Seattle-based biotech Adaptive Biotechnologies Corp. (Nasdaq: ADPT) has inked a royalty financing agreement with health care investment firm OrbiMed worth up to $250 million.
Through the agreement, announced Monday, Adaptive will receive an initial $125 million in exchange for OrbiMed receiving 5% of Adaptive's revenue. Adaptive can receive an additional $75 million for 8% of its revenue and another $50 million, earmarked for potential merger and acquisition deals, for 10%.
"This was a really nice creative structure because for us, we didn't want to raise equity capital and dilute the shareholder base when our stock is trading significantly below historical levels," said Chad Robins, co-founder and CEO of Adaptive. "Debt will have a balloon payment or an amortization where if for any reason the markets aren't there and you can't recapitalize or you can't repay that debt, that provides a lot of risk to a company."
Adaptive will have to pay OrbiMed back 1.65 times whatever it takes, but the rate decreases if Adaptive can pay the firm back in 18 or 24 months, Robins said. He added that although there is a $50 million tranche reserved for M&A, Adaptive isn't targeting anything specific right now. According to Robins, the company will lay out a path to profitability in its third quarter earnings, and this money will help Adaptive reach that goal without having to raise equity capital.
Chad Robins co-founded Adaptive in 2009 with his brother Harlan Robins, the company's chief scientific officer. The company uses chemistry, computational biology and machine learning to better understand the immune system. Adaptive also has products aimed at various autoimmune diseases and developed a T-cell-based test for Covid-19.
Adaptive in March confirmed it was laying off about 100 employees as part of an organizational shake-up. The company's stock has dropped from more than $67 per share in January 2021 to $8.13 at the close of trading on Wednesday.
OrbiMed, founded in 1989, has about $18 billion in assets under management, according to the firm. On its LinkedIn page, the firm says its investments range "from start-ups to large multinational corporations."
Adaptive said it had over $450 million in cash at the end of the second quarter.
"Always raise money when you don't need to raise money," Robins said. "(We) really control our own destiny. This is really for general corporate working capital purposes."
