Cerulean Pharma Inc (NASDAQ:CERU) Just Bounced, What's Next?

It has been a while since we last looked at Cerulean Pharma Inc (NASDAQ:CERU). The company caught our attention back in March when it rocketed from around $1.50 a share to more than $3.50 apiece in a matter of days, and then, a few days later collapsed back down to a dollar.Subsequent to this collapse, the company dipped further to mid-June lows in around $0.35 a share. From highs of $3.50, that's a 90% depreciation. The driver behind the decline was a reverse merger agreement announced at the end of March that was set to see a private company called Dare Bioscience take over Cerulean's ticker and use the listing to gain access to public market capital.This merger is not yet complete – shareholders are set to vote on the necessary capital structure details in a proxy meeting slated for July 19.Over the last few days, Cerulean ­has started to pick up a bit of strength, perhaps indicative of a turnaround in sentiment towards (and ahead of the completion of) the reverse merger in question.The strength comes on the back of a letter to shareholders put together by Dare Bioscience CEO and Founder Sabrina Martucci Johnson, outlining the transaction and – more importantly, as we see it – detailing Dare's business model. Specifically, it addresses how the company fits into the healthcare sector as a whole and – by proxy – what shareholders of Cerulean are gaining exposure to on the back of the portion of the new company they now own (well, that they will own once the deal closes).We went into quite a bit of detail on the company's lead development product, a female contraceptive product called Ovaprene, in our previous coverage. Basically, it is an alternative to the contraceptive ring currently in circulation, designed to overcome some of the setbacks and contraindications associated with the latter. It's a neat product and one that has the potential to attract a pretty large market if the company can get it through to registration submission and, in turn, on shelves in the US. With that said, there's a fair way to go before this happens.Looking at the business model in particular, Johnson outlined her belief that there exists a gap in the market for female healthcare products right now. Specifically, she noted that a large number of products are conceived of and brought through early-stage development, but very few actually reach commercialization. Dare hypothesizes that this is because there is a lack of mid-stage development happening in the sector and it is this lack of development that the company intends to address.Ovaprene is the first example of its efforts to execute on this model.So, all this is great, but what happens going forward?Well, we expect shareholders will vote in favor of the merger, July 19, but there is also a reverse split on the docket and this is causing some risk related downside pressure right now. It's tough to call how this one will go, but – in all honesty – we don't see either resolution as being particularly threatening to the reward side of the equation longer term. Sure, shareholders will prefer to avoid a reverse split but if it's necessary to maintain listing, then it's worth shouldering. Without a NASDAQ listing, Dare is going to find it difficult to raise capital to fund the development of its pipeline (starting with the above-noted Ovaprene) and we would rather see a split than a delisting and unfavorable capital terms going forward.Nearer term, of course, and if the reverse split is approved, chances are we're going to see some degree of proportional value loss in market capitalization. Once markets realign to accommodate the split, however, assuming it is approved, we expect this one to appreciate in value as the lead development asset moves along the pathway towards commercialization.Data exists that demonstrates the efficacy and safety of Ovaprene already, so it is just a case of building on this data in an expanded population (and under FDA regulation trial guidelines) moving forward.Get the whole story: check out our previous coverage of this one here. We will be updating our subscribers as soon as we know more. For the latest updates on CERU, sign up below!Image courtesy of barnimages via FlickrDisclosure: We have no position in CERU and have not been compensated for this article.