Melinta Therapeutics Inc. (fka MLNTQ)

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Melinta Therapeutics: Undervalued With Upcoming Milestones
Jul. 5, 2018 12:15 PM ET|4 comments | About: Melinta Therapeutics (MLNT), Includes: MDCO Bret Jensen

Specializing in biotech stocks, Small Caps, managing optimized portfolios
MARKETPLACEThe Biotech Forum
Summary
Today we look at Melinta Therapeutics, a small biopharma concern that made a huge acquisition late last year.

The company is picking up positive analyst support and had myriad potential milestones in the second half of 2018.

We take a deeper look at the company's prospects and outlook in the paragraphs below.

This idea was discussed in more depth with members of my private investing community, The Biotech Forum.

A concept is a brick. It can be used to build a courthouse of reason. Or it can be thrown through the window.” ? Gilles Deleuze

Today we look at a 'Tier 3' biopharma concern that is undergoing a transformation due to a deal late in 2017. The shares look undervalued and ideal for accumulation or as a Buy-Write option candidate

Company Overview:

Melinta Therapeutics (MLNT) is a New Haven based commercial-stage pharmaceutical company. It is focused on discovering and commercializing various anti-infectives for the treatment of bacterial infectious diseases. The company was transformed late last year when it purchased the infectious disease business of The Medicines Company (MDCO). This transaction closed early this year. This business included approved products Vabomere, Orbactiv® (oritavancin) and Minocin® for Injection. This deal called for Melinta to pay $165 million in cash upfront. It also provided The Medicines Company with $50 million in common stock and is on the hook for $25 million in cash 12 months early in 2019 and $25 million more early next summer as well as tiered royalties on net sales. The stock currently has a market capitalization just less than $400 million and sells right at $6.50 a share.



Product Portfolio & Pipeline:

These recently acquired products delivered almost all of the just under ~$15 million in revenue the company reported in the first quarter. Melinta has an evolving pipeline as well which can be seen here.

The company should have a busy second half of 2018 and it listed numerous milestones that should take place before the year closes out on its last conference call including:

Pivotal Phase 3 data for Baxdela in CABP
Vabomere EMA regulatory approval decision
TANGO-2 additional data and potential publication
Additional ex-U.S. submissions for Baxdela in Central and South America
Ex-U.S. partnership opportunities for Vabomere, Orbactiv and Minocin for Injection
IND-enabling studies for the lead ESKAPE compound
Analyst Commentary & Balance Sheet:

Cantor Fitzgerald came out Monday with a new Outperform rating and $15 price target on Melinta Therapeutics. Cantor's analyst provide the following commentary to support his positive view on the company and stock

"We are initiating coverage of Melinta’s stock with an Overweight rating and $15 PT. Upward earnings revisions and multiple expansion will drive the shares higher, in our view. We think a greater appreciation for the company’s four commercial, antibiotic drugs (Baxdela, and its growing pipeline (new drugs, international expansion, additional indications) will increase earnings estimates to levels not yet reflected in consensus expectations. Also, MLNT is considering adjacent opportunities, which means it could become a diversified hospital company. This should improve its trading multiple, in our view.”

Prior to that, WBB Securities upgraded MLNT from Hold to Speculative Buy with a $8 price target on May 25th. Two weeks before WBB's call, Robert W. Baird upgraded this name to Outperform from Neutral with a $15 price target. This is the only analyst commentary I can find on this small cap concern so far in 2018.

The company ended the first quarter with cash and cash equivalents of $91.5 million. It then raised just under $125 million via a secondary offering in late May, bringing its cash balance just past the $200 million level.

Verdict:

The company is probably a few years from profitability. However, a transformation seems to be underway at Melinta and the stock is significantly under the median analyst price target. The company is also receiving its fair share of positive analyst commentary of late as well. With its funding needs addressed and numerous potential catalysts schedule for the rest of the year, a small stake within a well-diversified biotech portfolio seems warranted at current trading levels.

Option Strategy:Image result for Stock Purchase

I personally would accumulate an initial stake or to increase exposure to MLNT via a Buy-Write order. Using the January 2019 $7.50 call strikes, fashion a Buy-Write order with a net debit of between $5.30 to $5.40 a share range (net stock price - option premium). This mitigates some downside risk and sets up a more than solid potential return for its six and half month 'hold' period.

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Disclosure: I am/we are long mdco,mlnt.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
https://seekingalpha.com/article/4185554-melinta-therapeutics-undervalued-upcoming-milestones