Neothetics Inc (NEOT) Wows Investors With New Merger Agreement; Shares Jump 130%


neot logoIt’s a very rewarding trading day for investors in Neothetics Inc (NASDAQ:NEOT) with shares up over 130%, making the stock Wall Street’s bull of the day. The reason? The biotech company announced they have 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. Neothetics director Martha Demski believes the merger will “provides the best opportunity to maximize value for Neothetics’ shareholders.”

The merger will position the combined company with 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.

An affiliate of an existing Evofem Biosciences’ investor, Invesco Asset Management Ltd., has entered into a securities purchase agreement to acquire an additional $20 million of common stock in the combined company immediately following the completion of the merger.

Evofem Biosciences CEO commented, “This merger and concurrent financing provides continued funding for Evofem Biosciences’ ongoing Phase III study of Amphora® as a vaginal contraceptive – AMPOWER.  We expect to close the study database and file for FDA review in the second quarter of 2019 […] In addition, we have expanded our 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.”

Evofem Chairman Thomas Lynch added, “Evofem Biosciences is positioned to become a leading provider of women’s healthcare solutions with a much needed and truly differentiated offering […] This merger with Neothetics creates an even stronger platform for the advancement of Evofem initiatives which will continue to create value for shareholders.”

Details of the Proposed Transaction

The parties determined the exchange ratio in the merger agreement by assuming $171,400,000 in value of Neothetics common stock will be issued to the Evofem Biosciences stockholders in the merger with $28,600,000 in value of common stock being retained by the Neothetics stockholders, in each case immediately prior to the Invesco financing.  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 transactions have been approved by the board of directors of both companies. The merger is expected to close in January 2018, subject to the approval of the stockholders of each company as well as other customary conditions.

Management and Organization

Following the merger, the company will be led by Saundra Pelletier 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.

On the ratings front, Needham analyst Serge Belanger reiterated a Hold rating on NEOT, in a report issued on June 26. According to TipRanks.com, Belanger has a yearly average return of 4.2%, a 42% success rate, and is ranked #1794 out of 4697 analysts.

Neothetics operates as a holding company, which provides clinical-stage specialty pharmaceutical and developing therapeutics for the aesthetic. It focuses on localized fat reduction and body contouring. The company products include LIPO-202, is a injectable formulation of the long-acting ß2-adrenergic receptor agonist, salmeterol xinafoate.