Shares of Tokai Pharmaceuticals Inc. (NASDAQ:TKAI) enjoyed a 50 percent boost Thursday morning after shareholders of the Boston-based company agreed to a share purchase agreement with privately held Otic Pharma Ltd. The transaction will result in the formation of Oticpharma Inc., which will be led by Gregory Flesher, current Otic CEO, and trade publicly on Nasdaq. The companies said Jodie Morrison, Tokai's president and CEO, will sit on the Oticpharma board.
Otic, based in Rehovot, Israel, with U.S. headquarters in Irvine, Calif., is pursuing programs in ear, nose and throat (ENT) disorders. Its nasally administered, combination drug candidate, OP-02, is a surfactant designed to address the underlying cause of otitis media and Eustachian tube dysfunction, or OM/ETD, thus preventing otitis media and related conditions. The merged company will focus on the development and commercialization of Otic's ENT pipeline.
Terms call for shareholders of Otic to receive approximately 32.2 million newly issued Tokai shares, with outstanding Otic Pharma options and convertible securities assumed by Tokai. Tokai stockholders are expected to own approximately 40 percent of the combined company, with existing Otic shareholders owning the rest.
The board of the combined company will consist of seven members, three designated by Tokai and four by Otic. In addition to Flesher – who previously served as chief business officer at Avanir Pharmaceuticals Inc. – as president and CEO, Oticpharma's executive team will include Christine Ocampo as chief financial and compliance officer and Catherine Turkel as chief development officer.
The transaction was unanimously approved by the boards of both companies and by Otic's shareholders. Apple Tree Partners – Tokai's largest shareholder, with a stake of approximately 35 percent – agreed to support the transaction, which is expected to close during the first quarter.
Otic and Tokai said they plan to provide additional details on the transaction in early January. Wedbush Pacgrow advised Tokai and Piper Jaffray & Co. advised Otic in the deal.
In conjunction with the share purchase agreement, an Otic investor syndicate that includes current shareholders and members of management agreed to invest $7 million of additional capital. Syndicate members were not named, but Otic's board includes two representatives from Orbimed Advisors LLC, which in 2012 invested $4.3 million in the company, as well as directors affiliated with Israeli venture firms Pontifax and Peregrine Ventures.
In the first half of 2017, Oticpharma expects to report phase I pharmacodynamic data for OP-02, positioning the agent – thanks to the reverse merger – to move into phase II development. Otic also has a foam-based platform technology (OP-01) designed to deliver drugs to treat outer ear, nose and sinus disorders. The company is advancing OP-01 to treat acute otitis externa, or swimmer's ear.
For Tokai, the reverse merger represents the end of a road that was cut short in dramatic fashion earlier this year. In July, the company halted the pivotal phase III ARMOR3-SV trial comparing its triple-acting prostate cancer drug, galeterone, to Xtandi (enzalutamide, Medivation Inc.), after a data monitoring committee determined the trial was unlikely to meet its primary endpoint. The company's shares swooned, falling 78.9 percent, following the demise of the trial, which was based on data from the company's phase II ARMOR2 study. (See BioWorld Today, July 27, 2016.)
The ARMOR2 and ARMOR3-SV trials of galeterone to treat metastatic castration-resistant prostate cancer subsequently closed, although patients in the ARMOR2 long-term extension remain on treatment. Tokai said it still intends to present data from ARMOR3-SV in a scientific forum, once fully available and analyzed. Plans for galeterone, the company's androgen receptor degradation agents, or ARDA, platform licensed from the University of Maryland at Baltimore and its assay work on the androgen receptor splice variant, AR-V7, are still under evaluation.
Tokai was a member of the somewhat troubled IPO class of 2014, pricing its shares at $15 and raising $105.3 million, according to BioWorld Snapshots. Shares spiked to $25.99 – the stock's high-water mark – on Sept. 18, 2014, a day after they began trading. A year ago, they closed above $9. On Thursday, the Otic transaction spurred a gain of 20 cents, or about 20 percent, as shares closed at $1.21. (See BioWorld Today, Aug. 13, 2014.)