the FDA. Furthermore, Fortress assumed the rights and obligations of Revogenex under its current manufacturing agreement with Z.F. Polpharma S.A. Fortress transferred all of its tramadol rights and obligations to Avenue in 2Q15. More specifically regarding patent claims, the 622 patent is directed to and claims methods of: treating pain by administering a therapeutically effective dose of tramadol intravenously over a time period from 10 minutes to about 45 minutes (i.e., the rate of IV tramadol administration); administration over that time period for treating pain in humans by intravenously administering tramadol in solution at a range of concentrations; a method for treating acute pain in humans by administering IV tramadol over 10 to 30 minutes; a method of treating acute postoperative pain by administering tramadol to a human patient intra-operatively at wound closure, or from first demand of analgesia postoperatively intravenously over a time period from 10 to 30 minutes; administering further doses of IV tramadol at two to six hour time intervals for at least 48 hours post-surgery and administering an intravenous opioid analgesic which is not tramadol to the patient to further treat the patient s pain. Further claims of the 622 patent are directed to the 50 mg tramadol dose. These methods of treatment may provide significant benefits (e.g., reduced side effects) over previously approved methods of administration of IV tramadol, in which dosing was typically accomplished over a two to three minute period. Additional claims of the 622 patent focus on the intravenous administration of tramadol over 15 (±2) minutes, which represents the preferred method of administration that Avenue will be pursuing in obtaining FDA approval. The 622 patent further describes and claims pharmacokinetic properties of Avenue s proprietary method of treatment (e.g., T max, C max and AUC), which are different from the previously achieved pharmacokinetics with prior IV tramadol formulations, such as Tramal solution for injection (available outside the US). The 622 patent is scheduled to expire on April 12, 2032 (absent possible patent term extensions). The 253 patent includes claims directed to a method of treating moderate to severe acute pain in a human patient by a dose of about 50 mg of IV tramadol over a time period from 10 minutes to 20 minutes, and administering further doses of tramadol at two to six hour time intervals (each dose being administered intravenously over the same time period). The 195 patent includes claims directed to a method of treating moderate to severe acute pain by administering to a human patient a dose of about 50 mg of IV tramadol over 10 to 20 minutes, and administering further doses of IV tramadol at two to six hour time intervals to treat pain in said patient, such that the C max does not exceed the C max of 100 mg oral tramadol. The claims of the 195 patent therefore further focus on a goal of the technology that the blood plasma levels of tramadol resulting from Avenue s 50 mg intravenous dose would not be significantly greater than the blood plasma levels of tramadol that are already routinely experienced by patients in the US who are administered an oral dose of 100 mg tramadol. Tramadol hydrochloride is approved in the US for oral administration in an amount from 50 to 100 mg administered every four to six hours, not to exceed 400 mg/day. In addition, in 3Q17, Avenue obtained US Patent 9,693,949, pertaining to a method of treating pain (e.g., acute postoperative pain) by administering to human patients a therapeutically effective dose of intravenous tramadol in a dosing regimen which includes one or more loading doses administered at shortened intervals as compared to dosing at steady-state. In certain embodiments, the dose of tramadol is from about 45 mg to about 80 mg and the second and (optionally) third doses are intravenously administered at intervals of from about 2 to about 3 hours, and thereafter the tramadol is intravenously administered at a dosing interval of about 4 to about 6 hours, until the patient no longer requires tramadol. Financials Revenue. Our projected revenue for Avenue stems only from IV tramadol sales in the US, and thus revenue from any additional indications, regions and products would provide upside to our valuation. We conservatively forecast the initial US price for IV tramadol to be about $10 per unit. Our model assumes that Avenue will self-commercialize the drug in the US to generate our projected 2023 net revenue of about $217 million to Avenue. We project IV tramadol to be launched in the US in August 15,

