Friday, May 14, 2010

Ikaria Execs Don't Need IPO for Big Payout

Two biopharma firms filed to go public Thursday, marking the first drug-company registrations this year. That's rather remarkable considering the biotech IPO window has cracked open a bit.

The more notable of Thursday's filings comes from Ikaria. That New Jersey-based firm is actually two businesses brought together in 2007 by a deep-pocketed syndicate of investors. The first business actually makes the combined company profitable, selling a nitric oxide inhalation therapy for critical-care patients. It's approved for babies, often near-term*, with hypoxic respiratory failure but used in other settings as well. The company earned $13 million last year off of $274 million in revenue.

The 2007 merger that created the company was designed as a bid to create a self-funding drug discovery model while also acting as a magnet for further bolt-on critical care products already in the marketplace.

Thus the second business is drug R&D, on which the company spent $75 million last year, up 10% from 2008. Its lead program, for hepatorenal syndrome, is expected to enter a pivotal Phase III trial this year. But the current program with the most funding is IK-1001, a formulation of hydrogen sulfide that's meant to slow down a severely injured patient's metabolism by triggering a hibernation-like mechanism and give doctors a chance to save tissue that's been cut off from blood supply. It's been tested in three Phase I trials so far, and the lead indication for IK-1001 is to prevent tissue damage from blood supply returning to tissue after a heart attack.

Turns out that Ikaria's 12 executives and directors have fashioned a nice payday for themselves whether the IPO happens or not. According to the S-1, the company will distribute a $130 million dividend to them this quarter, payable from a new $250 million loan. The company insists it's a one-time deal:

"We have not declared or paid any other cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business and, therefore, other than the special cash dividend described above, we do not intend to pay cash dividends to our
stockholders in the foreseeable future."
Curious investors should also know that majority owner New Mountain Partners, a private equity firm in New York whose founder met his wife in a most unusual way, will continue to call the shots after the IPO with as many as three board seats. New Mountain bought 47.5 million shares -- half the company -- at $4.63 as part of the Series B round that helped form the company as it exists today.

* A previous version of this post mistakenly described the approval for pre-term babies. Pre-term babies are not an approved indication for INOMax. IVB regrets the error.

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