July 17, 2013
Nuvilex Teaches Wall Street A Lesson In M&A
Last week, Nuvilex, Inc. (OTCQB – NVLX) announced that it now owns exclusive worldwide licenses associated with the live-cell encapsulation-based pancreatic cancer treatment. Plus, these licenses include worldwide rights to utilize the live-cell encapsulation platform technology to develop treatments for any and all cancer types, regardless of the cell type encapsulated. While the news was initially met with little fanfare, a closer look indicates that this transaction is not just a major milestone event for the Company, but it should be considered a huge deal for the biotech industry, and afford the stock a significantly higher valuation.
Management noted that the broad spectrum of uses that the license for the oncology platform covers will provide Nuvilex with significant growth opportunities in the future for various types of cancers, while complementing the Company’s clinical research for pancreatic cancer. Moreover, management intends to expand its cancer treatment capabilities and to obtain additional assets to develop treatments for other serious diseases based on cell therapy and live-cell encapsulation.
Clearly, these are great positives for the Company, but it is the structure of the deal itself that deserves additional attention. It is not uncommon for small biotechs to acquire intellectual property via license. However, many firms make the common mistake of biting off more than they can chew as the management team’s collective eyes get big in anticipation of all of the benefits a license execution can offer. These firms invariably acquire associated entities or non-core assets in conjunction with an exclusive IP license that too often doom the firms that are run by scientists and not operators, and the end result is an ugly mess, with no access to capital.
In the case of Nuvilex, management originally intended to go down the path of acquiring the entity that owned the subsidiary that owned the IP. It could have been clean and simple and would have also meant acquiring senior personnel, overhead, and unrelated costs. Moreover, such a deal would have likely required greater investment dollars (and 100M shares) which would have resulted in substantial dilution.
By taking a very slow and steady approach, and focusing on the most critical piece of the acquisition (exclusive license) instead of becoming too big too soon (by acquiring the entity), management executed a great deal for shareholders. Nuvilex raised $1.5M in restricted stock at a price that was a premium to the trading price when the deal was announced with negligible dilution instead of raising more money with a heavier dilutive effect and becoming a Firm that was not laser-focused on the oncology treatment platform prize.
Now, shareholders in Nuvilex own the exclusive rights to a highly efficacious oncology treatment platform that maybe used to treat multiple forms of cancer, based upon tremendous Phase II clinical trial results. Moreover, by demonstrating prudence and patience, the Company should be able to increase its product treatment arsenal and attract new partners ad investors, as needed. Therefore, with the wind at its back, and a history of clinical and M&A success, shareholders appear primed to be rewarded with higher stock prices in the future.
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Senior Analyst: Robert Goldman
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