Neothetics Files $63M IPO to Advance Drug That Melts “Love Handles”

A biotech company developing an injectable drug to shrink the excess fat that forms “love handles” says it plans to raise more than $63 million through an IPO.

San Diego-based Neothetics, previously known as Lithera, has substantial backing from Domain Associates and its Russian investment partner, RusnanoMedInvest. San Francisco-based Alta Partners also holds a minority stake in the company, which was founded in 2007.

After completing a mid-stage clinical trial of its lead drug candidate with 513 patients, Neothetics plans to use its IPO cash to advance to late-stage clinical trials. The company reported “a statistically significant reduction” in belly fat among patients who received injections of Neothetics lead compound, dubbed LIPO-202.

When Neothetics was just beginning the mid-stage trial in early 2013, CEO George Mahaffey said he hoped to emulate the success of Calabassas, CA-based Kythera Biopharmaceuticals (NASDAQ: KYTH), which had developed another injectable drug (sodium deoxycholate) for shrinking fat under the chin. Kythera went public two years ago, and Wall Street has embraced it, driving the company’s valuation to more than $760 million. In July, Kythera said the FDA had accepted its new drug application for regulatory review.

LIPO-202 is an injectable version of salmeterol xinafoate, a selective beta agonist already approved by the FDA as an aerosol inhalant for treating asthma (and marketed by GlaxoSmithKline as Serevent). The company says its studies suggest that salmeterol activates fat cell receptors, triggering a metabolic process called lipolysis that shrinks fat cells.

As an alternative to liposuction, Neothetics says there is currently no FDA-approved drug approved for reducing localized subcutaneous belly fat in non-obese patients, a process the company calls “body contouring.” Neothetics plans to target healthy people who are under 45 years old, and says women account for about 87 percent of the potential market. According to its IPO filing, Americans spent more than $12 billion on cosmetic procedures last year, including roughly $7 billion on surgical aesthetic procedures and $5 billion on non-surgical aesthetic procedures.

Neothetics anticipates that early adopters will come from the estimated 2 million Americans who are already getting cosmetic injectable therapy like Botox or dermal fillers.

The company plans to conduct two pivotal trials next year, with top-line data expected at the end of 2015. If the trials are successful, Neothetics says it will file a new drug application in the second half of 2016, under a regulatory option known as 505(b)(2) for modifications to drugs previously approved by the FDA.

Under a sweeping investment plan reached in 2012, Domain and RusnanoMedInvest now hold a majority stake in Neothetics. The initial S-1 filing does not disclose the exact percentage of their ownership stake, apparently because Neothetics plans to convert an array of warrants, debt, and preferred stock into slightly more than 50 million shares of common stock just before its IPO.

Neothetics says it also has granted rights to LIPO-202 and related technologies to NovaMedica, a Russian business co-owned by Domain and Rusnano, which plans to develop the drug for use in Russia, Ukraine, Belarus, Georgia, and eight other Eastern European countries.

As promising as it might seem, Neothetics still faces a number of hurdles that are detailed in its IPO filing. Aside from the countless number of things that can go wrong in late-stage clinical trials, the company says other risks include:

—Neothetics has never been profitable, and had an accumulated deficit of $66.8 million at the end of September. The company says it expects to keep losing money for the next several years.

—The market is highly competitive and new technologies are rapidly evolving. While liposuction remains the primary treatment for reducing subcutaneous fat, Neothetics expects to also compete with FDA-approved medical devices that reduce fat cells using freezing, ultrasound, and laser technologies. Neothetics acknowledges that Kythera also could eventually become a competitor.

—A loss in legal protections for its proprietary technologies. Neothetics says “a law firm representing one or more unidentified third parties” has formally asked the U.S. Patent and Trademark Office to review some of the company’s key patent claims. The patent office has granted the request with respect to one patent, and a decision is pending with regard to another patent.

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