8 Expense. We model Avenue as being responsible for all R&D expense. With the planned Phase 3 and safety trials, we forecast R&D expense to increase in 2017 and increase sharply in We also project initial COGS to be 25% for IV tramadol, if approved. Bottom Line. We project Avenue to be profitable in 2021, due primarily to IV tramadol sales in the US. As of August 4, 2017, Avenue had outstanding stock options and contingent consideration liabilities that can be converted into 0.6 million common shares. As of the completion of its late June 2017 initial public offering, Avenue had almost 10 million shares of common stock outstanding. Finally, we are not projecting income tax until mid-2022, given the amount of NOLs accumulated. Balance Sheet. The company s current cash position of $34.7 million should be sufficient to support its activities at least through As early as 2Q18, we project stock price appreciation after our projected positive topline data from the Phase 3 bunionectomy trial. Risks Clinical risk. Avenue s clinical stage products could fail to deliver statistically significant results in late-stage clinical trials, substantially reducing the value of Avenue s product candidates and therefore our target price. Regulatory risk. Even if successful in the clinic, Avenue s products could fail to be approved by domestic and/or foreign regulatory bodies, which would reduce Avenue s value and therefore our target price. Financing risk. Avenue could require additional capital to fund its operations, should its marketed or soon to be marketed products fail to deliver the anticipated revenue, and such financing may not occur or it could be substantially dilutive to existing investors. Competitive risk. For any approved Avenue products, they may not be well adopted in a competitive marketplace, which would adversely affect Avenue s value and therefore our target price. High stock price volatility. This issue is common among small-cap biotechnology companies with relatively low trading volumes. August 15,

9 AVENUE THERAPEUTICS, INC. Income Statement Fiscal Year ends December 31 (in '000 except per share items) 2016A 1Q17A 2Q17A 3Q17E 4Q17E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Collarborate revenue IV tramadol 18,233 77, , ,461 Total revenue ,233 77, , ,461 COGS - 4,558 19,336 35,885 54,365 R&D 1, ,118 3,353 5,050 21,669 10,835 5,417 5,471 5,526 5,581 SG&A ,297 1,362 1,430 4,460 6,471 12,943 38,828 40,770 42,808 44,949 Total operating expenses 2, ,744 2,479 4,782 9,510 28,141 23,777 48,804 65,577 84, ,895 Operating income (EBIT) (2,377) (504) (1,744) (2,479) (4,782) (9,510) (28,141) (23,777) (30,571) 11,766 59, ,565 Total Other Income (800) (157) (662) - - (819) Net income (loss) before taxes (3,177) (661) (2,406) (2,479) (4,782) (10,329) (28,141) (23,777) (30,571) 11,766 59, ,565 Income tax expense (benefit) - 8,898 39,398 Net income (loss), GAAP (3,177) (661) (2,406) (2,479) (4,782) (10,329) (28,141) (23,777) (30,571) 11,766 50,421 73,167 EPS basic (0.37) (0.07) (0.70) (0.25) (0.48) (1.28) (2.80) (1.46) (1.85) EPS diluted, GAAP (0.37) (0.07) (0.70) (0.25) (0.48) (1.28) (2.80) (1.41) (1.78) Basic shares outstanding 8,582 9,069 3,460 9,820 9,918 8,066 10,042 16,243 16,568 16,899 17,237 17,582 Diluted shares outstanding 8,582 9,069 3,460 9,820 9,918 8,066 10,042 16,846 17,171 17,502 17,840 18,185 Source: Company reports, Opus National Capital Markets estimates August 15,

10 IMPORTANT DISCLOSURES: Opus National Capital Markets is a DBA for National Securities Corporation 200 Vesey Street, 25th Floor New York, NY REG AC ANALYST CERTIFICATION The research analysts named on this report, Jonathan Aschoff, Ph.D., and Caroline Zhang, certify the following: (1) that all of the views expressed in this research report accurately reflect their personal views about any and all of the subject securities or issuers; and (2) that no part of their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by them in this research report. IMPORTANT DISCLOSURES This publication does not constitute and should not be construed as an offer or the solicitation of any transaction to buy or sell any securities or any instruments or any derivatives of the securities mentioned herein, or to participate in any particular trading strategies. Although the information contained herein has been obtained from recognized services, and sources believed to be reliable, its accuracy or completeness cannot be guaranteed. Opinions, estimates or projections expressed in this report may make assumptions regarding economic, industry, company and political considerations, and constitute current opinions, at the time of issuance, which are subject to change without notice. This report is being furnished for informational purposes only, and on the condition that it will not form a primary basis for any investment decision. Any recommendation(s) contained in this report is/are not intended to be, nor should it / they construed or inferred to be, investment advice, as such investments may not be suitable for all investors. When preparing this report, no consideration to one s investment objectives, risk tolerance and other individual factors was given; as such, as with all investments, purchase or sale of any securities mentioned herein may not be suitable for all investors. By virtue of this publication, neither the Firm nor any of its employees shall be responsible for any investment decisions. Before committing funds to ANY investment, an investor should seek professional advice. Any information relating to the tax status of financial instruments discussed herein is not intended to provide tax advice, or to be used by anyone to provide tax advice. Investors are urged to consult an independent tax professional for advice concerning their particular circumstances. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, either expressed or implied, is made regarding future performance. National Securities Corporation (NSC) and its affiliated companies, shareholders, officers, directors and / or employees (including persons involved with the preparation or issuance of this report) may, from time to time, have long or short positions in, and buy or sell the securities or derivatives (including options) thereof, of the companies mentioned herein. One or more directors, officers, and / or employees of NSC and its affiliated companies, or independent contractors affiliated with NSC may be a director of the issuer of the securities mentioned herein. NSC and / or its affiliated companies may have managed or August 15,

