Bubble Market Stunner: Revenueless Biotech Goes Public, Drops, Trades For Six Days, Then Voids Entire IPO

Tyler Durden's picture

In what is certainly a historic, and quite stunning, market first, not to mention prima facie evidence that Janet Yellen was right about the biotech (and not only) bubble, last week the equity markets experienced something that has not happened in decades: a biotech firm went public, traded for six days, only to announce Friday that it would void its IPO and won't issue shares after all, thanks to a key investor's failure to follow through on a commitment to buy stock. In other words, days after going public, yet another darling of the momo bubble mania du jour, decided to undo everything, and went back to being private (and soon: bankrupt).


You read that right: a precommitted, fully underwritten offering, in which the underwriter took the risk, if only on paper, to absorb all the shares sold to the public even if "key investors" mysteriously fail to show up, decided to pull the switch on the party a week after said buyer decided to not make an appearance after all, perhaps because after IPOing at $12, the stock promptly tumbled and never regained its going public level. As the WSJ summarizes,  "all the investors who thought they had bought or sold shares in Vascular Biogenics Ltd. since it began trading hadn't."

Call it buyers' remorse, or better yet, call it by its real name: yet another absolute mockery of the centrally-planned farce that the Fed has made modern, and quite broken, "capital markets" into.

WSJ has more on this absolute stunner: "The highly unusual cancellation of a deal days after the shares began trading is a black eye for lead underwriters Deutsche Bank and Wells Fargo and an unwanted headache for any buyer or seller of the stock. It also is a major setback for the money-losing biotechnology company, which had planned to use the proceeds of the $65 million offering to fund drug development."

Vascular Biogenics, an Israeli drug-development company which hasn't reported any sales in the 14 years since its inception and which said in regulatory filings this year that it faced a risk of running out of money, said Friday that its underwriters at Deutsche Bank and Wells Fargo had voided the IPO. In a 104-word statement, the company said an unidentified, U.S.-based Vascular Biogenics shareholder didn't pay for shares it had agreed to purchase.

Needless to say at fault here are the underwriters who collect 3%-5% in fees on the total amount raised of any such transaction merely for the "privilege" of holding on to shares for a seconds or two, and then promptly reallocating shares to their preferred client accounts. This time they couldn't even do that, when one of the committed buyers decided not to show up.

It could be considered a failure of the underwriters," said Matt Kennedy, an analyst at Renaissance Capital, an IPO research-and-investment firm. Wells Fargo and Deutsche Bank representatives declined to comment. Vascular Biogenics didn't respond to requests for comment.


"We've never seen anything like this happen before," Renaissance Capital's Mr. Kennedy said. "With the investor not transferring payment—I don't think we've seen that."

How has this scandal not attracted far broader attention? Simple: the company, prudently, went public using the JOBS act as cover, attracting as little attention as possible.

The deal proceeded with little fanfare or notice, and, on July 30, Vascular Biogenics announced it had sold 5.4 million shares to the public at $12 each, below the company's expected pricing range. The shares tumbled as low as $9.02 after trading on the Nasdaq NDAQ -0.31%  Stock Market began July 31. They were halted Aug. 7 at $11.15.


So what happened after the disappointing start to the company's new life as a public entity?

On Friday morning, Aug. 8, the company said "no shares will be issued" under its registration with U.S. regulators, citing the failure of the unidentified shareholder, meaning the IPO and all subsequent trades would be canceled. Nasdaq, which listed the stock, notified traders at 1:28 p.m. Eastern time Friday that it had begun reviewing all trades in Vascular Biogenics.


On Monday, market officials began combing through trading records of the stock and contacting trading firms as they began to unwind the transactions and refund investors. Officials at the National Securities Clearing Corp., where stock trades are finalized, handled the unwinding process.

And while the IPO voiding is the fault of the underwriters, the question is who got cold feet and decided to not fund his share of the bargain. A few names emerge:

At least four pre-IPO investors agreed to buy shares in the offering, according to the prospectus. Among those was Jide Zeitlin, a director at Vascular Biogenics who is identified as president of New York investment firm Keffi Group Ltd.


