Inotek Pharmaceuticals Corporation (NASDAQ: ITEK) is a biopharmaceutical company that was focused on the discovery, development, and commercialization of therapies for ocular diseases, including glaucoma. Its previous trials did not meet primary efficacy endpoint, and the company is now focusing on evaluating strategic alternatives.
On October 12th, the company announced the filing with the US Securities and Exchange Commission (SEC) its preliminary proxy statement in connection with the previously announced proposed combination of Inotek Pharmaceuticals and Rocket Pharmaceuticals, a private company, and leading US-based multi-platform gene therapy company. In what appears to be a reverse merger, Rocket will be the surviving company.
Under the terms of the merger agreement, shareholders of Rocket will receive shares of newly issued Inotek common shares in a private placement. Rocket shareholders are expected to own approximately 81% of the combined Company and current Inotek shareholders will own about 19% of the combined Company.
With this transaction, Rocket’s rich pipeline is expected to progress even more rapidly into what we already see as a transformational year for the company. The company expects to enter the clinic in 2018, with clinical proof of concept data from one or more of the lentiviral programs in 2018.
More specifically, Rocket has several near-term clinical and proof of concept catalysts, a well-funded operation and a management team with a rare disease and gene therapy leadership expertise. Which is why, the analysts covering ITEK believes that 19% of the combined entity is relatively much more valuable than the 100% of standalone Inotek.
Rocket’s principal products are:
Following are the Key Near-term Value Inflection Points – 2018.
The management of Rocket has the vision to create a fully-integrated platform gene therapy company with a portfolio of distinct treatments for devastating genetic diseases. The combined company will focus on developing and advancing its pipeline of gene therapies based on the lentiviral virus (LVV) and adeno-associated virus (AAV) gene therapy platforms, with a focus on treating rare, devastating diseases. Inotek currently has a consensus target price of $4.50, indicating a potential upside of more than ~ 80%.
The key clinical synergies are outlined below:
- Company to Leverage Lentiviral and AAV Gene Therapy Platforms to Target Rare Genetic Diseases,
- Transaction to Advance Rocket’s Growing Pipeline; Up to Four Clinical Trials to Begin in 2018,
- Proof of Concept Data Expected in 2018 for One or More Clinical Programs Focused on Rare Blood Disorders: Fanconi Anemia, Pyruvate Kinase Deficiency, and Leukocyte Adhesion Deficiency-1
On a standalone basis, during 2017, Inotek has gone through two major clinical failures and had no other no other promising products in the pipeline. However, post announcement of this merger, the company’s stock is surging on the back of encouraging catalysts associated with the above-mentioned development stage assets.
About Inotek: Inotek Pharmaceuticals is a clinical-stage biopharmaceutical company focused on the discovery, development, and commercialization of therapies for ocular diseases, including glaucoma. In July 2017, the Company announced top-line results of its Phase 2 fixed-dose combination trial of trabodenoson and latanoprost for the treatment of glaucoma. The trial did not meet its primary efficacy endpoint, and the Company has since discontinued development of trabodenoson to focus on evaluating strategic alternatives.
About Rocket: Rocket Pharmaceuticals is an emerging, clinical-stage biotechnology company focused on developing first-in-class gene therapy treatment options for rare, undertreated diseases. Its lead clinical program is an LVV-based gene therapy for the treatment of Fanconi Anemia (FA). Preclinical studies of additional bone marrow-derived disorders are ongoing and target Pyruvate Kinase Deficiency (PKD), Leukocyte Adhesion Deficiency-1 (LAD-I) and Infantile Malignant Osteopetrosis (IMO).
Rocket is also developing an AAV-based gene therapy program for an undisclosed rare pediatric disease. Rocket is backed by leading institutional investors, including RTW Investments, Cormorant Asset Management, and Tavistock Group.
Present stages and timeline of key clinical programs:
Second quarter financial results of ITEK:
- Loss from operations was $5.9 million for the quarter ended June 30, 2017, compared to a loss of $8.8 million for the quarter ended June 30, 2016, and $15.8 million for the six months ended June 30, 2017, compared to $18.9 million for the six months ended June 30, 2016.
- Net loss was $6.6 million for the quarter ended June 30, 2017, compared to a net loss of $8.7 million for the quarter ended June 30, 2016, and $17.2 million for the six months ended June 30, 2017, compared to $18.8 million for the six months ended June 30, 2016.
- Cash and cash equivalents and short-term investments as of June 30, 2017, were $108.8 million.
- ITEK is scheduled to release financial data on or about November 8, 2017.
Key risk factors and potential stock drivers:
There’s plenty of upside on the back of upcoming catalysts. The positive outcome of the same could be a medium to longer term driver for the company.
The cash burn is expected to rise for the combined entity. Therefore, financial flexibility is critical for the operations to continue in the planned manner.
Also, there is a high likelihood of company needing incremental funding. With this, there’s always the potential for dilution, and this could translate into near-term weakness if, and when it happens.
Biotech space in itself is a high-risk sector due to uncertainties associated with the novel drug development. Therefore, favorable outcome of the upcoming catalyst is necessary for the stock to retain its momentum. Any adversities related with the same could impinge the stock performance significantly.
- On Wednesday, November 1, 2017, in intra-day trading, ITEK is trading at $2.50 (-0.79%) on volume of 150K shares exchanging hands. Market capitalization is $69.15 million. The current RSI is 58.76
- In the past 52 weeks, shares of ITEK have traded as low as $0.85 and as high as $7.95
- At $2.50, shares of ITEK are trading above its 50-day moving average (MA) at 1.79 and above its 200-day MA at $1.65
- The present support and resistance levels for the stock are at $2.48 & 2.69 respectively.
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