Tokai Pharmaceuticals Inc (NASDAQ:TKAI) and Otic Pharma Ltd. announced that the two companies, together with the shareholders of Otic Pharma, have entered into a definitive share purchase agreement under which the shareholders of Otic Pharma will become the majority owners of Tokai.

The transaction will result in a NASDAQ-listed company focused on the development and commercialization of products for ENT disorders, including Otic Pharma’s lead candidate which is a nasally-administered, combination drug product (OP-02) intended to address the underlying cause of otitis media and Eustachian tube dysfunction (OM/ETD), a condition that affects more than 700 million people around the world every year. The company will operate under the name OticPharma, Inc., and will be led by Gregory J. Flesher, current Chief Executive Office of Otic Pharma Ltd. Current President and Chief Executive Officer of Tokai,Jodie Morrison, will remain as a member of the board of directors.

“Over the last several months, Tokai has conducted an extensive review of strategic alternatives aimed at maximizing value for our shareholders over the long-term,” said Jodie Morrison, President and CEO of Tokai Pharmaceuticals. “We believe the proposed transaction with Otic Pharma, a company that has both a promising pipeline and an experienced leadership team with a track record of creating significant shareholder value in public pharmaceutical companies, advances this goal.”

“Our lead program in otitis media, OP-02, has significant potential,” said Gregory J. Flesher, Chief Executive Officer of Otic Pharma. “OP-02 is an investigational drug product designed to break the cycle of recurrent and chronic otitis media which affect millions of people around the world. We expect to have phase 1 clinical pharmacodynamic data in the first half of 2017 and, with this transaction, to have the capital needed to be able to move directly into phase 2 development to explore the product’s ability to prevent otitis media in children.”

Share Purchase Agreement Details

Under the terms of the agreement, the shareholders of Otic Pharma will receive a total of 32,172,209 shares of newly issued Tokai common stock, while outstanding Otic Pharma options and convertible securities will be assumed by Tokai. Upon the exchange, it is expected that existing Tokai stockholders will own approximately 40% of the combined company, with existing Otic Pharma shareholders owning approximately 60%. The transaction has been unanimously approved by the boards of directors of both companies and shareholders of Otic Pharma. Tokai’s largest stockholder, Apple Tree Partners, who holds approximately 35% of Tokai’s common stock has entered into an agreement in support of the proposed transaction. The transaction is expected to close during the first quarter of 2017, subject to customary closing conditions, including approval by shareholders of Tokai.

Wedbush PacGrow advised Tokai Pharmaceuticals and Piper Jaffray & Co. advised Otic Pharma in the proposed transaction. Wilmer Cutler Pickering Hale and Dorr LLP and Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co. served as legal counsel to Tokai and Gibson, Dunn & Crutcher LLP and Yigal Arnon & Co. served as legal counsel to Otic Pharma.

Management and Organization

Upon the close of the proposed transaction, the board of directors of the combined company will consist of seven members, three to be designated by Tokai and four to be designated by Otic Pharma. Officers of the new company will be Gregory J. Flesher, President and Chief Executive Officer; Christine G. Ocampo, Chief Financial and Compliance Officer; and Dr. Catherine C. Turkel, Chief Development Officer.

Additional Funding

An Otic Pharma investor syndicate, including current shareholders and members of the management team, has committed to invest $7 million of additional capital in connection with the share purchase agreement. (Original Source)

Shares of Tokai Pharmaceuticals closed yesterday at $1.01. TKAI has a 1-year high of $9.23 and a 1-year low of $0.73. The stock’s 50-day moving average is $1.04 and its 200-day moving average is $2.34.

Tokai Pharmaceuticals, Inc. is a clinical stage biopharmaceutical company, which focuses on developing novel proprietary therapies for the treatment of prostate cancer and other hormonally driven diseases.