Some more random thoughts on the sale of Cognate.
1) Monetize the Cognate asset. Wild guess: Cognate was probably sold for between $25 million to $30 million, net of cash and stock. Toucan may use the sale proceeds for distributions, or even to fund NWBO through, let’s say, a Series C offering with the shares acquired by Toucan;
2) Toucan more than likely intends to sell NWBO. It's normal for private equity investors to look for an exit. And very much doubt that Toucan will keep NWBO until commercialization. Between when the trial is unblinded, and an NDA is submitted, reviewed and approved, that’s a two year timeline. NWBO is already well beyond most investors time horizons for a realization of the value;
3)Advent probable wasn’t sold, since it does not have much in the form of operations or cash flow. There’s likely few if any buyers that would pay an attractive price for a company that’s basically a single asset;
4)Cognate’s relationship was always toxic from a regulatory, investor and capital markets stand point. Dissolving the relationship might make an uplist less difficult, if that is the course they want to take (and another way for Toucan to sell off some or all of its holding);
5) Conflicts of interest are still an issue because Toucan could still manage to participate in a NWBO arranged financing at very favorable terms at the expense of minority shareholders - wonder how that might be addressed with Nasdaq if they decided to list?
6) The timing for the sale of Cognate is good for risk mitigation. Should there be a problem with approval of the DC VAX, then not only is the value of NWBO impaired, but so is the value of Cognate…i.e., don’t keep all your eggs in one basket. (Although it makes me wonder if Cognate’s investors are asking for claw backs in the event the trial fails?)
7)Key Personal – it’s very possible that key executive managers took the job with Cognate with a formal agreement or strong verbal understanding that there would be an opportunity for a management buyout – and the time is now right for those key managers, who may have pushed for the sale to happen now;
8) If NWBO wants to sell within -- let’s say -- the next 12 months, there is no need to keep Cognate. If Linda really wanted to build the next “Amgen,” then she would still might want to retain control of Cognate and their patents – so they don’t fall into the wrong hands. And if Toucan intended to wait until commercialization by NWBO, they would wait before selling Cognate, since approval and commercialization would probably double or triple Cognate’s value in two years;
In order not to limit value that would deter potential buyers for NWBO, while also satisfying Cognate’s requirements:
9)Linda will have to ensure that there are termination provisions in the manufacturing contract with make-whole’’s to satisfy the Cognate. This would be in the event that a potential buyer does not want remain tied to these contract over the long-term;
10) And an option to license key patents from Cognate to a buyer, if that’s needed by an acquirer of NWBO.
Reasons for Buying:
1) Control and an equity stake by key managers
2) Independence to grow the business
3) Combination with other investments (roll up strategy)
4) Synergies with patents from other pipeline investments
4) Dedicated contracts from NWBO
