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Based in Chapel Hill, North Carolina, Cempra Holdings (NASDAQ:CEMP) scheduled a $72 million IPO with a market capitalization of $188 million at a price range mid-point of $12 for Thursday, February 2, 2012.

CEMP is one of eight IPOs scheduled for this week (see our IPO calendar).

SUMMARY

CEMP is a clinical stage pharmaceutical company that wants to raise money for stage 2 and 3 clinical trials. CEMP doesn't seem to have a strong partner, is venture capital funded and recently borrowed more money from a technology venture capital fund.

If CEMP clinical efforts are successful they still face considerable competition, see "competition" below.

CONCLUSION

Phase III clinical trials, for which part of the IPO proceeds are allocated, can take a long term. The outcome is hard to predict by definition. Therefore, it seems prudent in this investment climate to watch and wait for CEMP to make further progress.

INSIDERS MAY WANT TO BUY MORE

Certain of CENP's existing securities holders and/or entities affiliated with one or more of its directors have indicated an interest in purchasing up to an aggregate of approximately $20.0 million, or 1,666,667 shares.

We don't believe this is particularly significant.

BUSINESS

CEMP is a clinical-stage pharmaceutical company focused on developing antibiotics to meet critical unmet medical needs in the treatment of infectious diseases, particularly respiratory tract infections and skin and skin structure infections.

PROGRAMS

CEMP's lead program, CEM-101, which CEMP is developing in IV and oral formulations, recently completed a successful Phase II clinical trial of the oral formulation for the treatment of CABP, demonstrating comparable efficacy to the current standard of care, levofloxacin, with an improved safety profile.

CEMP's second program is Taksta, which it is developing in the U.S. as an oral treatment for ABSSSI, which is frequently caused by S. aureus, including MRSA, and beta-hemolytic streptococci.

Taksta has successfully completed a Phase II clinical trial showing comparable efficacy and safety to linezolid, the only oral antibiotic approved by the FDA to treat MRSA.

CEMP expects to initiate pivotal Phase III trials for both programs in 2012.

If approved, CEM-101 and Taksta will face significant competition from branded and generic antibiotics.

RECENT DEVELOPMENTS

On December 20, 2011 CEMP entered into a $20.0 million loan and security agreement with Hercules Technology Growth Capital, Inc., or Hercules, and borrowed $10.0 million upon closing. CEMP may borrow the remaining $10.0 million after it raises $40.0 million in an equity offering, including this offering, or strategic partnering transaction. CEMP will be required to make interest only payments through December 2012, which can be extended to March 2013 or June 2013 upon satisfaction of certain conditions. Principal and interest payments will start after December 2012 or any later extended date.

COMPETITION

If approved, both CEM-101 and Taksta will face competition from currently commercially available antibiotics, as well as any competing products that may be developed in the future.

Existing approved products that will compete with CEM-101 - most are available as a generic - include azithromycin (sold under the brand name Zithromax® by Pfizer (NYSE:PFE). and available as a generic), clarithromycin (sold under the brand name Biaxin® by Abbott Laboratories (NYSE:ABT) and available as a generic), moxifloxacin (sold under the brand name Avelox® by Bayer AG (OTCPK:BAYZF)), levofloxacin (sold under the brand name Levaquin by Johnson & Johnson (NYSE:JNJ)and available as a generic), linezolid (sold under the brand name Zyvox by Pfizer), ceftriaxone (sold under the brand name Rocephin® by F. Hoffman-La Roche Ltd and available as a generic) and ceftaroline (sold under the brand name Teflaro® by Forest Laboratories (NYSE:FRX)).

Existing approved products that will compete with Taksta include vancomycin (available as a generic), linezolid (sold under the brand name Zyvox by Pfizer Inc.), daptomycin (sold under the brand name Cubicin by Cubist Pharmaceuticals (NASDAQ:CBST)), quinupristin/dalfopristin (sold under the brand name Synercid® by Sanofi-Aventis (NYSE:SNY) and Monarch Pharmaceuticals, Inc.), tigecycline (sold under the brand name Tygacil® by Pfizer Inc.), telavancin (sold under the brand name Vibativ® by Theravance (NASDAQ:THRX) and Astellas Pharma, Inc. (OTCPK:ALPMF)) and ceftaroline (sold under the brand name Teflaro by Forest Laboratories, Inc.).

Generic antibiotics are typically sold at lower prices than branded antibiotics and are generally preferred by managed care providers of health services.

INTELLECTUALPROPERTY

CEMP's ability to pursue the development and commercialization of CEM-101 depends upon the continuation of its license from Optimer Pharmaceuticals (NASDAQ:OPTR) which has a market capitalization of $573 million.

In March 2006, CEMP entered into a Collaborative Research and Development and License Agreement with Optimer, pursuant to which CEMP acquired an exclusive license to certain patent applications and other intellectual property related to a series of compounds, including CEM-101, to develop and commercialize licensed products outside of the Association of South East Asian Nations, or ASEAN, countries (Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar (Burma), the Philippines, Singapore, Thailand and Vietnam).

VENTURE CAPITAL OWNED

Pre-IPO CEMP is about 85% owned by VC firms.

USE OF PROCEEDS

CEMP expects to net $66 million from sale of 6 million shares. The money is allocated as follows:

  • $22.0 million to conduct and complete a planned Phase 3 trial for the oral formulation of CEM-101;
  • $4.0 million to complete an ongoing Phase 1 trial for the IV formulation of CEM-101;
  • $9.2 million to conduct a number studies to support FDA approval of CEM-101, including a thorough QT, or TQT, study to look at cardiac effects, and studies in patients with hepatic insufficiency;
  • $3.6 million to fund the API for a planned Phase 3 trials for the IV formulation of CEM-101;
  • $4.3 million to fund formulation and manufacturing of drug product;
  • $4.0 million to fund a planned Phase 2 trial for Taksta for the treatment of prosthetic joint infections; and
  • The remainder for working capital and other general corporate purposes
Source: IPO Preview: Cempra Holdings