Skip to main content

Innovate Biopharmaceuticals Using Reverse Merger to Go Public

By Barry Teater, NCBiotech Writer

Raleigh-based Innovate Biopharmaceuticals may become a publicly traded company soon following an agreement to merge with a California company already listed on the NASDAQ stock exchange.

Innovate, a privately held clinical stage biotechnology company focused on developing novel drugs for autoimmune and inflammation diseases including celiac disease and ulcerative colitis, signed a definitive merger agreement with Monster Digital of Simi Valley, Calif.

"We believe that access to the public market this merger provides will be key in driving our lead program for celiac disease into its final stage of clinical testing,” Innovate CEO Christopher Prior, Ph.D., said in a news release. “We are committed to helping patients whose symptoms are still persistent despite adherence to a gluten-free diet and where we believe there is no other current therapy commercially available. Management believes this is an exciting opportunity, to fulfill what we perceive is a significant unmet need and an opportunity to bring value creation to the combined company's shareholders."

Under the terms of the merger agreement, Innovate shareholders will receive newly issued shares of Monster in exchange for Innovate stock. The exchange ratio is based on a pre-transaction valuation of $60 million for Innovate's business and $6 million for Monster's business, the companies said.

As a result, current Monster shareholders will own about 9 percent and Innovate stockholders will own about 91 percent of the combined company, subject to adjustments at closing.

Public company retains Innovate's name

The combined company, led by Innovate's management team, is to be named Innovate Biopharmaceuticals. Its new board of directors is expected to consist of seven members from Innovate. The boards of directors of both companies have unanimously approved the merger.

Before closing the merger, Monster will seek shareholder approval to conduct a reverse split of its outstanding shares to satisfy listing requirements of the Nasdaq Capital Market (NasdaqCM). The combined company is to trade on the NasdaqCM under a new ticker symbol.

The companies expect the transaction to close in 2017, subject to approvals by the stockholders of Monster and Innovate, and other customary closing conditions.

A proxy statement providing further information on the merger for Monster Digital shareholders will be filed with the Securities and Exchange Commission “in coming weeks,” said Monster CEO David Clarke. The proxy will enable shareholders to vote on the merger.

Monster Digital makes and sells digital sports cameras, virtual reality cameras and headsets, and computer storage and memory devices. Clarke said in June that Monster would likely “be sold or spun off into a separate company” prior to the merger’s closing.

Benefits of Reverse Merger

A so-called reverse merger like this one involves the acquisition of an already public company to avoid the time and cost of going through the Initial Public Offering (IPO) process. It allows a small company to get on a public stock exchange faster so it can gain visibility and accelerate fundraising by selling shares to the public.

According to Investopedia, “The expediency and lower cost of the reverse merger process is beneficial to smaller companies in need of quick capital. Additionally, reverse mergers allow owners of private companies to retain greater ownership and control over the new company, which is a huge benefit to owners looking to raise capital without giving their companies away.”

Jay Madan, co-founder and president

Jay Madan, Innovate’s co-founder and president, said the reverse merger with Monster Digital “provides us an opportunity to access public markets faster than a traditional IPO. Innovate’s main objective is to quickly advance our celiac disease and ulcerative colitis therapeutics through their respective clinical trials to bring much-needed therapies to the patients. As Innovate moves forward in the clinic, we are also working to enrich our pipeline by investigating other potential indications of our existing molecules and by in-licensing additional assets.”

Innovate’s Pipeline

Innovate said it expects to begin enrolling patients in a Phase 3 clinical trial of larazotide acetate for celiac disease late this year or in early 2018. Pivotal data from the trial is expected by the first half of 2019.

The company will also begin developing applications of larazotide in in vitro and pre-clinical models for other autoimmune and inflammatory diseases later this year.

Larazotide is a novel oral peptide that has consistently demonstrated the reduction of clinical symptoms of celiac disease in multiple clinical trials in more than 800 patients with celiac disease. It has the potential to become the first approved medicine to treat celiac disease and has been granted "Fast Track" designation from the U.S. Food and Drug Administration.   

Larazotide belongs to a new class of drugs called tight junction regulators. Tight junctions are complex protein structures located between epithelial cells in the bowel. They regulate the permeability of the intestinal barrier and should remain closed except to shed dead cells.  

However, in patients with celiac disease, the presence of gluten – a protein in certain food grains – causes the tight junctions to remain open, starting an inflammatory cascade within the bowel that eventually destroys the inner lining, or villi, of the small intestine.

Early research suggests larazotide acetate may help keep the tight junctions closed when ingested prior to a meal, reducing the inflammatory process in response to gluten. 

Celiac disease affects 3 million people in the United States and about 15 million worldwide. Signs and symptoms of celiac disease include intestinal pain, bloating, diarrhea and – in infants and small children – failure to thrive.

These symptoms can be reduced, and sometimes eliminated, by avoiding food that contains gluten. However, an estimated half of celiac patients remain symptomatic despite a gluten-free diet, most likely due to unintentional ingestion of gluten, according to a patient registry sponsored by the Celiac Disease Foundation.

These patients may benefit from drug therapy. Currently, there are no drugs available to treat celiac disease. 

Ulcerative colitis, imaging targets of other candidates

Meanwhile, Innovate expects a Phase 2 clinical trial of another drug candidate known as INN-108 to begin in the first half of 2018 to treat mild to moderate ulcerative colitis.

Ulcerative colitis is a type of inflammatory bowel disease mainly affecting the large intestine. Its main symptom is usually constant diarrhea mixed with blood.

Ulcerative colitis affects 1 million people in the United States and is more prevalent in the Western world. It accounts for an estimated 250 million annual physician visits, 30,000 hospitalizations and a loss of over one million workdays per year, according to the American Journal of Gastroenterology.

Innovate also has an imaging aid, Secretin, in Phase 3 trials. Secretin is indicated for use in magnetic resonance cholangiopancreatography (MRCP) procedures to help visualize disease in the pancreatic ducts. More than 400,000 MRCP procedures are performed annually in the United States.

Innovate said it owns all global rights to its products, which are backed by more than 150 patents worldwide.

Add new comment

Refresh Type the characters you see in this picture.
Type the characters you see in the picture; if you can't read them, submit the form and a new image will be generated. Not case sensitive.  Switch to audio verification.