Organovo CEO: Closing IPO Window Could Spur More Reverse Mergers
Shifting perceptions and a cooling IPO market could lead more biotech startups to join a public stock exchange via a reverse merger with a shell company that is already publicly traded, says Organovo CEO Keith Murphy.
That’s the route his San Diego-based company took in 2012, merging with a shell company whose stock was traded over the counter. A decade ago, many pedigreed startups looking for a funding boost wouldn’t have done that, partly because it means the company becomes a thinly traded stock on a less prestigious exchange, at least at first.
But any negative public sentiments toward those types of deals have largely dissipated, Murphy says.
“I think things have totally changed,” Murphy says. “We were able to show that it really doesn’t matter anymore.”
Organovo, which has since moved up to the New York Stock Exchange, is one of several such biotech companies in recent years that have proven they’re worthy of Wall Street’s attention. San Diego-based Halozyme Therapeutics took a similar path from private biotech to over-the-counter stock to the Nasdaq stock exchange. This year, Madison, WI-based Cellectar Biosciences pulled off the same feat.
“A lot of biotech companies have now gone that route, which is what made us know it could be a success,” Murphy says. “You can step up to the next level.”
In fact, Murphy thinks these types of reverse mergers might increase in popularity once the biotech IPO window shuts tightly and startups need to look at alternative options for getting to the next level.
“When we did it, we were making our decision in the middle of 2011, when there was no IPO window at all,” Murphy says. “When the window closes, you’ll see more people do” the reverse merger with a publicly traded shell company. The upside is it’s a “lower-risk, cheaper option” for entering the public markets, although it requires “more leg work” afterward to make investors aware of the stock, he adds.
Xconomy caught up with Murphy this week at Dohmen Life Science Services’ Entrepreneur Summit in Milwaukee, a business conference that featured talks by Murphy, who previously spent a decade at Amgen; former Medtronic CEO Bill George; and Whole Foods Market co-founder and co-CEO John Mackey, among others.
During his speech, Murphy shared Organovo’s story and where it’s headed. In an interview before his talk, Murphy shared additional color with Xconomy.
Organovo, which was founded in 2007 and started lab operations in 2009, has drawn plenty of media attention over the past few years, thanks to its plan to use bio-printing technology to create functioning human tissue, like blood vessels, kidneys, and livers. But the vision of making live organs that could be implanted into sick patients is still years and hundreds of millions of dollars away.
In the mean time, Organovo has found a way to generate revenue right now. In August, Organovo announced that it created 3D human liver tissue in a petri dish that was able to detect that a pre-clinical drug candidate was harmful to the liver. Animal studies and other toxicity tests had determined the drug was safe.
Next month, Organovo will launch a contract research business that will test for toxic effects of pre-clinical drug compounds on the liver. It’s also gathering data that could allow it to extend the service to kidney drugs within 12 to 18 months, Murphy tells Xconomy.
Meanwhile, the influx of capital from the public markets and the contract research business should help Organovo get its planned therapeutic tissues into clinical trials within six years, Murphy says.
“Now we’re actually funded to do that,” Murphy says. “We are in animal studies today with several different things.”
Stumbling into the contract research business wasn’t serendipitous, Murphy says, just a case where Organovo heeded early discussions with potential pharma partners that if its bio-printed tissues could successfully predict toxicity, that service would generate plenty of demand. As a business, “you have to be dynamic,” Murphy says.