Arch, Hutch Stand to Gain From “Hibernation on Demand” Through Ikaria IPO

11/2/10Follow @xconomy

It’s keep-your-fingers-crossed time for the people at Arch Venture Partners and the Fred Hutchinson Cancer Research Center in Seattle. Both organizations have millions of dollars at stake in the upcoming initial public offering of Ikaria.

Ikaria, a Clinton, NJ-based company developing futuristic “hibernation-on-demand” technology with roots at the Hutch, is hoping to cash in on its promise next week. The company is seeking to sell 10 million shares to IPO investors at a proposed range of $15 to $17 next week, according to Renaissance Capital. The deal could bring in as much as $195 million if Ikaria can command the high end of its price range, and underwriters like Goldman Sachs and Morgan Stanley exercise their right to buy another 1.5 million shares, according to a filing with the Securities and Exchange Commission.

If Ikaria can pull the trigger on this deal, it will be a windfall for Arch, the largest life sciences venture investor in Washington state. Arch, one of the founding investors in Ikaria back in 2005, has 3.5 million shares the company, which will be equal to a 7.8 percent ownership stake once the IPO is complete, according to the most recent SEC filing on October 26. If Ikaria prices its IPO at $16, or the mid-point of its proposed range, then the company will have a beginning market capitalization of $711 million, and Arch’s stake will be worth about $56 million, according to my calculations based on regulatory disclosures.

Neither Arch nor any other venture investor in Ikaria will be able to cash out immediately because it is prohibited from selling any shares for at least 180 days, as part of a typical “lock-up” agreement.

This transaction is in the midst of an SEC-mandated quiet period, so Arch’s managing director in Seattle, Bob Nelsen, said he has no comment. Same goes for Ulrich Mueller, the vice president of technology transfer at the Hutch.

It’s much harder to pin down the exact stake the Hutchinson Center has in the Ikaria IPO, but it’s clearly smaller than Arch’s. The Hutch, and Ikaria’s scientific founder Mark Roth, aren’t listed in regulatory filings among Ikaria shareholders who have a 5 percent ownership stake or greater.

Mark Roth

Mark Roth

Still, the Hutch has got to have high hopes for this deal. The Seattle-based cancer research center received 807,500 shares of common stock in Ikaria, plus 142,500 shares of preferred stock, when it was originally spun out of the center in 2005, according to an exhibit attached to the Ikaria investor prospectus. It’s unclear based on my reading of the SEC documents how many shares the Hutch still has, or what percentage that represents today. The company did complete a one-for-2.72 reverse stock split on October 25 as it made final preparations for the IPO, which means that pre-IPO holders will have about one-third as many shares as they did before the split.

Plenty of well-known individuals around Seattle have stakes in this deal. Roth, the scientific founder, was granted 2,187,790 shares in the original Hutch license agreement in 2005, according to a regulatory filing. Ben Shapiro, a former executive vice president at Merck, and a former member of the Ikaria board, had 5,000 shares of preferred stock after the Series A venture financing. Steve Gillis, a managing director at Arch and the co-founder of Immunex and Corixa, held … Next Page »

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