ITEK Pipeline Review

Inotek Pharmaceuticals Corp (NASDAQ:ITEK) Is Riding High On Institutional Interest

Back in the middle of September, Inotek Pharmaceuticals Corp (NASDAQ:ITEK) announced a surprise reverse merger with a private biotechnology company called Rocket Pharmaceuticals. As an initial reaction, markets were somewhat subdued in their response to the development.

At the time, we published this piece detailing our take on the situation. For us, it was relatively simple – if the portion of the new company that longer-term Inotek shareholders were getting was worth more than the whole of Inotek prior to the merger, the deal was a good one and the company would be one to watch heading into merger close and beyond, into the end of 2017.

ITEK Daily Chart

ITEK Daily Chart

In order to try and ascertain whether this was the case, we took a look at the lead asset, a lentiviral gene therapy, noting that while it’s targeting rare diseases, there’s plenty of potential for revenues if it hits markets in the US and Europe given that these assets generally command premium pricing in the market.

Our conclusion was that the circa 19% of the fresh entity was likely more valuable than the previously held 100% of Inotek, based purely on the potential for a rare disease target hitting markets and lining said target up against Inotek’s practically nonexistent development pipeline.

Fast-forward a few weeks and it seems that our suggestion was valid.

At the time of the merger, the company was trading in and around $1.26 a share. Right now, Inotek can be picked up for a little over three dollars a share – a 140% run.

So what’s driving the action?

A couple of things are pushing this stock up right now. The first is speculative loading by traders and investors who came to the same conclusion we did when comparing pre-and post-merger value. This portion of the market is buying into the potential for the company to gain strength on catalysts associated with the above-mentioned development stage asset and, in particular, its application to a rare form of anemia called Fanconi anemia, which is a disease passed down through families (inherited) that mainly affects the bone marrow.

The second driver behind the run is the announcing of some institutional interest and – in particular – the news that Adage Capital has picked up 1.5 million shares, amounting to around 5.5% of the company.

Adage is known for its activist investing in the biotechnology space and the firm has logged numerous successes over the last few years, having taken an early position in the company and driving it from both a capital and an operational perspective towards an upside reevaluation. One great example is Puma Biotechnology Inc (NASDAQ:PBYI), which Adage funded as far back as 2011 through leading a private equity round. Puma now trades at nearly 1000% premium to its initial list price and is a $4 billion oncology behemoth.

The hope, then, is that this institutional interest can lead to a similar situation as that of Puma, with what is essentially an early-stage clinical development pipeline pushing towards a successful program and, in turn, commercialization in its target indication in the US and Europe.

There’s always the potential for dilution at this end of the market and, for us, that is the primary risk here. The company is probably going to need to raise capital in order to advance its preclinical assets into the clinic and to bolster its clinical programs, and this could translate to some near-term weakness if and when it happens.

With that said, however, there’s plenty of upside on the wave of catalysts that any such development advance brings and, with an investor like Adage behind it, shareholders can be relatively sure that any capital raised is going to get put to good use.

You can find our previous coverage of Inotek here.

We will be updating our subscribers as soon as we know more. For the latest updates on ITEK, sign up below!

Image courtesy of Libertas Academica via Flickr

Disclosure: We have no position in ITEK and have not been compensated for this article.

Sign up for our next MicroCap Runner ahead of the crowd!
We hate spam. No Hidden Fees. Unsubscribe Anytime.
Inotek Pharmaceuticals Corp (NASDAQ:ITEK) Is Riding High On Institutional Interest
Click to comment
To Top