Cellectar, an OTC Stock, Eyes Nasdaq Jump to Boost Profile, Prospects

7/22/14Follow @XconomyWI

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New York-based Retrophin did a reverse merger in 2012 with shell corporation Desert Gateway, which was traded OTC. Retrophin started trading on the Nasdaq in January.

Small OTC biotechs considering a move to a bigger exchange can draw a couple lessons from Retrophin’s strategy, says Blanchard of Covington & Burling. His law firm represented the underwriters in Retrophin’s $40 million public offering, which occurred simultaneously with its application to trade on the Nasdaq Global Market. Conducting a public offering of at least $40 million in tandem with the application provides a fast track to the Nasdaq, Blanchard says.

Another part of the secret to Retrophin’s success, Blanchard says, was a pair of private placement offerings totaling $35 million, which were completed in the months leading up to its Nasdaq IPO. “They sought out some large investors who were really interested in the story,” Blanchard says. “They basically established a devoted shareholder base even before they did their up-listing, which is actually a good way to do it. Then once they did the up-listing, their stock shot straight up.”

Retrophin (NASDAQ: RTRX) priced the $40 million offering at $8.50 per share. It went on to trade as high as $25 per share, Blanchard says. It closed at $10.23 per share on Monday.

So will Cellectar make it to Nasdaq? Although Blanchard didn’t want to comment directly on Cellectar’s prospects, he did say that it appears the company is taking the appropriate steps to win Nasdaq approval. It’s conducting a public offering alongside the Nasdaq application, for instance, and it has already boosted its share price with the 1-for-20 reverse stock split. The latter is especially important because the biggest hurdle to listing on the exchange is typically a company’s stock price, Blanchard says. The higher the better. Cellectar closed at $6.50 per share on Monday.

Besides gaining access to a larger pool of investors, the rewards for making it onto a bigger exchange include increased buzz around the company and a big boost in its credibility, industry observers say.

But it’s not all positive. The flipside is more scrutiny.

“When you open up investment to a broader array of people, not just VCs, it’s actually in some ways a bit more stringent because you’ve got more people with more ideas looking at it,” says Les Funtleyder, a former biotech financial analyst who is now a New York-based partner with international healthcare investment advisor BlueCloud Healthcare. “But it does add a certain legitimacy to your company. But I say that with an asterisk because the reality is if the IPO is weak, then as a management team, you have to overcome that. That will raise questions in other public investors’ minds, which can be dealt with if you put up good results.”

Rossiter agreed that moving to the Nasdaq only opens the door to more financing and visibility. Then it’s time to execute.

“The challenge is this is just a step on the journey toward building a company and also financing a company,” Rossiter says. “The challenge is to capitalize on that in some way.”

Jeff Engel is the editor of Xconomy Wisconsin. Email: jengel@xconomy.com Follow @XconomyWI

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