Valeritas sold in unique deal
BioValve spin-off takes unusual road to going public
In a first of its kind move for a medical device company, the New Jersey based spin-off of a Westboro pharmaceutical company will go public through an increasingly common type of reverse merger known as a SPAC.
That company, Valeritas, will be sold off by BioValve Technologies Inc. special purpose acquisition corporation, or, SPAC, formed by the New York-based biotech firm Paramount BioSciences. Robert Gonnelli, who founded both BioValve and Valeritas, says the decision was made to spin off Valeritas as a separate business unit because of its focus on medical devices, while BioValve focuses its efforts on pharmaceuticals.
| SPAC building blocks |
Gonnelli, now head of BioValve, will assume the role of CEO and President at Valeritas after it becomes a public company, and remain as chairman of the board at BioValve, he says.
Valeritas has recently won approval to begin marketing an insulin-pumping device called the h-Patch, which injects the hormone through the skin using a small needle contained in a finger-sized, removable patch. The device replaces large pumping machines that are currently used by those afflicted with type 2 diabetes. The company expects to begin selling the h-Patch by next August.
SPACs drawing increased interest
A SPAC is basically a shell company formed around a trust of cash and a preset management team that acquires another company and then simultaneously files with the SEC and a national exchange to become a publicly traded company. Most exchanges prohibit shell or so-called blank check companies from trading until they acquire an actual business.
In this case, the shell company is called Paramount Acquisition Corp., and Valeritas is the company acquired. Gonnelli says that the SPAC route was more attractive because it allowed the company to avoid the costly process of an IPO and gives the company easy access $150 million in working capital without the uncertainty of having to go back to shareholders. That often leaves early-stage companies vulnerable to more rapid devaluation in their stock price, which can cripple their ability to raise subsequent funding which they may need to market their product.
Gonnelli compares the transaction to a "pre-sold IPO."
SPACs differ from typical reverse mergers, where private company acquires an already public company, and then change the name and business of that public company. A local example of a more typical reverse merger is the biotechnology firm Advanced Cell Technologies Inc., formerly based in Worcester, which in 2005 acquired a publicly traded doll maker in Utah called Two Moons Kachinas Corp., and promptly changed its name and business.
Reverse mergers and blank check companies are nothing new. They simply fell out of favor during the mid-90s tech boom when IPOs were far more profitable. But their 21st century rebirth as SPACs has been characterized by far greater amounts of capital than were common in the 1990s, upwards of $200 million or more in some recent examples versus $20 million or less 10 years ago.
The SPAC method of going public has attracted a lot of interest over the last year. In March, the San Francisco-based Jamba Juice chain of juice bars merged through a SPAC for more than $260 million. In the last year, the number of proposed SPACs both in the U.S. and England, has drawn increased scrutiny from regulators and exchanges, who have begun cracking down on the preponderance of shell companies. The SEC says it is re-examining how they are regulated.
The Valeritas deal is believed to be the first instance of a medical device company going public through the SPAC route, Gonnelli says.
If all goes as planned, Paramount’s acquisition of Valeritas will close in January. The new company will simultaneously change its name to Valeritas Inc. and file for admission to the NASDAQ. Paramount will retain a majority of shares in the company, roughly 58 percent, while BioValve will retain the rest. Meanwhile, the company plans quickly to add upwards of 150 employees and look for manufacturing and development space either in the Westboro area or in New Jersey.
Kenneth J. St. Onge can be reached at kstonge@wbjournal.com
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