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Why Going Public Isn't Right for Everyone

A biotech firm pulled the plug on its IPO a few days into its trading. It's a cautionary lesson that going public isn't for everyone.

Given today's heady environment for all things tech and biotech, the timing and quality of Vascular Biogenics' public offering seemed fairly ordinary.

The Israeli company, which produces medical treatments for brain tumors, filed public offering papers with the Securities and Exchange Commission in early June. At the time, it was quite candid about risks--including an accumulated deficit of $109 million, a net loss of $17 million for the full-year 2013, and no history of profits since launching in 2000.

On balance, that's not too different from scores of other companies that have filed to go public in the past year, despite mounting losses. But the story took an odd and somewhat unheard-of turn.

Soon after its listing on the NASDAQ on July 31, Vascular Biogenics pulled down its public shingle, issuing a statement that its underwriters had terminated the offering because a U.S. shareholder "did not fund payment for shares it previously agreed to purchase in the offering."

The big lesson here: Going public is not a trivial matter. It requires you to know exactly who your investors are, as well as the depth of their commitment to your company.

Vascular said that no shares would be issued as a result of the termination of the underwriting agreement. Deutsche Bank Securities and Wells Fargo Securities were the lead underwriters for a deal that would have raised $60 million by selling 5.4 milion company shares at $12 a share. During the week the stock traded, its value vascillated between $9.00 and $11.15.

The cancelling of an IPO is an extremely rare event, with probably fewer than half-a-dozen such cancelled offerings in the past 30 years, experts told the Wall Street Journal.

Vascular must now go through the process of paying back investors as it unwinds its deal, which was known as a "confidential IPO," stemming from a provision of the JOBS Act of 2012, which allows smaller companies with revenue of $1 billion or less to file their IPO papers just a few weeks before they go public. The abbreviated procedure allows them to avoid prolonged public scrutiny, which is typically advantageous to the company.

In this case, the abbreviated scrutiny period appears to have worked against the small firm.

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Last updated: Aug 12, 2014

JEREMY QUITTNER | Staff Writer | Staff Writer, Inc. and Inc.com

Jeremy Quittner is a staff writer for Inc. magazine and Inc.com. He previously covered technology for American Banker and entrepreneurship for BusinessWeek.




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