As Stigma Fades, Reverse Mergers Boom in Biotech (Law360 Healthcare Authority)

Reverse mergers, once seen as the ugly duckling among go-public options, are hot this year. Reverse Bill Collins, a partner in Goodwin’s Life Sciences group, said that reverse mergers can be attractive because they offer a way for companies to avoid hitting current shareholders with two major dilutive events. Companies preparing for an IPO usually do a big crossover financing round, or a private fundraise that involves a set of investors who can invest in both private and public companies, before they go public. While such a fundraise can help provide solid capital and tee up support from institutional investors, it also dilutes existing shareholders’ ownership stakes. “What that does is it creates two dilutive events for your existing shareholders,” Collins said to Law360. “You have to raise money in the crossover and then go raise money in the IPO.” Collins represented Obsidian Therapeutics in its reverse merger with Galera Therapeutics and Oak Hill Bio in its transaction with Research Alliance Corp. III. A reverse merger lets them “skip the crossover round and basically take one slug of dilution but with the right investor base and add a valuation that they’ve been able to negotiate without having to go through the song and dance of two financings,” he added. “That’s something that can really appeal to a lot of companies and their investors.” Collins said many of the companies looking to go public today have been itching to do so for years and are sensitive to the fact that they have investors who kept them afloat until “the markets turned right side up again.”