Antibiotics developer Cempra (NASDAQ:CEMP) is now a public company with an initial public offering raising close to $50 million.
But to pull off an IPO, the Chapel Hill, North Carolina pharmaceutical company needed to cut the targeted share price in half and sell more shares than it intended. Today’s offering of 8.4 million shares was priced at $6 per share. The company had initially planned to sell 6 million shares priced in the range of $11 to $13 per share, which could have raised up to $78 million.
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Cempra has two clinical-stage drug candidates aimed at treating drug-resistant bacteria. CEM-101, also called solithromycin, has completed phase 2 clinical trials as a treatment for community-acquired bacterial pneumonia. The antibiotic treatment could also have applications in Legionnaires’ disease and sexually transmitted diseases such as syphilis. A second antibacterial candidate called Taksta has finished phase 2 clinical trials. Cempra planned to advance that compound into phase 3 studies as a treatment for skin infections, including MRSA (Methicillin-resistant Staphylococcus aureus). When Cempra initially filed to go public last October, the company said proceeds from the offering would finance four phase 3 clinical trials; three on solithromycin and one on Taksta. But with the smaller stock offering, Cempra needs to scale back those plans.
The bulk of the new proceeds will be directed to CEM-101. That antibiotic candidate gets $22 million to conduct the planned phase 3 study of an oral formulation of the compound. Another $4 million will go toward completing an ongoing phase 1 study of an intravenous formulation of CEM-101; $3 million will be spent on formulation and manufacturing of the drug product.
Taksta is getting just $4 million. Rather than pursue a more expensive phase 3 study of that compound in skin infections such as MRSA, Cempra is instead planning to start a phase 2 trial of the compound as a treatment for prosthetic joint infections. The rest of the proceeds from the stock offering will be used for corporate purposes and as working capital.
Stifel Nicolaus Weisel, Leerink Swann LLC and Cowen and Company are serving as joint book-running managers for the offering. Needham & Company is acting as comanager. Cempra also has granted the underwriters a 30-day option to purchase up to 1.2 million additional shares to cover any over allotments. Cempra expects to net $46.3 million from the offering. If the underwriters exercise their over-allotment options in full, Cempra’s net proceeds could rise to $53.4 million.
Cempra does have another funding source to support its development efforts. Late last year, the company secured a $20 million loan agreement with Hercules Technology Growth Capital. Cempra borrowed $10 million upon closing the loan agreement. The deal allows Cempra to draw upon the remaining $10 million after raising $40 million in an equity offering.
Cempra said in securities filings that the IPO proceeds as well as the $10 million loan are enough to fund operations into 2014. But the capital is not enough to take the antibiotics candidates into commercialization. A new drug application for CEM-101 will require an estimated $9.2 million. The company will also need $3.6 million to acquire the active pharmaceutical ingredient needed for phase 3 trials and an IV formulation of CEM-101. Beyond that, Cempra says that the uncertainties of drug development prevent the firm from making additional estimates of its capital needs or drug development costs.
