By Brad Sorensen, CFA

NASDAQ:MITO

READ THE FULL MITO RESEARCH REPORT

Stealth BioTherapeutics (NASDAQ:MITO) is clinical stage biopharmaceutical company that is attempting to repair mitochondria to treat previously untreatable conditions. Stealth announced on June 27, 2022 the company received a no-binding proposal letter from Morningside Venture Investments to acquire all shares of the Stealth that are not already owned by Morningside for $0.313 in cash per ADS. Following are the details of the offer:

• Morningside currently owns approximately 65% of Stealth.

• The offer price represents an 11.7% premium to the closing price of MITO on June 24, 2022—the date of the offer letter.

• Stealth management made no comment on the offer other than saying that the board will consider this and all other strategic alternatives available to the company.

• We don't claim to know what the ultimate decision of the board will be, but note that Morningside has provided substantial financing to Stealth and one of the considerations the board must consider is whether that financial support would remain if the offer was declined and, if so, what impact that would have on company operations.

Separate from the offer, which we don't know the outcome of, Stealth continues to make exciting progress toward the potential treatment of several rare diseases. Stealth announced that the company was granted a Pre-NDA meeting with the FDA for elamipretide as a potential treatment for Barth Syndrome. In October 2021 the FDA refused to file the company's NDA for the treatment of Barth Syndrome. The company noted that it believes new data may support an NDA filing and approval of elamipretide for Barth Syndrome. The meeting is expected to occur in 3Q 2022.

Stealth also announced that it has been granted orphan drug designation (ODD) for elamipretide for the treatment of myopathic mitochondrial DNA depletion syndrome by the European Medicines Agency. The trail for this treatment is currently enrolling patients in Europe and the U.S.

Stealth Biotherapeutics is a clinical-stage biopharmaceutical company focused on the discovery, development, and commercialization of novel therapies for diseases involving mitochondrial dysfunction. Mitochondrial research is still in its, relatively speaking, early stages and we have seen multiple misfires or stalled development programs across the biotechnology universe, leading to what we perceive to be investor skepticism regarding the commercialization of related therapies. We understand that sentiment, as the reality of mitochondrial research hasn't seemed to match the early hope held by patients and investors alike, at least not yet. However, we would caution against becoming overly skeptical and realize there have been some successes and with each "failure", learning occurs and the proverbial mitochondrial ball is pushed closer to the end zone.

In our view, several key issues lead us to believe that Stealth may ultimately cross that line and be able to bring new therapies to the market. The first thing to remember is that, despite the disappointments in some cases, mitochondrial treatment research is creating exciting possibilities. Stealth, for example, as detailed above, is currently pursuing treatments for such diseases as dry AMD, which causes blindness for millions, heart conditions of varying names that are impacting thousands of lives and conditions plaguing many in the United States and around the world such as Alzheimer's and dementia. And while the treatments that we've discussed above aren't across the finish line yet, they have clinical results that show at least some level of success while proving to be safe for patients to use, allowing the approval processes to move forward.

The number one issue we see is one that impacts many companies at this stage of life—can Stealth obtain the funding it needs to continue its research and testing needed to shepherd these therapies to approval and commercialization? At this point, Stealth management reports that they have the funding needed for continue operation through the third quarter of 2022. Certainly, we would like to see a greater level of funding on hand to give us a little more comfort in Stealth's ability to continue, but we feel fairly confident that, at least for the foreseeable future, Stealth will obtain the capital they need to continue. As of July 2022, the Stealth board is considering an offer from Morningside Investments to purchase the remaining shares of the company it does not currently own. One important point that investors should be aware of that could indicate which way the board will ultimately decide is the fact that Stealth entered in a development funding agreement with Morningside in October 2020, which states that Morningside will provide funding to Stealth to support "efforts to secure regulatory approval for elamipretide and to develop elamipretide for the treatment of Barth, dry AMD, FRDA, Duchenne cardiomyopathy, nPMD and LHON.

Should the company ultimately decline the Morningside offer, we are of the opinion that larger biopharma and drug companies will be interested in partnering with, investing in, or acquiring Stealth due to the advances they have made in the mitochondrial research and the delivery system they have developed. We believe investors need to evaluate the possibility of the offer being accepted when considering an investment in what we consider an exciting possibility should the company remain public.

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