Neothetics: A Look Ahead

| About: Neothetics (NEOT)

Summary

Phase 2 study for submental fat to begin this month.

Based on modified formulation of LIPO-202, which saw statistically significant reduction in central abdominal bulging during a Phase 2 trial.

Enough cash to last until the first quarter of 2018.

In December 2015, Neothetics (NASDAQ:NEOT) saw its' share price plummet, as the Phase 3 trials for the reduction of central abdominal bulging failed to meet the primary or secondary endpoints. Based upon the unexpected results, Neothetics performed a review, alongside expert outside consultants, and determined that modifications made to LIPO-202 to make it commercially ready may have affected the efficacy of the drug. Since then, Neothetics has formed a Development Committee, which is "responsible for general oversight and overall strategy for the LIPO-202 development plan activities including Chemistry, Manufacturing and Controls, or CMC, clinical and regulatory." As a result of these undertakings, Neothetics has developed a modified formulation of LIPO-202, based off the formulation used in the Phase 2 RESET trial for central abdominal bulging (subcutaneous fat in the central abdomen).

Phase 2 RESET Trial

The Phase 2 RESET trial was performed while Neothetics was known as Lithera, Inc. During this "513-patient, multi-center, randomized, placebo-controlled Phase 2 clinical trial," LIPO-202 or a placebo were injected into an abdominal treatment area once a week for eight weeks. The results demonstrated a statistically significant reduction in circumference at the umbilicus (p=0.001) and signifcant reduction in abdominal volume (p=0.002) compared to placebo.

Modified Formulation

In preparation to make LIPO-202 comercially available, modifications were made that were later found to have likely reduced efficacy and thus led to the failure of the Phase 3 trials for central abdominal bulging. Subsequently, a thorough analysis and review was completed of the results and it was determined there were a number of opportunities to improve the effectiveness of LIPO-202. Based upon these findings, a modified formulation of LIPO-202 was developed, based on the formulation used in the successful Phase 2 RESET trial.

Financials

Neothetics reported that they have enough cash on hand to fund into the first quarter of 2018. In addition, they have recently paid off the entirety of a $4 million loan. While this is the case, Neothetics may need to raise additional funding, including through equity offerings, debt financing, strategic partnerships, or collaborations.

Upcoming Trials

Neothetics intends to intiate a trial in December for the reduction of localized fat under the chin, known as submental fat. Top-line results are expected in the second quarter of 2017. Using the modified formulation, Neothetics "believes that it should be able to obtain the positive results observed in the Phase 2 RESET clinical trial," and that LIPO-202 could have "exceptional potential" in the submental fat reduction market, which is expected to be larger than $2.5 billion. As an example, Kythera Biopharmaceuticals, Inc., whose drug KYBELLA™ was the first and only FDA approved drug treatment for submental fat, was acquired by Allergan (NYSE:AGN) for approximately $2.1 billion in 2015. While the submental fat reduction market size potential is exceptional in and of itself, this does not include the use of LIPO-202 for central abdominal bulging - a condition in which there is no current FDA approved drug. Neothetics plans to conduct a clinical trial for central abdominal bulging using the modified formulation after the proof of concept study on submental fat. The potential for these treatments is in stark contrast to the less than $15 million market cap Neothetics now has. With 13,828,496 shares of common stock outstanding as of November 1, 2016, there are a number of investors holding large stakes, according to their latest SEC filings, such as Ervington Investments Limited (1,349,740 shares) and Craig A. Drill (1,330,000 shares). Directors and named executive officers hold a combined 4,726,217 shares.

The new year should bring an opportunity for Neothetics to redeem itself. With a new Development Committee led by Dan Piacquadio, M.D., a veteran dermatologist who established the clinical research program for the Division of Dermatology at the University of California, San Diego, Neothetics will have proven leadership and experience that will help determine the strategy necessary for the success of LIPO-202.

Disclosure: I am/we are long NEOT.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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