It's time for the IN VIVO Blog's Fifth Annual Deal of the Year! competition. This year we're once again presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (a half dozen in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.
An impressive feat, if achieved, but Ovascience makes our nominations short-list for another reason: it’s among the pioneers of the go-public-via-Form-10 pathway and it’s already working to cash out investors who came in this year – who right now would stand to make a tidy 51% return.
Investors enthusiastically embraced Ovascience in 2012, with a $37 million Series B
in March and a $4 million August private placement. Then they brought its share price up after the company listed on over-the-counter exchanges in November. The biotech’s final venture round priced at $5.50 a share, then it listed publicly at $7.50 a share. Just a few weeks after listing, its share price had climbed to $8.30 (as of 12/4). The company has raised $45 million in net cash and has a market cap of $115 million.
Other than companies from the founders of Cougar Biotechnology, Ovascience is the first high-profile biotech to list using Form 10. This is a process that allows a private company to become public gradually, without an IPO, and to raise a substantial round ahead of a public listing. Form 10 is an especially useful tool for companies with a strong syndicate and that can attract deep-pocketed crossover investors.
Cougar is the poster child for successfully using this technique to list ahead of its $894 million acquisition by Johnson & Johnson in 2009. Alan Auerbach’s next company, the stealthily named Puma Biotechnology, this year listed on OTC exchanges, started trading on NYSE and raised $138 million after using Form 10. That’s much more than any biotech IPO since the Ironwood IPO raised $216 million in 2010. Puma was a nominee on our Deals of the Year list in 2011, after it in-licensed neratanib from Pfizer.
VCs and crossovers are watching Ovascience to see if it can successfully use Form 10, providing them with another landmark in exploring new territory. Given the dearth of venture exit options, any additional route merits consideration.
In the Form 10 pathway, typically a company raises a sizeable financing that includes crossovers. Then it either files to become a publicly reporting company or reverse-merges into a publicly reporting shell. The former has become the standard since SEC raised the bar a few years ago for companies created from reverse mergers to list on a major exchange. Then the company lists on an over-the-counter exchange. Ultimately, the goal for Ovascience and others is to move to a major exchange, which enables a broader shareholder base and offers greater liquidity to shareholders.
But most of Ovascience’s shareholders may not have to wait until for a major listing to sell shares. The company has filed to sell 7.6 million shares on behalf of the shareholders in the Series B round and the August private placement. At Nov. 5, Ovascience had 14.3 million shares outstanding, so those shares account for more than half the company.
Series B investors include General Catalyst, Bessemer Venture Partners, Longwood Fund, BBT Capital Management, Cycad Group, Hunt BioVentures, RA Capital, and an undisclosed global institutional investor. Christoph Westphal’s Longwood Fund is an early investor, with the firm’s Michelle Dipp in as co-founder and CEO. Westphal, of course, has an investor following after his sale of Sirtris to GSK for $720 million that’s also attested to by this year’s Verastem IPO.
Creative financial engineering isn’t Ovasciences only attractive trait, it could also be incredibly cash efficient. At Sept. 30, the company had an operating loss of only $12 million since its April 2011 inception.
The biotech expects to spend only another $4.6 million to get to commercialization for its initial product AUGMENT (a procedure that aims to increase the success of IVF) according to its Q3 filing. The biotech anticipates getting its first product to the clinic late in 2012 and to market on the cheap because it says AUGMENT is not subject to regulation is the U.S. or EU. At Sept. 30, Ovascience had $35.1 million in cash.
AUGMENT stands for autologous germline mitochondria energy transfer, a procedure to isolate fresh mitochondria in a woman’s own egg precursor cells and then inject the fresh mitochondria into her own egg during in vitro fertilization, thereby potentially boosting its chances to develop into a viable embryo.
The company says it falls into FDA’s definition of 361 HCT/P; these human cells, tissues and cellular and tissue-based products do not require regulation by the agency. The 362 HCT/P regulations cover oocytes, embryos, and sperm. Ovascience said it will proceed to market AUGMENT and is not required to consult with the agency. However, if FDA disagrees and thinks AUGMENT does indeed fall under its purview, the company will be subject to sanctions and significant delays in its development timeline.
sunny side up "IVF pizza" via flickr users Carly & Art