Maxim cuts Cyclo Therapeutics stock rating to hold on merger news

Tuesday, Maxim Group adjusted its stance on shares Cyclo Therapeutics (NASDAQ:CYTH), downgrading the stock from Buy to Hold following the announcement of a definitive merger agreement with Rafael Holdings. The proposed merger, which is anticipated to finalize in late 2024, is subject to shareholder approval and registration of shares.

On August 22, 2024, Cyclo Therapeutics and Rafael Holdings declared their intention to merge, aiming to advance the development of Trappsol Cyclo for the treatment of Niemann-Pick disease type C1 (NPC1). The merger has been approved by the boards of both companies.

According to the terms of the agreement, Cyclo Therapeutics shareholders are set to receive Class B common stock of Rafael Holdings. The exchange ratio values Cyclo Therapeutics shares at $0.95 each, with an estimated market capitalization of approximately $27 million for the company.

Rafael Holdings, which reported cash and investments of around $90 million as of April 30, 2024, will see Cyclo Therapeutics shareholders owning an estimated 20% to 25% of the merged entity.

The merger is essentially viewed as an all-stock acquisition of Cyclo Therapeutics by Rafael Holdings. As a result of the merger news, Maxim Group has removed its 12-month price target for Cyclo Therapeutics. Despite the downgrade, the firm noted that with Rafael Holdings' financial resources, Cyclo Therapeutics should be well-positioned to continue its pivotal study of NPC1. The study has already completed enrollment, with a 48-week interim analysis expected in the first quarter of 2025.

Maxim Group highlighted that the successful completion of the merger would enable Rafael Holdings to utilize its resources to support the ongoing pivotal study and potential NDA filing for Trappsol Cyclo in NPC1. This development could provide a significant treatment option for patients, contingent on positive results from the studies.

In other recent news, Cyclo Therapeutics has been the focus of several major developments. Ascendiant Capital has reaffirmed its Buy rating on the company's stock, albeit with a lowered price target. This follows the completion of enrollment for Cyclo Therapeutics' pivotal phase 3 trial of Trappsol Cyclo, a drug candidate for Niemann-Pick Disease Type C. The company anticipates filing a New Drug Application in the second half of 2025, pending significant interim data.

In a significant financial move, Cyclo Therapeutics secured a $2 million convertible promissory note deal with Rafael Holdings. The note, bearing a 5% annual interest rate, is set to mature in 2024, with proceeds planned for working capital and corporate purposes. Meanwhile, H.C. Wainwright downgraded the company's stock to Neutral following the announcement of an acquisition by Rafael Holdings.

Rafael Holdings and Cyclo Therapeutics have also announced a definitive merger agreement, aiming to advance the development of Trappsol Cyclo. The boards of both companies have approved the transaction, which is expected to close in late 2024, subject to shareholder approval and other conditions.

Moreover, Cyclo Therapeutics has received approval from the European Patent Office for its Alzheimer's disease treatment method, set to take effect in 2024.

InvestingPro Insights

As Cyclo Therapeutics (NASDAQ:CYTH) navigates its merger with Rafael Holdings, investors are closely monitoring the company's financial health and market performance. According to InvestingPro data, Cyclo Therapeutics currently has a market capitalization of approximately $23.75 million.

Despite facing challenges, the company's gross profit margin impresses at 91.56% for the last twelve months as of Q2 2024, signaling strong profitability on the products it sells. However, the company's operating income margin stands at a concerning -1868.1%, reflecting significant operational costs relative to its revenues.

InvestingPro Tips suggest that while the net income is expected to grow this year, Cyclo Therapeutics is quickly burning through cash, which could raise concerns about its financial sustainability in the short term. Moreover, the stock price has seen a substantial decline over the last six months, dropping by 49.53%, which may attract investors looking for potential bargains, especially as the Relative Strength Index (RSI) indicates the stock is in oversold territory.

For those interested in further analysis and additional InvestingPro Tips, there are 17 tips in total available for Cyclo Therapeutics at InvestingPro, providing a more comprehensive view on the company's prospects and investment potential.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.