In a friendly IPO market for biotechs, going public the other way—reverse merging with a shell company—is understandably the path less trodden. But after a strategic reinvention, it was the best road forward for Lexington, MA-based Pulmatrix.
Today, Pulmatrix will begin trading on the Nasdaq under the ticker symbol “PULM.” It’s completed a previously announced merger with Ruthigen, of Santa Rosa, CA, and is effectively taking its place. The combined company will be named Pulmatrix, and will advance the Lexington company’s new focus: trying to turn well-known, flawed oral drugs for rare lung diseases (like cystic fibrosis) into better, inhalable ones. Ruthigen’s assets, led by an anti-infective drug called RUT58-60, will be partnered or sold off, according to Pulmatrix CEO Robert Clarke (pictured above).
The merger ends a short public run for Ruthigen, which was spun out of a small, Petaluma, CA-based company called Oculus Innovation Sciences (NASDAQ: OCLS) two years ago and went public through a small IPO—raising just $19 million—in March 2014. Ruthigen’s chairman and CEO (and Oculus’ former CEO) Hoji Alimi and CFO Sameer Harish are stepping aside, and regulatory filings show that it’ll be scaled down as the combined company moves its headquarters to Lexington.
For Pulmatrix, meanwhile, the merger is the latest turn in a winding road. When it started up in 2004, spun out of the labs of MIT’s Bob Langer and Harvard University’s David Edwards, its initial focus was biodefense. Then that shifted to therapeutics, after discovering it might have a way of battling both bacterial and viral infections. Pulmatrix created aerosol treatments with positively-charged ion-based compounds, that could supposedly stimulate the immune system to fend off foreign invaders. Pulmatrix considered infections like asthma, the flu, and chronic obstructive pulmonary disease (COPD), and investors like Polaris Partners, Arch Venture Partners, and 5AM Ventures poured over $80 million into the company over the years to support the effort.
Things didn’t go as planned, however. Early data from a Phase 2 study of COPD with an older technology wasn’t “as robust as the data we had seen previously,” Clarke says, and Pulmatrix’s backers decided it’d be a stretch to continue down that path. Instead, the company shifted gears and became a drug delivery company using a newer technology it’s now calling iSPERSE—or, inhaled small particles easily respirable and emitted—to repurpose pills and make them more effective by enabling a more efficient delivery of drug at a higher dose. It’ll start out trying this approach rare lung diseases like CF and idiopathic pulmonary fibrosis (IPF), with the first candidate, for CF called PUR1900, expected to begin clinical testing next year. (Mylan has grabbed non-U.S. rights to a more advanced COPD product, PUR0200—a “branded generic” version of an unspecified COPD drug that uses the startup’s newer iSPERSE technology that is in Phase 2 testing.)
The transition to a drug delivery company made it a bit harder for Pulmatrix to go public, even during a biotech bull run fueled by a number of successful offerings. Clarke says Pulmatrix considerd an IPO late last year, but the timing wasn’t right, and the company wasn’t selling the kind of frothy, cutting edge science story like cellular immunotherapy. “[We’re] not going to be able to compete with [those] types of guys,” he says.
Then the Ruthigen deal came along, and that gave Pulmatrix a quick way to tap into the public markets, and immediately add enough cash to get to some key proof points in clinical trials—albeit, with the tradeoff of less visibility among investors, and the stigma tied to a reverse merger.
Clark concedes that the perception of reverse mergers is that they’re “a way to back onto Wall Street,” without getting the extra scrutiny from regulators and investors that comes with registering securities in a traditional IPO filing, but he believes that perception is changing “when you’re going into a fully-listed Nasdaq vehicle, versus a bulletin board type of company.”
Indeed, the strategy isn’t rare in biotech. Some recent examples over the past few years include Retrophin (NASDAQ: RTRX), Halozyme Therapeutics (NASDAQ: HALO), Cellectar Biosciences (NASDAQ: CLRB), and Enumeral Biomedical Holdings (OTCBB: ENUM), and several of them have increased in value.
In Pulmatrix’s case, its shareholders are getting 68.5 percent of the new company. Ruthigen’s backers are getting 14 percent, and the rest is going to undisclosed “high net worth individuals” who recently invested, according to Clarke. Pulmatrix is also getting $10 million in equity financing from its existing backers—among them 5AM, Polaris, and Arch —to help fund its journey. With that, and Ruthigen’s new cash, Pulmatrix has about $27 million to work with, enough to get it through 2017.
“[That’s] plenty of cash to get us through the key inflection points for our lead program,” Clarke says.