Monster Digital Inc. (NASDAQ:MSDI)
Shares of Monster Digital Inc. (NASDAQ:MSDI) rallied by 161.86% on news that the company had signed a merger agreement with Innovate Biopharmaceuticals. The merger is subject to shareholder approval and will allow Raleigh-based Innovate to become a public company through a reverse merger.
The merger of the two companies comes as a surprise given that the two operate in different sectors. Monster Digital Inc. (NASDAQ:MSDI)’s core competence entails the design and development of data storage and memory products. The company’s products are used in high-performance computing, consumer, and mobile product applications. Some of the company’s primary products include sports cameras and ultra-small xternal mobile drives.
Innovate Biopharmaceuticals, on the other hand, is a clinical stage biotechnology company focused on the development of novel medicines for autoimmune and inflammatory disease. Its pipeline includes drug candidates for celiac disease as well as ulcerative colitis.
Under the terms of agreement, Innovate shareholders are to receive newly issued shares of Monster Digital Inc. (NASDAQ:MSDI) in exchange for shares they currently own. The agreed exchange ratio values Innovate business at $60 million and Monster business at $6 million.
Once the deal closes, Innovate shareholders will end up owning 91% of the combined company with the remaining 9% going to Monster Digital Inc. (NASDAQ:MSDI) shareholders on a pro-forma basis. Early in the month, Innovate Director of Operations and Investor Relations Kendyle Woodward reiterated that a reverse merger would make the merger less expensive than if they had to file for an IPO.
Innovate management will head the combined company and will operate under the name Innovate Biopharmaceuticals Inc. The combined company will trade on the NASDAQ under a new ticker.
“Management believes this is an exciting opportunity, to fulfill what we perceive is a significant unmet need and an opportunity to bring value creation to the combined company’s shareholders,” said Innovate CEO, Christopher P Prior
Larazotide Acetate Development
The combined company is expected to advance late-stage trial for Larazotide Acetate, which Innovate maintains has the potential to address a significant unmet medical need. Innovate has scheduled Phase 3 clinical trials for the drug to begin in the fourth quarter.
Merging with Monster Digital Inc. (NASDAQ:MSDI) should allow Innovate Biopharmaceuticals to gain access to a wide pool of capital needed to move forward the current pipeline of drugs.
I have no positions in any of the stocks mentioned, and have no plans to initiate any positions within the next 72 hours. All information, including any data, is provided without any guarantees of accuracy.
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About the author: Steve Clark is a 23-year Wall St professional with stints in M&A, risk management, and algorithm trading. Steve keeps his head in the game by looking for, and writing about, small companies that often get overlooked by the big investment firms.