There are many small tragedies within a global disaster like this, and one of them is Ventracor – for years one of Australia’s leading biotech prospects.
Two weeks ago, Ventracor went into voluntary administration and is now, amazingly, facing complete closure. It has no debt and a technology that works: 400 people are walking around in the United States with its artificial heart whirring in their chests.
Over more than a decade, a group of Australian shareholders has put $200 million, and a dedicated staff of medical scientists have put their lives, into developing an Australian artificial heart. It is now licensed for use in Australia and Europe and is on the brink of FDA approval in the US.
Yet administrator Steve Sherman of Ferrier Hodgson has enough cash to last no more than a couple of months. Unless he can find a corporate buyer, the company will simply close and the IP on its device will be picked up at a garage sale. The shareholders will get nothing.
And the signs don’t look good at this stage. The board has been trying to sell the IP or the company for six months, with no takers, which is why they gave up and called in Steve Sherman earlier this month.
That decision also coincided with an attempt by a group of shareholders to call an extraordinary general meeting and boot the board out, so there are some suggestions that the voluntary administration was an act of petulance.
In any case the gruesome fate of Ventracor has one big, important lesson for all those looking to get an invention to the market – especially in the grindingly slow world of biotech. Don’t fund it with lots of small investors. Get a few big ones who you can look in the eye and talk to in a room.
Ventracor has 17,500 small shareholders, no institutions. Some of them are quite sophisticated, wealthy people; most of them are punters looking for a quick buck (or at least they were).
Around the middle of last year, the board could see that FDA approval was taking longer than expected (that shouldn’t have been a surprise – it always does) and the kitty was getting low.
They engaged an investment bank to raise some more cash through a placement, but the collapse of Lehman Brothers intervened and venture capital wallets slammed shut.
In November, with just $11.8 million in the bank, the board girded their loins and turned to the shareholders again, launching a share purchase plan for $10 million, as well as drastically cutting costs.
They got $3.5 million from those who were paying attention and knew what was at stake. The rest were either fed up with how long Ventracor had taken to gets its device to market, or fed up with punting the market in general and had moved on. In the end they had to give that money back because it fell short.
There were further frantic efforts to sell the business, or just its IP, early this year but without success. Ironically, one of its competitors, HeartWare, was sold in February to Thoratec Inc of the US for $438 million; HeartWare International Inc was dual listed in Australia and the US because when it was developing the technology, the best place for that sort of capital was Australia. Irony upon irony.
So on 19 March chairman Peter Ward, a former CEO of Qantas, and his colleagues Elizabeth Nosworthy, CEO Peter Crosby, who apparently has a home in France, and three US-based directors, Jeff Goodman, Ross Harricks and Bill Curran, threw in the towel.
The company was not insolvent, had no bank debt and enough cash for three months – maybe six if everyone took a pay cut and they all hunkered down. But it was too hard, and they probably felt the shareholders didn’t support them anyway.
Michael Spooner, the CEO they had sacked in late 2003 because (they said at the time) they needed a scientist for credibility in the US, was trying to garner support for a putsch against them, and separately another group of shareholders was trying to sack them at an EGM. Everyone else, it seemed, didn’t care two hoots and had written off their investment and moved on.
A bemused Steve Sherman is now running the company and trying to complete FDA regulatory procedures in the US, so there might be something to sell.
There’s apparently a US firm that’s interested, but playing hard ball; it probably thinks it might as well wait till Sherman puts on his butcher’s apron and turns into a liquidator.
And the curtain will then have come down on a modern Australian tragedy.
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This article first appeared on Business Spectator
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