“Corporate Governance Gap” InVivo (NVIV) Delays Listing to National Securities Exchange “Postponed”; Amarantus BioScience (AMBS) DTC Chill Lifted. What is the Next Step for Corporate Governance in the Biotechnology Sector?

Recent challenges to biotechnology companies have been in the form of corporate governance issues, especially those undergoing rapid growth.  Two companies in particular, InVivo (NVIV) and Amarantus Bioscience (AMBS) both stand out for their recent, respective corporate governance issues.

InVivo (NVIV) recently announced via an 8-K Filing dated July 30th, 2013 with the SEC that despite speculation over the past few months, plans to up-list the Company’s common stock to a national securities exchange has been postponed indefinitely due to issues related to corporate governance.

As of June 3, 2013, InVivo had cash on hand of $23.6 million and total stockholders’ equity of $23.7 million, which exceeds the minimum requirements for listing on a national securities exchange.  Any up listing would be extremely valuable, as it would add additional liquidity and value and would help the company raise capital.

Despite the pullback after the announcement, InVivo’s stock is still up over 150% year to date mainly due to new progress made as the pioneering company in the spinal cord injuries (SCI) solutions market and due to an issuance in stock from warrants being exercised in April and June. The exercised warrants during both call periods raised some $16.1 million gross, $15.6 million after expenses with approximately 11.5 million shares of common stock issued in connection with these warrant exercises.

In addition speculation as to what the freeze is mainly due still remains a mystery as it was not disclosed in the 8-K.  Speculation as to causes ranges from corporate governance issues that can be resolved by expanding the executive suite (CEO Frank Reynolds is also President and CFO) to the possibility for M&A activity from a larger pharmaceutical entity might be possible in the future but the former is far more likely in the meantime.

InVivo has not yet released commentary as to why the move was postponed but corporate governance goes a long way in guaranteeing among other things, investor liquidity.  Liquidity in bioscience companies is already enough of a problem, as an academic study shows, especially when revenue streams are not priced into valuations. The same can be said of Amarantus Bioscience Holdings (AMBS) and their recent DTC Chill, which means if the Depository Trust Corporation has cause to be concerned about an issue pertaining to a specific security currently processed through its system, it may place a “chill” status on the security. This will restrict brokerages’ ability to transfer the shares or units of the security until those issues have been cleared up.

Much like InVivo, Amarantus Bioscience Holdings (AMBS) has experienced blockbuster growth in the last year.  AMBS is up 270%, raising $1 million in cash and forging numerous partnerships through its proprietary LymPro and MANF therapies in the Alzheimer’s and Traumatic Brain Injuries (TBI) markets have shown great promise through partnerships such as Beckson Dickinson (BD) and the Michael J. Fox Foundation.

On July 30th, an 8-K disclosure was filed by Amarantus announcing that the DTC chill has been lifted. Although this sets up the company as another potential target for M&A down the road in the same manner as InVivo, it also brings up the issue of corporate governance and what course companies will have to take going forward.

With Becton, Dickinson (BD) as the partner for LymPro right now for validation work, AMBS is using BD as a CRO to validate the previous findings with LymPro. The upside is that BD is a fully-integrated diagnostic company that can take LymPro all the way to commercialization, if not purchase the rights outright.  If validation work confirms the previous phase 1 then AMBS will be looking for another firm to conduct the CLIA study and commercialize the product.

In October 2012 CEO Gerald Commissiong spoke about Amarantus’s commitment to corporate governance, saying   “Amarantus is at a critical stage in its development and the Board is taking the necessary steps to ensure that we enhance the shareholder value we have developed over the last few months.”

“As we work towards critical milestones and begin to deliver new information about the status of our product candidates to the marketplace, we expect significant interest from groups in our industry. The Board’s actions will ensure that we are prepared to deal with the tasks that lie before us as we seek to maximize shareholder value.”

Better Corporate Governance Equals Better Valuation

A leading academic publication on valuation in the biotechnology industry concluded that “financial performance and market valuation of biotech firms’ R&D investments depend critically on the firms’ corporate governance structure.”  The study also went on to further mention “that the relation between R&D expenditures and firm values tends to be more precisely measured when a biotech firm’s corporate governance structure is considered.”

Needless to say more attention and coverage will be shed on how companies play the corporate governance game going forward.

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