Conatus Pharmaceuticals Launches Small Offering For Pipeline Expansion

On Thursday, Conatus Pharmaceuticals (CNAT) announced an offering to sell 5.2 million shares of common stock priced at $5.50 per share.  The amount that the company will obtain will be before underwriter discounts, commissions, and offering costs. The expected gross proceeds from the offering is to be around $28.6 million. The offering doesn’t seem to make sense after the Novartis (NVS) licensing deal being signed.

The main point is that the offering was very small in nature, plus it was done to achieve two directives. The first was to use $11.9 million to buy shares from a large institutional investor. Conatus was to buy 2,166,836 common stock held by funds affiliated with Advent Private equity. Then $16.7 million is being used to fund the pipeline expansion. If all goes well the deal is expected to close by May 16, 2017.

Getting pack to the point about the expansion pipeline, even though the capital raise brought the stock down to $5.50 in the short-term it is still a good buy. That is because Conatus Pharmaceuticals just last week announced that Novartis has agreed to the licensing deal totaling a potential $650 million in milestone payments over time. That will happen as clinical, regulatory, and commercial milestones are met.

Event including the Novartis deal Conatus stock is valued at only $144 million, which is very low. The good part about the deal was that Conatus was able to retain licensing on Emricasan on other product categories. The company is only restricted from using Emricasan on its own in the NASH Cirrhosis and NASH Fibrosis space. But that’s where the expansion pipeline comes in. It has seen positive results in other big market targets.

Such targets include: Heart disease, lung fibrosis, Primary Billiary Chlongitis, and different types of cancer. Conatus will likely use the money to start funding pre-clinical/phase 1 studies for a few of these targets. That will only increase the value of the company. Judging by the NASH Fibrosis/Cirrhosis pipeline alone, those targets are set to become a $30 to $40 billion market by 2025. That’s not even factoring in these other new targets that all have big markets as well.

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Disclosure: I am Long Conatus Pharmaceuticals (CNAT)

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