Keffi owned 24% of Vascular Biogenics before the offering and would have boosted its stake to 30.6%, according to the prospectus—an increase that would have entailed buying more than two million shares in the offering.


Mr. Zeitlin was a partner at Goldman Sachs Group Inc. GS -0.09%  between 1996 and 2005, the filings said, and is lead director of Coach Inc.


"I have no comment, other than to say that we have extended ourselves and made every effort to support VBL," said Mr. Zeitlin, who has served on the board since 2008.


Other buyers identified in the prospectus include venture-capital firm Aurum Ventures MKI Ltd. and director Jecheskiel Gonczarowski. People affiliated with Pitango Venture Capital, also a venture-capital firm, agreed to buy shares as well, the prospectus said. None of those investors could be reached for comment.

What would they comment if they could be reached? "Yeah, stock crashed after IPOing, so I decided not to throw my money away"...

But while IPO voiding is indeed a historic event, it is not unprecedented: "Eagle Computer's 1983 IPO was canceled when the company's chief executive was killed in a car crash as the deal got under way. Eagle Computer refunded investors' money and later held another IPO. Normandy America rescinded its 1995 IPO after a big price drop, said Jay Ritter, a finance professor at the University of Florida. He said two other deals, Mokan Productions in 1987 and Wilt Chamberlain Restaurants in 1993, were pulled after "a few days."

As for Vascular, which has no revenue, and no likely other sources of funds unless it does a PIPE (good luck with that after an IPO debacle such as this one),this is likely lights out.

Vascular Biogenics said in its most-recent initial-offering documents that the continuing losses "raise substantial doubt about our ability to continue as a going concern."


The company said completing the IPO as expected could give it financing for 36 months but cautioned that "our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned."

So while this IPO fiasco is indeed a first for quite a few generations of traders, we certainly don't expect it to be the last, now that the precedent has been set. In fact, as the avalanche of companies vying to go public squeezes into the capital markets, expect increasingly more of those who don't go "CYNK" on the first day of trading, to quietly but quickly, unwind their IPO and the money of all those who had hoped to go from rags to riches on the latest "hot thing" to be refunded.

Actually, scratch the refund part: once exchanges are swamped in voing IPO after IPO they may just raise their hands and say "no more refunds." That's when things will get really fun...

Glass breaking in slow motion reversed

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
medium giraffe's picture

"Vascular Biogenics, an Israeli drug-development company which hasn't reported any sales in the 14 years since its inception"

Seems legit...

knukles's picture

Now there's a Gordian Knot of secondary trades to untangle.
Somebody's gonna get fucked and it won't be Goldman.

medium giraffe's picture

Board of directors includes:


Jide Zeitlin | The Keffi Group Ltd., former Chief Operating Officer of the Investment Banking Division of Goldman Sachs


Guess you're right Knuk.

Stackers's picture

"unwanted headache" ......... officially nominated for understatement of the year award

What if you made money on the sale, withdrew said money and spent it already ?

dontgoforit's picture

Formerly known as Solyndra and previous to that, Immune Response.

rubiconsolutions's picture

Sounds like they didn't want their ship to CYNK.

BuddyEffed's picture

CYNK : Sync!  Sink :-(

           Sing Sing?

fonzannoon's picture

check out kate spade today hight to low.

ebworthen's picture

They're coming out with an Ebola cure next month, promise.

Prime your "buy" fat finger folks!

knukles's picture

You watch.... LOL....
Deal pulled and Goldman winds up privately financing the company at triple the amount of the IPO for 49% ownership.
And then, bingo bango, the Ebola announcement.

NOTaREALmerican's picture

Just a slight bump on the road to prosperity.

Mr Pink's picture

Good thing everyone can just "void" trades when they don't work out. Otherwise that would be unfair

Groundhog Day's picture

Would this be considered a do over or is it like returning a dress to target cuz it didn't quite feel right.

Mr Pink's picture

More like buying a dress at Target wearing it to your cousin's wedding then returning it on Sunday

Winston Churchill's picture

Strange shade of green in this Tuesday market.

