After Deal Stalled, Shine Medical Eyeing Up to $160M from Deerfield

[Update 11/27/18 8:34 p.m.]

Following the publication of an Xconomy report that Shine Medical Technologies appeared to be on the verge of landing a nine-figure investment from Deerfield Management, the two companies said Tuesday that Deerfield will invest up to $150 million in Shine to support the construction of a radioisotope-manufacturing facility.

[Story originally published 11/26/18 1:57 p.m.]

Wisconsin’s biggest startup investment in recent memory didn’t end up happening, but now the two companies involved appear to be on the verge of striking a potentially larger deal.

Shine Medical Technologies, a startup seeking to become one of the first companies in decades to produce a crucial medical radioisotope in the U.S., has agreed to preliminary terms with the New York-based healthcare investing firm Deerfield Management for it to provide Shine with up to $160 million in secured debt financing, Xconomy has learned. In September, executives of Janesville, WI-based Shine sent company shareholders an e-mail message and related documents detailing terms of the agreement, which Xconomy has obtained.

Reached by phone Monday, Shine vice president of business development Katrina Pitas declined to say whether the documents are authentic, or comment on information in them related to the potential investment.

The investment had not been finalized as of late September, according to the e-mail to shareholders. Pitas declined to comment on the putative deal’s status.

Under the deal terms detailed in the documents, Deerfield would invest $20 million in Shine at the time the deal closes. Deerfield would provide the remaining $140 million to Shine across five subsequent loan installments, or “tranches,” if the startup meets pre-determined milestones. They include constructing a “building shell” for a facility that could eventually house equipment for manufacturing molybdenum-99—an isotope that decays into technetium-99m, the most widely used radioisotope in medical diagnostic imaging—and demonstrating that Shine’s process for producing molybdenum-99 works as anticipated.

The deal would be significant for both Shine and its home state of Wisconsin. Startups based in the Badger State together raised $115.5 million in funding last year and $223.2 million in 2016, according to data from PitchBook and the National Venture Capital Association. Those totals only count equity funding and do not include debt financing, the form of investment Shine would receive from Deerfield. Still, it would be notable if a Wisconsin-based startup raised a nine-figure investment of any type, though deals of that size are common in Silicon Valley and other technology hubs.

The relationship between Shine and Deerfield goes back several years. In 2014, Deerfield announced it struck an agreement with Shine that called for Deerfield to provide Shine with up to $125 million in debt and equity financing. However, Pitas said earlier this year that Deerfield did not end up investing any money in Shine under the terms of the agreement announced four years ago.

While what was putatively the largest Wisconsin venture deal since 2009 didn’t actually happen, now Deerfield appears ready to invest. Pitas declined to say whether the terms of the potential deal detailed in the documents obtained by Xconomy are brand new, or if the deal is an amendment of a term sheet Shine and Deerfield signed in 2014.

Shine is seeking to capture a share of the global market for molybdenum-99, which founder and CEO Greg Piefer has said is worth about $600 million per year. The isotope is used in certain types of stress tests, bone scans, and other medical procedures.

Producing molybdenum-99 domestically represents not only a major business opportunity, but also a hedge against shortages of the isotope that can occur when nuclear reactors are shut down for maintenance. A shortage can force hospitals into using alternative scanning technologies that expose patients to higher doses of radioactivity.

One reason Shine and other companies, including Beloit, WI-based NorthStar Medical Radioisotopes, are working to build new domestic facilities for producing molybdenum-99 is that the U.S. accounts for about half of global consumption of the isotope.

Moreover, importing radioisotopes from overseas can sometimes turn into a race against the clock. Molybdenum-99 has a half-life of 66 hours, meaning about 1 percent of finished product is lost each hour.

Last month, the National Nuclear Security Administration, part of the U.S. Department of Energy, recognized NorthStar as the first domestic producer of molybdenum-99 in nearly 30 years, the company said. Currently, NorthStar is producing isotopes using a nuclear reactor in Columbia, MO, as part of a collaboration between the company and the University of Missouri Research Reactor. NorthStar’s long-term vision is to produce molybdenum-99—as well as a device for decaying it into technetium-99m, which the FDA approved in February—in Wisconsin.

While NorthStar appears to have beat out Shine in the effort to resume domestic production of molybdenum-99, that doesn’t mean NorthStar has the market cornered. NorthStar has said that by February 2019, it “could supply as much as 10 percent” of the molybdenum-99 and technetium-99m used by U.S. healthcare providers. That may indicate that Shine is not out of the running to become a leading supplier of the isotopes over the long haul.

Shine, which is still pre-revenue, could get a boost on the path toward commercialization if it lands the investment from Deerfield.

Piefer and Todd Asmuth, Shine’s president, wrote in the e-mail to shareholders in September that the company plans to use the money from Deerfield “to finance the construction and startup of our medical isotope facility in Janesville.”

In 2016, the Nuclear Regulatory Commission authorized the issuance of a construction permit to Shine to build a full-scale production plant near its headquarters. Shine reportedly expects to begin building the facility in early 2019, and start making molybdenum-99 there in 2021.

In February, Shine said it completed construction on a prototype production facility, where it plans to test its technology. The 11,400-square-foot facility is located near the site where Shine plans to build the larger, 57,000-square-foot plant. Last month, Shine said it had installed a key piece of equipment in the smaller facility, which it would use to perform some of the tests and demonstrations on which parts of the potential Deerfield investment would hinge.

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