In February, publicly listed InDex Pharmaceuticals concluded that the data from the Induction Study 1 of its phase III program CONCLUDE did not provide any results justifying continued development, and therefore announced that the company was evaluating alternatives to maximize shareholder value. According to the company, alternatives such as a merger and reverse merger were weighed against company liquidation. Life science investor Flerie Invest, founded by Recipharm founder Thomas Eldered, saw this as a way to broaden its shareholder base and become listed quite quickly – a key step in the company’s plan to create a new model for life science investing. So in May it was announced that InDex Pharmaceuticals had entered into a conditional agreement to acquire all shares of Flerie Invest AB in a so-called reverse merger.

A reverse merger is an alternative strategy used by private companies to make their stock available to the general public. The owners of the private company become the controlling shareholders of the public company, and once the acquisition is complete, they reorganize the public company’s assets and operations to absorb the formerly private company. Advantages include quicker access to financing, no middleman, a less expensive process and less dependency on market conditions.

A new model for life science investing

Through this reverse merger agreement, Flerie Invest became a wholly-owned subsidiary of InDex Pharmaceuticals and Flerie’s shareholders will initially hold approximately 91.9% of the total number of shares and votes in the company, prior to the completion of the capital raise. As a result of the transaction, the company changed its name to Flerie AB (New Flerie). As part of the transaction and the continued financing of New Flerie, a number of institutional investors, including the company’s existing shareholders the Fourth Swedish National Pension Fund, HBM Healthcare Investments, Linc AB and SEB Stiftelsen, have undertaken to subscribe for new shares in the company in a directed share issue. Through this, the company raised in aggregate approximately SEK 520 million before transaction costs.

“This is a key step in Flerie’s plan to create a new model for life science investing. We continue our long-term, active investment strategy, while offering new shareholders access to and liquidity in difficult-to-assess biotech companies,” stated Ted Fjällman, CEO of Flerie and the intended CEO of New Flerie, after the announcement.

Nordic Life Science asked Fjällman to describe the benefits of this new model for life science investing and benefits of the IPO.

By being a listed company, we can create long-term value and remain an evergreen investor that takes an active role, while shareholders can trade freely via the stock exchange.

“We wanted to go public because our model is to remain a long-term biotech investor that creates value, and we do not want be forced to sell assets or shut down projects prematurely when we still can create more value. However, shareholders must be able to get a return, and most cannot wait ten years. By being a listed company, we can create long-term value and remain an evergreen investor that takes an active role, while shareholders can trade freely via the stock exchange. I think it is a very interesting model, especially for life science investments, because our portfolio of 29 companies also creates a more constant news flow compared to just a single biotech company,” says Fjällman.

Ted Fjällman, CEO of Flerie and the intended CEO of New Flerie

“Being a listed company works because those who invest in Flerie know that we will become listed, which facilitates the acquisition of capital,” adds Fjällman. “In our case, you also gain capital assets as part of the bargain, as well as a broad shareholder base of both institutional and retail investors, and it also helps that the liquidity and free float are advantageous compared to a normal IPO.”

Flerie is valued at approximately SEK 3,073 million in the transaction, based on the reported net asset value as of 31 March 2024 with a discount of 10%. InDex Pharmaceuticals is valued at approximately SEK 269 million, corresponding to the company’s estimated cash position after closing costs with a premium of 20%, which entails a subscription price of approximately SEK 0.506 per consideration share.

Future plans

NLS asked Fjällman which life science companies and which areas of life sciences are most interesting to invest in.

“There are many interesting areas, and then there are interesting areas that we do not understand, so I’ll only mention interesting areas that we do understand: pioneering drug development based on the societal changes that we see, i.e. companies that not only perform exciting research but also have applications that are absolutely necessary for our society to function. To be more specific, within areas such as obesity, diabetes, and heart failure it is absolutely fundamental to find better solutions,” he says.

Once our approach becomes even more successful, I look forward to seeing imitators, in the same area or in other areas where development takes a long time and our model would fit.

Fjällman says that he and his colleagues want to build on their internationalization because it will help their companies make deals with global pharma and enable them to bring in more co-investors.

“Flerie is unfortunately a rare item in Europe, and in Sweden in particular. Once our approach becomes even more successful, I look forward to seeing imitators, in the same area or in other areas where development takes a long time and our model would fit,” says Fjällman.

Facts: reverse merger

A reverse merger occurs when a privately-held company acquires a majority stake in a publicly-traded company. A reverse merger, or reverse takeover, is most often undertaken to bypass the traditional initial public offering (IPO) process, which can be time-consuming and costly.

Source: Wall Street Prep