Public offerings can be a great way for a company to raise capital, but they are often expensive, and the marketing process is drawn out with big cuts being taken by investment bank underwriters who then sell their discounted shares at a profit. There are a number of alternative financing methods available to companies of all sizes, each with their respective advantages and drawbacks. One that is becoming increasingly popular is a registered direct offering (RDO), and it is one that is actually quite similar to insider buying. A registered direct offering is when a company markets and sells its shares directly to a buyer, without the need for an expensive intermediary like an investment bank. Sometimes these offerings come at relatively low discounts as well, decreasing the chances that the offering was bought by hedge funds or other institutional investors just to make a quick buck.
RDO’s are, in practice, quite similar to insider buying because the company setting up the RDO needs to collect buyers independently, without underwriter help. In order to do that they have to convince potential buyers directly of the merits of their products and data. Those that are offered shares directly, since they generally have direct access to the company involved, are close to insiders and in many cases are actually bona fide insiders.
In the US, a company needs to shelve a certain number of shares by submitting a Form S-3 to the SEC before it can conduct an RDO using the shares in question. This offers investors an opportunity to gauge a company’s perception of its current conditions. Investors who track hedge funds or other insider activities in general can monitor the aftermath of an S-3 filing on the assumption that the company that filed will act on the shelved shares when it believes it is most beneficial to do so. Specifically, when it believes wider market sentiment is positive enough to minimize the discount placed on the shelved shares when offered, and concurrently, when it believes it can employ the capital raised to advance its operations more effectively.
In a way, then, tracking S-3’s is similar to using Form 4 filings to track insider ownership, and basing share purchases on the activity of insiders. With this in mind, here are three companies that have just closed on RDOs, and a look at what each is targeting with the capital in question.
Vascular Biogenics Ltd. (NASDAQ:VBLT)
First up, Vascular Biogenics Ltd (NASDAQ:VBLT). Vascular announced the closing of an RDO on June 16, 2016. The offering saw the company raise $24 million through the issuance of 4.36 million shares at a purchase price of $5.5 a share. The company initially registered the securities by way of an F-3 in October last year. Vascular Biogenics Ltd (NASDAQ:VBLT) is an oncology focus development stage biotech, with a lead candidate called VB-111. Specifically, the drug is targeting a glioblastoma multiforme (GBM) indication, which is a type of solid tumor brain cancer.
The drug is a gene therapy treatment, and works to induce a process called apoptosis, which is the natural process through which cells destroy themselves, in the cells that make up the blood vessels surrounding solid tumors. GBM is notoriously difficult to treat as it forms a type of tendril that spread out into the brain as the tumor matures. These tendrils make it almost impossible to surgically remove the tumor, while also making it difficult to target through a systemic treatment like chemotherapy. By targeting the blood vessels that feed these tendrils, Vascular Biogenics Ltd (NASDAQ:VBLT) is hoping it can starve the tumor and halt progression. Data from a phase I safety in a range of metastatic solid tumors demonstrated tolerability, and a phase II in GBM that compared the drug in combination with Roche Holding Ltd. (OTCMKTS:RHHBY) Avastin to Avastin alone served up some decent efficacy results. The capital just raised is earmarked to advance an ongoing phase III to completion, and in doing so, serves as a potential upside catalyst come trial close, scheduled for December 2017.