Catabasis Pharmaceuticals: Selling at 50% of Cash, Reverse Merger Candidate

Here's another entry in my sporadic biotech reverse merger candidate investment theme, Catabasis Pharmaceuticals (CATB) is a clinical stage biopharmaceutical company that recently announced their lead product candidate, edasalonexent -- a potential treatment for a form of muscular dystrophy, did not meet its primary or secondary end points of their Phase 3 trial.  I'll keep this pretty brief, from the sounds of the press release it sounds like this is game over for Catabasis:

BOSTON, MA, OCTOBER 26, 2020 – Catabasis Pharmaceuticals, Inc. (NASDAQ:CATB), a clinical-stage biopharmaceutical company, today announced that the Phase 3 PolarisDMD trial of edasalonexent in Duchenne muscular dystrophy (DMD) did not meet the primary endpoint, which was a change from baseline in the North Star Ambulatory Assessment (NSAA) over one year of edasalonexent compared to placebo. The secondary endpoint timed function tests (time to stand, 10-meter walk/run and 4-stair climb) also did not show statistically significant improvements. Edasalonexent was observed to be generally safe and well-tolerated in this trial. Catabasis is stopping activities related to the development of edasalonexent including the ongoing GalaxyDMD open-label extension trial. The Company plans to work with external advisors to explore and evaluate strategic options going forward.

 

“We are deeply saddened and disappointed by the results of our Phase 3 PolarisDMD trial,” said Jill C. Milne, Ph.D., Chief Executive Officer of Catabasis. “I want to sincerely thank all of the boys, their families and caregivers, investigators and the trial sites that participated in and enabled this program. The entire Catabasis team has worked tirelessly to find a treatment for this progressive disease. We hope that our data and work to date can be used to benefit ongoing and future research in DMD.”

 

The Phase 3 trial was a one-year placebo-controlled trial designed to evaluate the safety and efficacy of edasalonexent in boys ages 4-7 (up to 8th birthday) with DMD. The global trial enrolled 131 boys across eight countries, with any mutation type, who were not on steroids. Edasalonexent was well-tolerated, consistent with the safety profile seen to date. The majority of adverse events were mild in nature and the most common treatment-related adverse events were diarrhea, vomiting, abdominal pain and rash. There were no treatment-related serious adverse events and no dose reductions. The global COVID-19 pandemic had no meaningful impact on the trial or its results. Data from the PolarisDMD trial will be further analyzed and are expected to be presented at an upcoming scientific conference and published.

 

“These results are disheartening for the Duchenne community, and specifically for the boys who participated in this trial and their families. However, the results contribute to the natural history data of Duchenne and add to the knowledge base that will one day produce a foundational, long-term therapy for this disease,” said Pat Furlong, Founding President and Chief Executive Officer of Parent Project Muscular Dystrophy (PPMD). “The continued advancement of research and the development of possible treatment options will remain of critical importance to our community. We appreciate Catabasis’ efforts and commitment to every family that is or has ever been affected by Duchenne.” 

 

The Company expects to report Q3 2020 financials in November of 2020. As of September 30, 2020, Catabasis had cash and cash equivalents of approximately $52.9 million.

The company is pre-revenue, R&D is likely at a full stop now, general and administrative expenses have run a little under $3MM:

Now that the company is a cash shell, the burn rate should be lower, but let's just call it $1MM a month going forward.  Cash and marketable securities were ~$54MM as of 6/30, Catabasis does have an ATM program they have been hitting for incremental cash, so to square the cash burn against the $52.9MM they reported in their press release, let's assume they've issued another 1 million shares, bringing their total to approximately 20 million shares outstanding.  At a price of $1.36, that gives us a market cap of $27MM versus a cash balance of ~$50MM, almost a 50 cent dollar.  And since CATB never generated revenue, we have a large NOL here as well of approximately $200MM. 

The most likely outcome is in the next few months a privately held biotech will merge into and come public through a reverse merger with CATB.  Effectively using CATB as a capital raising transaction with a deSPAC like transaction except here a target has more certainty in the actual amount of cash raised.

Disclosure: I own shares of CATB