What's Next For Neothetics Inc (NASDAQ:NEOT)?

Neothetics Inc (NASDAQ:NEOT) hasn't had a great start to the week. The company closed out last Friday at a little over $2.32 a share and, by session close on Monday, went for $0.7 a piece – a 70% crash across the session. The decline comes on the back of some phase 2 data rooted in Neothetics' lead development asset, a drug called LIPO-202, which the company is developing as a novel treatment for fat reduction in various specific, parts of the body.This is a tough situation for shareholders. There is very little that the company can do to sugarcoat the results (which we will look at in a little more detail shortly) and the path forward is unclear right now.For the stock, however, which is down 70% post news, there may be some value in a punt at current prices; again, we will get to why shortly.So, the data.As mentioned, it is a fat reduction asset and, in this trial, the company was trying to prove that it could help reduce what is called submental bulging due to subcutaneous fat. Basically, this is a type of under the skin fat that resides directly under the chin and, as the company notes in its press releases, it's probably better known as a double chin.We actually went into the science behind the treatment in quite a bit detail in a previous article, which readers looking for a primer on how this drug works can check out here. In the same piece, we also outline the fact that Neothetics has had a pretty rocky road to-date with this drug and that the then-ongoing trial was a sort of last-ditch attempt to get the drug back on the rails.Needless to say, the trial failed.The drug resulted in no discernible difference over placebo across a patient population of more than 160 patients, and while it maintained a clean safety profile (as is to be expected, this is an already approved compound after all) there is no indication that it can perform against an endpoint of the reduction of submental fat in an expanded indication.It's disappointing, especially given that no fewer than six early-stage trials suggested that this mechanism of action could be effective in this population. It's further disappointing given that this trial was pretty much all that Neothetics had going for it and, while there is reportedly an abdominal bulging trial in the works, we are now not sure this is going to happen based on the most recent development.So how can this one possibly be an opportunity for a punt?Well, right now, Neothetics has a market capitalization of $9 million. Cash on hand at March 31 came in at $9.7 million and the company has around $1 million debt. It is a NASDAQ listing with a strong patent portfolio covering the science that underpins LIPO-202 in terms of fat reduction, and we think that a change of direction, in the sense that the company could attempt to target other indications with the same MOA, could easily get the stock moving again.Right now, it's valued at less than cash with an outstanding share count of just 13 million and a float of 5 million. 54% of shares are insider owned and a further 21% is owned by institutions. In other words, this is an incredibly tight, low float play and – as such – it's not going to take too much speculative volume to get it running.Management has stated that it is evaluating the forward path for the asset, and a couple of press releases outlining a positive strategy could be all it takes to kick-start some speculative inflow. There's plenty of cash on hand to get another trial restarted, with the above-mentioned $9.7 million initially expected to last through early 2018, but now likely to stretch father given that any trial initiation will be early to mid-stage as opposed to pivotal. This also serves to negate any potential dilutive risk near term.It's not a long-term thesis, sure. For those willing to take on a bit of risk, however, it's a quick turnaround play on the assumption that management can get the stock moving in wake of the recent decline.There's also always the potential for a merger, with a private company looking to pick up a NASDAQ listing through the Neothetics shell. Again, with the company valued at cash right now, any such merger would almost certainly bring with it a premium on current price.Get the whole story: check out our previous coverage of NEOT here.We will be updating our subscribers as soon as we know more. For the latest updates on NEOT, sign up below!Image courtesy of Tanvir Alim via FlickrDisclosure: We have no position in NEOT and have not been compensated for this article.