Tegal, a publicly held company previously involved in the application of semiconductor and microelectromechanical systems technology, is shifting its strategic focus to the genomic medicine space by merging with healthcare information technology firm CollabRx.
Under the terms of the deal, announced this week, Tegal will issue an aggregate of 236,433 shares of common stock, or about 14 percent of its total shares outstanding prior to the closing, to former CollabRx shareholders in exchange for all of CollabRx's capital stock. Additionally, Tegal will assume $500,000 of CollabRx's existing debt through the issuance of five-year promissory notes, which will substitute outstanding notes previously issued by CollabRx. Newly hired management and employees will receive 368,417 restricted stock units and options from Tegal.
"We are fully embracing the CollabRx team and strategy as our going-forward strategy," Tegal CEO Thomas Mika told PGx Reporter this week.
Mika will share the CEO title for the newly merged company with CollabRx CEO James Karis. They plan to ask Tegal shareholders at the company's annual meeting in September for a modification to the firm's charter in order to change the name of the entity to CollabRx. Until that time, however, Tegal will list and trade on the Nasdaq under the current ticker symbol TGAL.
Traditionally, Tegal invested in emerging technologies in the semiconductor and MEMS industries. However, tough economic conditions and a downturn in the semiconductor and MEMS sectors forced Tegal to shift its strategic focus several years ago.
"We've gone through a very large transition process over the last two to three years," Mika reflected. "When we came out of that process, we had some basic assets, including our public listing; approximately $8 million in cash, which isn't very much cash in any environment; … about $100 million in net operating loss carry forward; … and about a 40-year legacy in cutting-edge technologies."
For the quarter ended March 31, Tegal reported total revenues of $25,000 and a net loss of $2.2 million. The company had three full-time employees as of that date.
In evaluating future directions for Tegal, the company's leaders began eyeing the healthcare and medical technologies sector and found that CollabRx fit the bill for the type of business it wanted to become. "Compared to capital equipment, for example, the investment is lower in humans and software," Mika said. "Also, [CollabRx] is in a nascent emerging market and that offers a lot of opportunities for growth."
CollabRx's first commercially available products are the web-based Targeted Therapy Finder applications, which help cancer patients and their physicians identify treatments, molecular diagnostics, and clinical trials studying molecularly targeted drugs. The company has so far launched applications for melanoma, lung, and colorectal cancer.
The Targeted Therapy Finder applications are currently available to doctors and patients for free. Following the merger with Tegal, CollabRx will likely begin charging for these applications, while keeping a version of the products available for free.
"As you know, CollabRx was founded by a former patient and we have always been supportive of patient engagement initiatives," Karis said. "So, our plan is to try and always provide a version that is available without cost to patients."
Jay "Marty" Tenenbaum, a melanoma survivor, co-founded CollabRx and served as chairman of its board. Tenenbaum will not be involved in the merged company.
Separate from its merger with CollabRx, Tegal still has additional assets and commitments. For example, it holds a minority stake in NanoVibronix, a company that aims to apply its low-intensity surface acoustic wave technology to the medical field. Additionally, Tegal holds approximately 25 percent of Sequel Power, a firm focused on solar power plant projects.
Emphasizing that Tegal will place its full resources and drive behind CollabRx, Mika characterized the NanoVibronix investment as a relatively small commitment for the company. Furthermore, Sequel Power may not require Tegal's leadership for much longer. According to Tegal's first-quarter financial report filed with the US Securities and Exchange Commission, Sequel's cash position as of March 31 "gives them less than six months to survive."
"At some point in time we would expect some kind of transaction related to that [venture]," Mika noted.
For CollabRx, meantime, a merger with a publicly traded firm means there will be some changes in the way it is run. However, Karis and Mika noted that because CollabRx was already being operated in a transparent manner, it can transition to becoming a public company without changing its culture.
"In a public company, there is a lot of necessary disclosure about everything that you do," Mika said. "One of the things that impressed me about CollabRx is that there is this openness about its [activities]."
For example, the molecular biomarker, clinical trials, and treatment data underlying the Targeted Therapy Finder applications are based on CollabRx's molecular disease models, which the company's researchers have published as peer-reviewed papers and kept updated based on the latest available research. CollabRx also lists on its website the credentials of the experts who cull information for the Targeted Therapy Finder applications and those who guide the firm's scientific focus.
"On a day-to-day operations basis very little changes" in being acquired by a public entity, Karis said. "Obviously there will need to be some additional discipline in being a public company. But at this stage of this market's growth opportunity, being public adds a lot of other values to us, [such as] visibility, … potential future access to capital, … and provides access to additional resources in general."
Karis indicated that CollabRx's core focus will remain oncology going forward, but said the company will launch Targeted Therapy Finder applications for new cancer indications, market the interface to different stakeholders in healthcare, and hire the necessary experts as needed.
"For the time being we're going to remain focused on cancer, with the emphasis being around genomic medicine," Karis said. "All disease areas in genomic medicine are important, but the fastest moving one right now, where most of the new discoveries, drugs, and diagnostics are, is in oncology. So, that will remain our focus today."