Kadmon Holdings tempered its expectations and managed to go public late Wednesday, despite its founders’ criminal history and a heavy debt load.
New York-based Kadmon raised $75 million by selling 6.25 million shares at $12 each. But to get there, it had to sell more shares at a lower price. It had initially aimed for $115 million, and less than two weeks ago it was still angling for a $100 million deal and a share price range between $16 and $20.
As Xconomy reported in June, Kadmon’s regulatory filings revealed to potential investors that it had been funded with debt, more than $200 million, an extremely rare occurrence for a private biotech. What’s more, the IPO would convert some of that debt into preferred shares, giving former debt holders special rights above and beyond the buyers of common shares on sale at the IPO and afterwards.
It’s unclear if those unusual conditions spooked public investors and forced Kadmon to drop its IPO price. The firm is also being sued, in two separate lawsuits, by former affiliates.
Kadmon was founded by Sam Waksal (pictured), once a high-rolling biotech CEO who was sentenced to seven years in federal prison last decade for his role in an insider trading scandal that included home improvement guru Martha Stewart and others. Waksal was also barred for life from serving as a public company officer or director.
Once out of prison, he founded Kadmon in 2010 and was CEO until early this year. He cut ties with the company on February 8 but was slated to receive a $3 million severance payment that could balloon to nearly $25 million in coming years, based on the company’s performance.
His brother Harlan took over as CEO and president. Harlan Waksal is receiving $1 million a year in salary and guaranteed bonus—and could add more in merit bonuses, according to the prospectus.
Sam Waksal remains a key shareholder. He owns a small slice of a limited liability corporation called Kadmon I that owns two thirds of Kadmon’s main pool of shares, according to its IPO documents.
Leading up to the IPO, there were signs Kadmon was under pressure to go public. The company had to pay its senior lenders a $1.3 million fee in April when it did not complete an IPO of at least $75 million by March 31, 2016. That seems like small change, but it was 15 percent of the firm’s cash holdings. Kadmon ended March with only $8.6 million in cash and equivalents, according to its filings.
Kadmon earns revenue by selling ribavirin, an old hepatitis C drug. Sales dwindled from $63.5 million in 2014 to $29.3 million last year. Its most advanced experimental drug is in Phase 2 trials to treat psoriasis and idiopathic pulmonary fibrosis.
Kadmon shares are expected to begin trading on the Nasdaq Thursday under the symbol “KDMN.”
Photo of Sam Waksal courtesy of Keith Spiro Photography.