“There have been many versions, including the reverse mergers completed by Arca Biopharma, Transcept, Via Pharmaceuticals and Torrey Pines Therapeutics,” says Scott Morrison, US life sciences director at Ernst & Young in Palo Alto, California. He regards the closest precursor to today's HPPOs as Cougar Biotech, headquartered in Los Angeles, which completed its hybrid offering in 2006. Despite being traded on NASDAQ, it remained a very tightly held public company until being sold to New Brunswick, New Jersey–based Johnson & Johnson in June for more than $1 billion.
The key to understanding a HPPO's purpose today, says Menlo Park, California–based Inside Ventures CEO Mona DeFrawi, is to compare it not to a classic IPO, but to a private placement. The target allocation of HPPO investors is 40% to existing venture capitalist (VC) backers, 40% to the institutional public market and the other 20% to short-term retail investors. The numbers are negotiable, but the idea is to keep the stocks more closely held than in a full IPO, while creating a significant retail component that will result in some public trading on NASDAQ and hopefully offer the institutional investors sufficient liquidity.
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