NeoTherapeutics Awaits Critical Trial Results
Short on Cash and Salable Equity, Company’s Hopes Rest on Alzheimer’s Drug
By VITA REED
Irvine drug developer NeoTherapeutics Inc. may be coming to a crossroads as it awaits key clinical trial results for its lead compound and faces an ongoing need to raise money.
Late-stage clinical trial results for the company’s core Neotrofin drug for treating Alzheimer’s disease are due in May. Meanwhile, the company is on course to burn through its cash on hand by July,even after a $5 million private placement last month.
Chief Executive Alvin Glasky said he isn’t overly worried.
“I think we’re at a significant milestone,” Glasky said. “I don’t think we’re at a crossroads. Because in a crossroads, I would tend to think of it as almost like a life-and-death situation,that when you come to that crossroads, if you can’t get across it, then you’re in a really bad position. That’s not the case with us.”
Even if the Neotrofin results don’t meet expectations, “all it means is that we will have learned something from it and learn better how to do the next trial,” Glasky said.
NeoTherapeutics is looking to strike an alliance with a major drug maker as a source for more funding, Glasky said. Landing a partner could hinge in large part on the results of the current trial.
“Neotrofin has blockbuster potential,” said Oren Levy, an analyst with White Mountain Capital LLC of Nanuet, N.Y., the only company that follows NeoTherapeutics.
Current drugs for Alzheimer’s only are moderately effective, Levy wrote in a research report. And Neotrofin acts differently than existing drugs, he said.
“The (Alzheimer’s) market is large and growing: an estimated 4 million Americans have AD, and this number is expected to double in the next 25 years,” Levy said in his report.
While NeoTherapeutics’ potential market is big, its balance sheet isn’t. The company has used a lot of cash to develop drugs for treating central nervous system diseases and cancer. It has a cash burn rate of about $2.3 million a month, according to its fourth-quarter results, down from $3.9 million a month a year ago.
“We currently expect that we will need to raise additional cash within approximately four months to avoid making substantial reductions to our operations,” NeoTherapeu-tics said in a federal filing.
NeoTherapeutics raised $5.1 million last month by selling shares to an investor group led by Royal Bank Investment Management, a unit of Canada’s RBC Financial Group. It also issued warrants that could generate about $1.8 million. In the fourth quarter, the company raised $7.2 million through the sale of equity.
But the equity well is drying up. Institutional ownership stood at 24% in the last reporting period. But, more seriously, the company’s share price has been on a steady slide since the beginning of the year, going from 3.80 on Jan. 2 to less than 1.70 late last week, shrinking NeoTherapeutics’ market value to less than $40 million. The company’s shares have traded as high as near 25, with that peak coming in 2000.
“Our major concern is the company’s relatively weak cash position,” analyst Levy wrote in his report, pointing out that the need to raise additional funding will be “a constant pressure.”
“Nevertheless, we believe that management will continue to acquire additional financing on favorable terms,” he said.
Glasky, too, expressed confidence that NeoTherapeutics would be able to raise more money through selling stakes in the company or partnering with a drug maker. He also downplayed some of the language in the company’s federal filing.
“Since we have no revenues, we have always (had to) raise capital in the open market by the sale of stock,” Glasky said. “That’s the way we’ve always operated. We’ve raised money every three to six months.”
NeoTherapeutics has raised between $130 million and $150 million in its 14-year existence, he said.
As for product revenue, NeoTherapeutics doesn’t expect to see sales of Neotrofin for at least two to three years, Glasky said.
“However, the company will see revenue on Neotrofin because with a positive clinical trial, we will enter into a strategic alliance or partnership with a larger company and we’ll get money out of that deal,” Glasky said.
NeoTherapeutics already has made some inroads with Big Pharma. The company’s NeoGene Technologies Inc. has a licensing deal with Pfizer Inc.
The Pfizer deal “produces some money coming into (NeoGene),” Glasky said.
Last year, NeoTherapeutics counted revenue of $41,113, up from nothing the year earlier. The company lost $27.8 million last year, vs. $46.4 million in 2000.
“We’ve lowered our burn rate because our Alzheimer’s trial is winding down,” Glasky said.
In all, NeoTherapeutics has seven drugs under development for more than 15 diseases.
As for the soon-to-be-completed Alz-heimer’s trial, “it’s a rather complex study, with huge amounts of data,” Glasky said.
“We are now in the phase where we are collecting the data, auditing the data to make sure that all the entries are correct and that there’s nothing questionable about what the doctors observed, and so on,” Glasky said. “All that has to be totally cleared up and audited before you begin your analysis.”
Besides Alzheimer’s, NeoTherapeutics is doing studies on Neotrofin in chemotherapy-induced neuropathy, a disorder of the peripheral nervous system. It also plans to launch a phase III study of its lead anti-cancer drug satraplatin in prostate cancer.
NeoOncoRx Inc., a subsidiary, has acquired rights to three anti-cancer drugs that are in clinical trials, including satraplatin.
NeoTherapeutics also is involved with genomics, or the science of deciphering genes to understand and stop disease, through NeoGene Technologies.
NeoGene plans to go to other drug companies and promote its research as a way to develop new treatments. Pfizer is using a NeoGene-identified orphan receptor for drug development. NeoGene received an initial payment and is set to receive milestone payments for any potential products.