Am I going color blind ?

knukles's picture

My momma warned me about going color blind.  Hair on my palms...   All sorts a bad shit happenin'
Those new Gilette 7 balde jobs are smooth....

Winston Churchill's picture

Don't go there. French guy I played rugby with, had so much body hair he had

7 crowns on his back alone.

We called him the missing link, behind his(hairy)back.


Seasmoke's picture

a lot names sound like Tribesman in this story......

Jack Sheet's picture


Tjeff1's picture

Must be bullish.  See below article.

1. Stocks have been a terrific investment in the past. Therefore, they are a terrific investment now.

2. Yes, stocks look expensive compared with annual sales, net asset values, gross domestic product, the replacement cost of company assets, and the average earnings of the past 10 years. But none of that matters because valuation measures are completely irrelevant.

3. Even if valuations were relevant, well, those old-fashioned metrics don’t matter much anymore anyhow. That’s because people used them back in Olden Times, when stockbrokers wore mutton-chop whiskers and cycled to work on penny-farthings. Today we have cars, airplanes, even Facebook! Ergo, it is no longer relevant to compare stock prices to, say, net asset values.

4. The true value of the stock market is 1.2 x P, where P is the current price of the stock market.

5. You bears “just don’t get it.”

6. Stocks were cheap five years ago. Therefore they are cheap now.

7. The S&P 500 is almost three times as high today as it was in 2009. Therefore it must be three times as good a deal!

8. Companies aren’t wasting their money paying out lots of dividends to investors. Back in the past, an investor who bought $100 worth of stock got back, on average, about $5 in dividends in the first year alone. Today that figure is less than $2. But that doesn’t mean you’re going to earn three percentage points less! Oh no! It means your growth is going to be even better!

9. Never bet against America. We’re number one. And anything that’s good for America is good for the stock market.

10. Inflation is low. And that’s great for stocks. Like it was in, say, 1929, when inflation actually turned negative. And like it was a decade ago.

11. People who aren’t bullish are losers and sissies.

12. Unemployment is falling. Low unemployment is great for stocks, as it was in, say, 1929 and 1999. On the other hand, high unemployment is terrible for stocks. That’s why it was such a bad idea to buy stocks in 1932, 1982 and 2009.

13. Stocks will earn 10% a year in the future, because they have in the past.

14. Why are skeptics so negative? Why do they hate freedom?

15. The economy is so productive, thanks to the Interwebs, Facebook, Twitter, iPhones and so forth, and that’s great for stocks. Why, so far this millennium the U.S. economy has grown at an average rate of 2% a year plus inflation. Last century, from 1929 to 1999, it only managed…er…4% a year plus inflation.

16. U.S.A.! U.S.A.! U.S.A.!

17. Everybody on Wall Street says this is a great time to buy stocks, and if they don’t know, who does?

18. Consumer confidence is getting better, just as it was in the late 1990s. That has to be good for stocks!

19. The economy is picking up, but that’s not going to lead to higher costs or rising interest rates.

20. Mom and Pop are back in the stock market, and millions of ordinary investors can’t be wrong.

21. People are starting to swap stock tips again. That has to be good news, too!

22. We’re Number One!

23. Stocks have never been a bad investment for more than a few years.

24. Yes, stocks have been a bad investment for most of the past 20 years, but that just means they’re “due.”

25. Yes, stocks were a disaster in the 1930s and in the 1970s, but that can’t happen again, because back then they didn’t have iPhones.

26. The iPhone 6 is about to come out.

27. “Oh, say, can you seeeee…”

28. Bond yields are really low. That means stocks are a good deal. But it doesn’t mean the economy is going to get worse.

29. If stock prices over the past 40 years have gone from an average of 8 times earnings to 16 times earnings, then over the next 40 years they can go from 16 times earnings to 32 times.

30. People who know nothing whatsoever about stocks are starting to hand out stock tips again—and if that isn’t good news, I don’t know what is.


nakki's picture

Love the picture on marketwatch. Happy New Year. The good old days in the Euro-Dollar options pit, before the FED killed it with 6 years of ZIRP.

