Neothetics, Inc. (NASDAQ: NEOT) is a San Diego based clinical-stage specialty pharmaceutical company that has been focused on developing therapeutics for the aesthetic market.
On Tuesday, October 17, Neothetics announced that it entered into a definitive agreement under which privately-held Evofem Biosciences will merge with a wholly-owned subsidiary of Neothetics in an all-stock transaction.
The merger will position the combined company for an opportunity to become a leading women’s health company that develops and commercializes novel products. Upon closing of the transaction, Neothetics will be renamed Evofem Biosciences, Inc., and will be under the leadership of Evofem Biosciences’ Chief Executive Officer, Saundra Pelletier. Additionally, an affiliate of Invesco Asset Management Ltd., which is an existing investor in Evofem, has agreed to purchase an additional $20 million worth of shares in the combined company.
On a pro forma basis after giving effect to both the number of shares of Neothetics common stock issued in the merger and the number of shares of Neothetics common stock issued to Invesco in the Invesco financing, current Neothetics stockholders will own approximately 13% of the combined company and current Evofem Biosciences stockholders, including Invesco, will own approximately 87% of the combined company.
The major product involved is an asset called “Amphora,” which is an on-demand non-hormonal, woman-controlled, surfactant-free investigational new drug being developed as a vaginal contraceptive and for the prevention of certain sexually transmitted infections. It is also designated as a Qualified Infectious Disease Product (QIDP) by the U.S. Food & Drug Administration for two separate indications: the prevention of urogenital gonorrhea infection in women, and for the reduction of reoccurrence of bacterial vaginosis.
The AMPOWER trial is a single-arm, Phase III, open-label, multicenter, study in women aged 18-35 years of the contraceptive efficacy and safety of Amphora® contraceptive vaginal gel. The trial is expected to enroll approximately 1,350 women at risk of pregnancy at over 100 centers in the United States. The primary endpoint is the contraceptive efficacy of Amphora® over seven cycles of use.
Phase 3 pivotal investigation is likely to be completed in early 2019. The management expects to submit for regulatory approval immediately after completion (with an underlying assumption that the data is positively strong). Therefore, we could see approval by the end of 2019.
Also, the company has expanded Amphora® clinical development platform with potential supplemental indications which would further strengthen its position as a cornerstone therapy in hormone-free birth control and as a preventative option for certain sexually transmitted infections.
The management believes that the strength of the leadership team, coupled with the completion of its pregnancy prevention trial, will enable Amphora® to reach significant value inflection points in the near term. Furthermore, Evofem Biosciences is well positioned to become a leading provider of women’s healthcare solutions with a much needed and genuinely differentiated offering.
NEOT shareholders would have a relatively smaller share in the new entity, but even then, the asset to which they are gaining an exposure would be much more valuable than its own asset.
On these developments, the company has run up more than 200% with strong volumes and is likely to continue appreciating over the near to medium term. In fact, despite this recent run, traders and investors still pricing NEOT positively. The stock currently has an average rating of “BUY” and a consensus price target of $3.00 Considering present valuation, NEOT is at an extremely favorable risk-reward position.
About Neothetics, Inc: Neothetics is a San Diego based clinical-stage specialty pharmaceutical company that has been focused on developing therapeutics for the aesthetic market.
Evofem Biosciences, Inc. Evofem Biosciences develops and anticipates commercializing innovative products that support and promote women as the primary healthcare consumer. Evofem Biosciences is currently identifying and developing new and novel products that specifically address unmet needs in the areas of sexual and reproductive health, the prevention of acquisition of sexually transmitted infections and products that address or promote general health and wellbeing.
Management and Organization: Following the merger, Saundra Pelletier will lead the company as Chief Executive Officer. The board of directors of the combined company is anticipated to be comprised of seven representatives, one of whom will be designated by Neothetics and the remaining six of whom will be designated by Evofem Biosciences, including, Ms. Pelletier and Mr. Lynch, Evofem Biosciences’ Chairman.
Pipeline:
Second quarter financial results:
Research and development expenses for the second quarter of 2017 were approximately $1.6 million, compared to $1.4 million for the same quarter in 2016.
Net loss for the second quarter of 2017 was $2.8 million, or $0.20 basic and diluted net loss per share, compared to a net loss of $2.7 million, or $0.19 basic and diluted net loss per share, for the same period in 2016.
Cash and cash equivalents were $7.6 million as of June 30, 2017 compared to $11.5 million as of December 31, 2016.
The Company continues to streamline its operations to preserve its capital and cash resources, including implementing a reduction in the Company’s workforce from six employees to two employees.
Key risk factors and potential stock drivers:
The company´s Phase 3 pivotal investigation is an extremely important near-term catalyst.
The collaboration with Evofem Biosciences is considered as an extremely favorable milestone.
As a result of the latest transaction, overall liquidity and financial flexibility are more than high enough to carry through to trial completion, eliminating any near-term dilution risk.
Pharma space 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 upset the stock performance significantly.
Stock Chart:
On Monday, October 23rd, 2017, NEOT is trading at $1.24 on an above average volume of 3.47 million shares exchanging hands. Market capitalization is $17.15 million. The current RSI is 65.31
In the past 52 weeks, shares of NEOT have traded as low as $0.30 and as high as 2.63
At $1.24, shares of NEOT are trading significantly above its 50-day moving average (MA) at $0.47 and above its 200-day MA at $1.23
The present support and resistance levels for the stock are at $1.12 & $1.42 respectively.
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