Israeli dermatology treatment developer Foamix Pharmaceuticals (Nasdaq: FOMX), which held its IPO on Wall Street in 2014, announced today that it is merging with US dermatology company Menlo Therapeutics (Nasdaq: MNLO). The aim is to create a joint company with a variety of commercial dermatological products. Foamix's market cap is $264 million, while Menlo's is $125 million.
The merger will give Foamix's shareholders 59% of the merged company, with the differences between the expected holdings being less than the difference between the two companies' respective values. The premium that Menlo's shareholders are receiving is due to what the companies perceive as the potential value of Menlo's products in clinical trials. If the clinical trials of Menlo's products are unsuccessful, the share of Foamix's shareholder in the merged company will rise to 76% if one of the trials fails and 82% if both trials fail.
Foamix recently obtained US marketing approval for its flagship product for treatment of acne with antibiotic cream (this drug was recently assigned the commercial name Amzeeq). Foamix has other products in its pipeline, including a product scheduled to reach the market in 2020 - a foam antibiotic for treatment of papulopustular rosacea, an infectious skin disease.
When it obtained marketing approval for Amzeeq, Foamix also announced that it had signed an agreement to obtain a $20 million line of credit, after having raised $64 million in capital and debt in July. As of the end of the second quarter, the company had $70 million in cash. Menlo had $109 million in cash as of the end of the second quarter. The companies' announcement stated that they would have enough money together to last until the second quarter of 2021.
Foamix's leading products are a foam version of generic products. Menlo's product is a completely new treatment for the skin conditions for which it is designed. The merger marks a step forward for Foamix in establishing itself as an innovative drug company.
Menlo is in advanced clinical trials of a product for treatment of pruritus associated with prurigo nodularis (PN). This chronic disease makes patients itch until they scratch themselves bloody. Severe cases are currently treated with drugs having severe side effects, such as drugs for treatment of cancer and opiates. The product developed by Menlo is also in a trial for other types of skin irritation from other sources. This product is in Phase III trials in Europe and the US. Publication of the results is expected in March-April 2020.
The presence of another promising drug in the pipeline can protect Foamix against the "marketing blues" - a decline in value that sometimes afflicts shares of medical companies in the period following the launching of a product following a number of binary events, such as clinical trial results and expectation of marketing approval, that attract gamblers to the share before the establishment of a stable revenue base of interest to more serious investors.
Foamix's share price jumped 9% yesterday before the announcement, due among other things to anticipation of the company's reports, which will be accompanied by a conference call in which Foamix is expected to state its plans for marketing its flagship acne treatment product. Foamix has already begun assembling a marketing apparatus, and Menlo's product will also be marketed by the team that Foamix has begun to recruit. Several Foamix executives, including CEO David Domzalski, are former executives at dermatological and women's health company Warner Chilcott, which gives them experience in marketing drugs in the field. Domzalski will be CEO of the merged company, while Menlo CEO Steve Basta will be appointed a director.
Domzalski said today, "The combination of Foamix and Menlo creates a leading company in skin diseases, with a number of products in advanced stages that can also benefit from the marketing set-up that we are building for Amzeeq, our leading product. The product developed by Menlo is a groundbreaking drug for treatment of a disease for which there is no specific treatment. We will continue bringing innovative products to market."
Before today's announcement, Foamix's share price was 29% lower than the price at which the company held its IPO in 2014. The main cause of the fall in its share price is the large financing rounds held by the company and the failure of a clinical trial in 2017, following which the company's share price was halved in a single day.
Published by Globes, Israel business news - en.globes.co.il - on November 11, 2019
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