I am a Man I am Forty's picture

got word from their attorney shit they were doing was fraud

yogibear's picture

Fraud is in. The too big to fail are too big to procecute, Eric Holder says so,

yogibear's picture

Currently any IPO will attract loads of money to it. Too much money chasing little opportunity out there. More profound than the DOT COM days.

walküre's picture

Check out the roundtrip on TKMR. I guess the Ebola hype is done for now. Calling Peak Ebola scare.

Frank N. Beans's picture

Robin Williams news is more important.

NotApplicable's picture

Dunno which is worse, my wife's "has a huge sad" over his death, or her reaction when I mock her about it.

As I tell anyone who'll listen, depression isn't an illness, but a coping strategy your body/mind uses to deal with the incoherence known as cognitive dissonance (the only true mental (as in NOT physical) illness that I'm aware of).

Honestly, if you're NOT depressed then you aren't paying attention. Then again, she is depressed, but still spends hours upon hours playing video games, apparently successfully escaping thinking about things. Apparently, for Robin, there was no escape, and there was no living with acceptance of fate.

walküre's picture

I'm genuinely sad. Was hoping to see more movies with him. He was one of the better actors. RIP. Wondering what it was that bugged him so much to end his own life. He was a comedian and they say that comedians or clowns are some of the saddest people. Maybe that's inherently true.

Your wife's video game addiction is a problem. Too many good people are wrapped up in this mindless crap and fail to be productive or caring for their families. The whole social media distraction is a train wreck waiting to happen.

Cthonic's picture

Disembarked; it was a fun ride while it lasted.

p00k1e's picture

What a scam.

We all DESERVE redos!

nakki's picture

Reminds me of a biotech company I traded in the 80'same listed on the Vancouver stock exchange. The company claimed that they had a product that would kill the HIV virus outside the body and would be used in hospitals as a disinfectant. It was the earlier days of Aids and HIV and not much was known but one thing I found out was that the virus couldn't live outside the body. It seems Vancouver was way ahead of the US when it came to scam companies and the old pump and dump.


p00k1e's picture
Harry Belafonte - "Banana Boat Song (Day O)" - 1956



Dr. Engali's picture

What a clusterfuck. WellsFaggo and Douche bank should have to absorb those losses for trying to take that shit public. Unwinding those trades are going to be a bitch.

p00k1e's picture

Lost opportunity costs. 

cro_maat's picture

Doc - Now that the DTCC doesn't have to settle HFT trades and all historical documents were flooded then burned during Sandy, they have declared mulligan's for IPO's. I guess the "unallocated" account of DB was all red and there weren't enough customers to allocate the losses to. I'm sure they have another ponzi firm in the wings.

Rob Jones's picture

Suppose someone bought some shares and then sold them for a profit? Does he get to keep the profit?

If not, can he sue the company for breach of contract?

ghostzapper's picture

Phewwwwww - thank god Deutsche Bank did all the hard work on this one before trying to take it public.  We should all cherish the fact that DB blesses us with employees like LaVorgna so we can all learn from their magnificent intelligence AND ethics. 

Can we see the chart comparing the DB derivative exposure to Eurozone GDP again?  Might be my fav and would look even better with the arrows highlighting the difference. 

Mesquite's picture

So, the ghosts of reality are appearing thru the swirling mists of fraud...

Jack Sheet's picture

It's fucking hilarious in the "investment " business. A prominent newsletter service has a tech letter which I subscribed to and then canceled a year ago due to the obvious ongoing bubble. Now I get increasingly desperate promotional emails talking about the "hidden values" their research is unveiling. They should just terminate the products until this lunatic asylum of a "market" has exploded like Mr Creosote in Monty Python's Meaning of Life movie.

firstdivision's picture

Write them back, and tell them you'll only subscribe if they have access to insider info, and watch 'Prisoners Delima' unfold as they either say 'no' (which loses your business) or 'yes' (gets them in legal trouble).

MalteseFalcon's picture

Can we redo the last two presidential elections?  Sorry, I'm a racist.

buzzsaw99's picture

an Israeli drug-development company...

enough said right there

Kprime's picture

and don't forget to send a $25 box of food.

U4 eee aaa's picture

That ended quicker than a Hollywood wedding!