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Beyond the IPO: Reverse Mergers to Tap Public Market Capital

February 14, 2017

On the opening day of the 2017 BIO CEO & Investor Conference in New York City, conference attendees had a chance to hear a panel discuss an alternative to the traditional IPO approach for emerging biotechnology companies looking to tap into public market capital: the reverse merger.

IPOs and Beyond: Tapping into the Public Market’s Capital was moderated by Stephen B. Thau, a partner with Morrison & Foerster LLP, and panelists included:

  • James Cappuccio, Managing Director, Investment Banking, H.C. Wainwright & Co., LLC

  • Brian Hagerty, Senior Director, Head of Healthcare Capital Markets, New York Stock Exchange

  • Douglas E. Onsi, Chief Financial Officer, Leap Therapeutics, Inc.

  • Sapna Srivastava, PhD, former Chief Financial Officer and Chief Strategy Officer, Intellia Therapeutics

  • Nassim Usman, PhD, President and Chief Executive Officer, Catalyst Biosciences

So what is a reverse merger? “Usually there is a public company that has a lot of cash and few other assets,” explained moderator Stephen Thau Oftentimes that’s a company that raised money for a Phase 3 program that was called off early… so you have this pile of cash in the company that’s listed publicly but is not pursuing the plans for which it had originally raised that capital. And then the other part of the transaction is a private company – and oftentimes it’s a venture backed company but not necessarily so… which is looking for financing and sees an opportunity by combining with the public company to do two things. One, raise capital, because the public company has a pile of capital that can then be redeployed for the private company’s uses. And then the second thing is to become a public company.”

All the panelists agreed that any public company which might be in a position to consider a reverse merger will have no shortage of private companies eager to put their cash to work. So what are they looking for in a potential suitor?

H.C. Wainwright’s James Cappuccio advised that “every board, every management has different thoughts about what would be best for their shareholders, and again it depends on the type of money that’s in the company.             Sometimes if there are legacy, crossover VC investors there, they want to maintain some kind of continuity in terms of therapeutic focus. Other people, maybe they had multiple setbacks and will say ‘You know what, maybe it’s a change in direction that we need.’ There’s always the person that says ‘Hey, we probably should just find some small commercial product and then build out around that.’ There really is no generalization; it’s all over the map.”

Read more of our #BIOCEO17 coverage here.