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Is There Any Value In An Egalet Corp (NASDAQ:EGLT) Exposure After The Decline?

Is There Any Value In An Egalet Corp (NASDAQ:EGLT) Exposure After The Decline?
Written by
Chris Sandburg
Published on
July 7, 2017
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Egalet Corp (NASDAQ:EGLT) shareholders have had a rough few weeks. Back during the middle of June, the company announced that the FDA had issued a Complete Response Letter (CRL) related to an application for supplemental approval of one of its lead portfolio assets, an abuse-deterrent opioid formulation called Oxaydo.The application in question sought to expand the available dosages of the drug and builds on the company's initial approval, which was picked up back in December 2015. The initial approval covered two doses, one 5 mg and the other 7.5 mg, and the supplemental application sought to allow for two more doses to hit shelves, one 10 mg and one 15 mg.This was a pretty unusual move from the FDA, given that the agency had already approved the drug 18 months earlier at a lower dose. According to the CRL, in its current form, there doesn't exist any evidence that the drug in question has less abuse potential than immediate-release oxycodone (standard of care). For an abuse deterrent asset, that is not a good outcome. There are some elements of its makeup that could bring about a burning sensation if attempted to inhale intranasally, but this far from separates it from standard of care and – in the FDA's opinion – doesn't warrant expansion.On the back of this news, Egalet lost 20% of its market capitalization.Fast-forward a few weeks and the company has taken another hit on the announcement that it is set to raise capital by way of a common stock and warrants offering. For a company to decline in valuation on the back of this sort of announcement, especially at this end of this space, is not uncommon. However, given the sentiment currently surrounding this one, we feel that Egalet has taken a slightly harder hit than it might otherwise have under different circumstances. As per the offering, the company is set to issue a little over 16.6 million shares of common stock and warrants to purchase a further 16.6 million shares at a combined public offering price of $1.80 per share and accompanying warrant. The warrants are five-year expiries with an exercise price of $2.70.In response to the issue, Egalet has taken a more than 36% hit and currently trades for just $1.63, a nearly 50% depreciation overall.So, that's what happened, and we think there may be some opportunity in an exposure at current prices.Our thesis is rooted in how Egalet intends to use the capital. The company accompanied its issue press release with a pretty generic use of proceeds statement, so we didn't really gain any insight as to what this capital will be used for from the report. However, if management can allocate a portion of the capital it just picked up towards conducting a study that alleviates some of the FDA's concerns over Oxaydo's abuse-deterrent properties, the outcome of said trial could turn sentiment on a dime. If subsequent to the collection of this data, the company can then use it as the basis of an application resubmission and answer the concerns associated with the CRL, we could see Egalet really start to run.It's not a short-term thesis. Any trial would likely take at least a few months and we probably won't see a resubmission until the end of this year at the earliest. As a medium to long-term punt, however, we think there's value in an exposure.The latest raise negates any near-term dilution risk, so it's all about putting the capital to good use and getting Oxaydo, and specifically, the higher doses of the drug, back on track and – eventually – on shelves in the US.We will be updating our subscribers as soon as we know more. For the latest updates on EGLT, sign up below!Image courtesy of frankieleon via FlickrDisclosure: We have no position in EGLT and have not been compensated for this article.

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