HCW cuts Entasis Therapeutics PT to $5 from $18 on dilution

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H.C. Wainwright slashed its price target for Entasis Therapeutics (NASDAQ:ETTX) to $5 from $18, but maintained its “buy” rating, citing a major financing that carries substantial dilution. The stock closed at $2.64 on April 13.

Entasis Therapeutics is developing a portfolio of innovative cures for serious drug-resistant bacterial infections.

Just over a month ago, Entasis announced that it expected the top-line readout of the Phase 3 ATTACK study of lead drug, SUL-DUR, in early 2021, compared with prior guidance of the second half of 2020, due to impacts from the COVID-19 pandemic.

The company also guided to a cash runway into the fourth quarter of 2020, “creating a funding gap and, in our view, a financing overhang on the stock,” writes analyst Ed Arce.

On April 13, the company announced a $35-million private placement with Innoviva (NASDAQINVA), which is expected to fund operations beyond the readout of ATTACK. Under the accord, which is expected to close by the end of the second quarter, Entasis to issue 14 million new common shares, plus 100% warrant coverage, to Innoviva at a price of $2.50 a unit.

With Entasis’ 13.3 million shares outstanding, and assuming all warrants are exercised, Mr. Acre said the 28 million new shares to Innoviva would represent 67.8% of stock outstanding. “In our view, this transaction grants Innoviva a super majority (over two-thirds) of shares and voting rights, thereby handing over effective control of the company to Innoviva,” he added.

“When we spoke with Entasis management on April 13, they noted that the Innoviva deal was the best available option,” he said.