A former NeoRx Corp. founder who is taking a Seattle cancertherapeutic company, VitaMed Inc., public through a reversetakeover said he thinks going north for venture financing willbecome a trend among biotechnology companies.
VitaMed Biopharmaceuticals Ltd. began trading on the AlbertaStock Exchange on Tuesday under the symbol VBL.A. VitaMedretains control of the Canadian public company and willcontinue operating in the U.S. as a wholly owned subsidiary.
VitaMed exchanged shares with First Ivana Technologies Ltd., aCanadian telecommunications enterprise that is being delistedafter its stock price dropped to a few cents a share, said A.Charles Morgan, VitaMed's president and chief technical officer.He is a cancer researcher who left the National Institutes ofHealth to found NeoRx with three partners in 1985.
Providing an alternate source of venture financing, reversetakeovers allow private companies to enter the shell of a failingpublic company and emerge with publicly trading shares, aninvestor base and control of the newly defined public company.
The Alberta and Vancouver stock exchanges are among theonly exchanges in the world that allow public venturefinancing, said Doug Ford, a merchant banker with Vancouver-based Enterprise Development Corp. and a director of thenewly created company.
The Vancouver and Alberta exchanges usually requireprincipals of start-up companies to keep some of their sharesin escrow, Ford said. As the companies succeed, the shares arereleased to trade freely. The rule protects minorityshareholders from having principals unload stock of successfulcompanies and move on, Ford said, leaving behind depressedstock prices.
While the exchanges normally release escrowed shares on thebasis of cash flow, profits or revenues, he said, the Albertaexchange agreed to gauge success on the basis of suchmilestones as clinical trials completed and patents issued.
Hygeia Pharmaceuticals Inc. of San Diego, which completed areverse takeover on the Vancouver Stock Exchange in March,worked out a similar agreement, company President RonaldBrown told BioWorld.
Regenetec Biomatrix of Redmond, Wash., also completed areverse takeover on the Vancouver exchange, companyPresident Arthur Karuna-Karan said. The company, which usescollagen sponges to place demineralized bone powder in thejaw to correct bone defects, found the Canadians "offered thebest deal," Karuna-Karan said.
And AgriStar Inc. of Conroe, Texas, completed a reversetakeover in Vancouver in 1988, said Vice President CalFroberg. The company now trades on the NASDAQ and Bostonexchanges.
"Theoretically," Ford said, "it's a quicker way for companies togo public, rather than going through the initial public offeringprocess. Reverse takeovers are commonly used in Canada. Thefeeling was the U.S. (venture) investment community was justtoo expensive. They wanted to extract too much on the waythrough."
Morgan said VitaMed founders would have kept only 30percent or 35 percent of equity in the company with venturecapital financing.
The Vancouver and Alberta exchanges provide companies withlittle access in Canada to venture capital a "very importantstepping stone" to emerging companies, Quadra LogicTechnologies Inc. spokesman David Main told BioWorld. TheVancouver, British Columbia, photodynamic therapy companyinitially listed on the Vancouver exchange, then switched toNASDAQ and Toronto exchanges for a higher profile and moreanalyst coverage.
"There's no question that the lack of availability of funding inthe U.S. is driving companies to seek funding elsewhere,"VitaMed's Morgan said.
VitaMed will have about 60 percent ownership in the newcompany once escrowed shares are issued, Morgan said. TheU.S. subsidiary will hold enough shares in an unissuedallotment for the parent company to remain 51 percentCanadian. He said this arrangement provides access to researchand development tax incentives at the federal and provinciallevel, which amount to about 50 percent of the researchinvestment in British Columbia.
About 5.5 million shares are issued, with the company holdingalmost 8 million shares, including allotted ones, Morgan said. Tominimize dilution, he said, the number of First IvanaTechnologies Ltd. shares were rolled back and now constitute15 percent to 20 percent of the company. Morgan said the newshares have been trading for three weeks, originally under theFIT.A symbol, at about $1.80 a share.
VitaMed plans to announce research agreements with theacademic community involving its focus on blockinguncontrolled cell proliferation. It has long been known thatvitamin B-12 is needed for rapidly dividing cells, such ascancer cells, he explained, and converting B12 to an inactiveform with nitrous oxide can improve the effect ofchemotherapy, although prolonged exposure to this analgesic"laughing gas" poses neurotoxic problems.
VitaMed will try to block cell-surface receptors for vitamin B12uptake with monoclonal antibodies or synthetic smallmolecules.
Studies have shown that tumor cells die when deprived ofvitamin B12, but normal cells remain alive and may be"rescued" by supplying vitamin B12. Without the immune-suppressing effects of chemotherapy, growth blockers could beideally suited for treatment of cancers in AIDS patients andothers with weakened immune systems, Morgan said.
VitaMed will initially target AIDS-related lymphoma (ARL), ahighly malignant cancer projected to be the most prevalentform of cancer within the next decade, according to studies bythe Centers for Disease Control and Prevention, the WorldHealth Organization and the Harvard International AIDS Center.
Morgan is the inventor of a growth-blocker patent filed a yearago that has already been reviewed under an acceleratedprocess for AIDS-related discoveries. In addition, FDA wouldallow promising therapies for ARL to be marketed after aPhase II trial, Morgan said.
Founded in 1992, VitaMed has also raised nearly $1 million ina brokered private placement by Canaccord Capital Corp. andVitaMed's Canadian and U.S. affiliates. Canaccord has agreed tohelp raise additional financing. Other details were not disclosed.
-- Nancy Garcia Associate Editor
(c) 1997 American Health Consultants. All rights reserved.