On the opening day of the 2017 BIO CEO & Investor Conference in New York City, conference attendees had a chance to hear a panel discuss an alternative to the traditional IPO approach for emerging biotechnology companies looking to tap into public market capital: the reverse merger. The panel discussion “Beyond the IPO: Reverse Mergers to Tap Public Market Capital” was moderated by Stephen B. Thau, corporate partner whose practice focuses on the representation of life science, medical device, health IT, software, clean tech and other technology companies.
So what is a reverse merger? “Usually there is a public company that has a lot of cash and few other assets,” explained moderator Stephen Thau Oftentimes that’s a company that raised money for a Phase 3 program that was called off early… so you have this pile of cash in the company that’s listed publicly but is not pursuing the plans for which it had originally raised that capital. And then the other part of the transaction is a private company – and oftentimes it’s a venture backed company but not necessarily so… which is looking for financing and sees an opportunity by combining with the public company to do two things. One, raise capital, because the public company has a pile of capital that can then be redeployed for the private company’s uses. And then the second thing is to become a public company.”