Reverse Mergers Throw Lifeline To Struggling Biotechs
Published: Sep 08, 2008
Reverse mergers, allowing companies to raise cash more cheaply than the venture capital route and without the rigors of an initial public offering, aren’t exactly the rage. But with no venture-backed companies going public in the second quarter, a completed deal, a proposed deal and a shell company-to-be hint at more reverse mergers.
Nile Therapeutics Inc. of San Francisco pulled off its reverse merger a year ago, enlisting a group of investors, including Wexford Capital LLC, to put in $20 million as it simultaneously merged with a public shell company.
The shell company, SMI Products Inc. of Santa Monica, until August 2006 was an online real estate mortgage services company. The deal meant that $165,901 of SMI debt, held by Fountainhead Capital Partners Ltd., was turned into shares of Nile stock, and that Fountainhead entered a “consulting agreement” worth $500,000.
Nile CEO Peter Strumph said the deal was worth it. The company, with eight full-time employees and no revenue, is developing heart failure drugs but needed cash to fund a new round of studies.
“We’re still building liquidity. This pathway leads to other paths to raise money,” said Strumph, pointing to instruments like private investments in public entities, or PIPEs. “Had we done the (Series) A round, venture capitalists would have had preferred stock contingencies.
“Now we’re off and running.”
The fetching price of public shells, however, is rising too, said Brian Keating of the New York-based investment bank Keating Investments. The price has been driven up over the past two or three years, he said.
And there are willing sellers. VaxGen Inc., the South San Francisco vaccine maker, wants to turn over its stock listing and cash to a biotech company, specialty pharmaceutical firm or medical device maker, CEO Jim Panek said. First, however, the company wants to clean up its balance sheet and pay off the remaining holders of $20 million in convertible notes.
Meanwhile, Novacea Inc. of South San Francisco and privately held Transcept Pharmaceuticals of Point Richmond outlined a deal Sept. 2 that essentially is a reverse merger. Novacea will issue new shares of its common stock to Transcept stockholders, who will own 60 percent of the combined company. The name of the merged company will be changed to Transcept Pharmaceuticals.
The deal came to pass after Schering-Plough Corp. in April ended a collaboration with Novacea for development of a prostate cancer treatment. It also gives Transcept an estimated $90 million with which to go public, launch its middle-of-the-night sleep drug Intermezzo on its own — with more than 120 sales reps — in 2010 and develop and inlicense additional psychiatric and insomnia drugs.
The deal, if approved by shareholders, is set for completion in early 2009. Transcept could bring Intermezzo to market in 2010.
PDL lands alliance with Bristol-Myers Squibb Even as it shrinks its workforce, PDL BioPharma is bringing in more cash.
The Redwood City company signed an agreement with Bristol-Myers Squibb for its multiple myeloma treatment. In early-stage clinical development, the antibody, elotuzumab, binds to a glycoprotein, allowing the immune system to selectively kill myeloma cells with minimal effects on other cell types.
Under terms of the deal, Bristol-Myers Squibb would pay PDL $30 million upfront for development and marketing rights and an option to extend the deal to another antibody. PDL also could land up to $480 million in development and regulatory milestones and up to $200 million in sales-based milestones.
New Jersey-based Bristol-Myers Squibb will cover 80 percent of the development costs and share profits in the United States. It will pay a royalty on net sales outside the United States.
If it picks up the option on the other antibody, PDL would get an additional $15 million cash and could grab $430 million in additional milestone payments.
BayBio to honor VC Burrill, Nobel winner Mullis
Legendary biotech venture capitalist Steven Burrill and Noble laureate Kary Mullis, inventor of the polymerase chain reaction, or PCR, technology that catapulted genetic science and engineering, will receive Lifetime Achievement Awards from trade group BayBio.
The awards are part of BayBio’s Pantheon awards Nov. 13 at the Westin St. Francis.