11 co-managed a public offering of, or acted as initial purchaser or placement agent for a private placement of any of the securities of any issuer mentioned in this report within the last three (3) years, or may, from time to time, perform investment banking or other services for, or solicit investment banking business from any company mentioned in this report. This research may be distributed by affiliated entities of National Securities Corporation (NSC). Affiliated entities of NSC may include, but are not limited to, vfinance Investments, Inc., National Asset Management and other subsidiaries of our parent company, National Holdings Corporation. The securities mentioned in this document may not be eligible for sale in some states or countries, nor be suitable for all types of investors; their value and the income they produce if any, may fluctuate and/or be adversely affected by exchange rates, interest rates or other factors. Furthermore, NSC may follow emerging growth companies whose securities typically involve a higher degree of risk and more volatility than the securities of more established companies. This report does not take into account the particular investment objectives, financial situation or needs of individual investors. Before acting on any advice or recommendation in this material, the investor should exercise independent judgment as to whether it is suitable in light of his/her particular circumstances and, if necessary, seek professional advice. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Additional information relative to securities, other financial products, or issuers discussed in this report is available upon request. Neither this entire report, nor any part thereof, may be reproduced, copied or duplicated in any form or by any means without the prior written consent of National Securities Corporation. All rights reserved. NSC is a member of both the Financial Industry Regulatory Authority (FINRA) and the Securities Investors Protection Corporation (SIPC). For disclosures inquiries, please call us at and ask for your NSC representative, or write us at National Securities Corporation, Attn. Chris Testa or Glenn Williams - Research Department, 200 Vesey Street 25th Floor New York, NY 10281, or visit our website at Research Disclosures Legend Relevant Disclosures: 1, 2, 4, 6, 9, and 10 1 National Securities (NSC) is a market-maker in the securities of the subject company 2 In the past twelve (12) month period, NSC and / or its affiliates have received compensation for investment banking for services from the subject company 3 In the past twelve (12) month period, NSC and / or its affiliates have received compensation from the subject company for services other than those related to investment banking 4 In the past twelve (12) month period, NSC was a manager or a co-manager of a public offering of one or more of the securities of the issuer August 15,

12 5 In the past twelve (12) month period, NSC was a member of the selling group of a public offering of the security (ies) of the issuer 6 One or more directors, officers, and / or employees of NSC and / or its affiliated companies is / are a director (s) of the issuer of the security which is the subject of this report 7 NSC and / or its affiliates expects to receive or intends to seek compensation for investment banking services from the subject company at some point during the next three (3) months 8 A research analyst or a member of his / her household has a financial interest in the securities of the subject company as follows: a) long common stock; b) short common stock; c) long calls; d) short calls; e) long puts; f) short puts; g) long rights; h) short rights; i) long warrants; j) short warrants; k) long futures; l) short futures; m) long preferred stock; n) short preferred stock 9 As of the end of the month immediately preceding the date of publication of this report or the end of the prior month if the publication is within ten (10) days following the end of the month, NSC and / or its affiliates beneficially owned one percent (1%) or more of any class of common equity securities of the subject company. 10 Please see below for other relevant disclosures Shares of this security may be sold to residents of all 50 states, Puerto Rico, Guam, the US Virgin Islands and the District of Columbia. Distribution of Ratings Investment Banking* Rating # % # % BUY % % NEUTRAL % 2 3.4% SELL 4 6.9% 2 3.4% *Investment banking services provided in the previous 12 months MEANING OF RATINGS: BUY: the stock is likely to generate a total return of at least 10% over the next 12 months and should outperform relative to the industry. NEUTRAL: the stock is likely to perform in-line with the industry over the next 12 months. SELL: the stock is likely to underperform (from a total return perspective) relative to the industry over the next 12 months. NR: Not Rated SP: Suspended August 15,

13 Charts ATXI Source: Big Charts ATXI Date Rating Price Target Initiation August 15, 2017 BUY $15 August 15,