2. going public
My Company and All I Got
Went Public— Was This T-Shirt
By Stephen Kilmer
F
ollowing a brief and as market by storm and, by
it turned out mostly 1999, our stock was trading at
unremarkable stint as 10x sales and our trading ratio
an Investment Advisor at a on NASDAQ vs. the TSX was
major Canadian brokerage, and easily 75/25. Then, without
then as an account director warning, a severe and pro-
at CCN Matthews (now tracted price war devastated
Marketwire), I was directly the LASIK industry. While
introduced to the wonderful we eventually went on to
world of IR in 1997 by “win” (that is, to survive) the
accepting the position of man- industry price war, our stock
ager of investor relations with Toronto, Ontario-based “LASIK” eye was crushed beyond recognition and both the sell and buy sides
surgery pioneer, TLC Vision Corporation. had gone from loving it to hating it and finally to just not wanting
(Coincidentally, this was my first client win to ever think or speak about the stock again.
while at CCN.) Then, after a very long time dutifully spent “thinking,” “salva-
While I progressed on a rewarding and tion” finally came in the form of a $6 million investment that ulti-
steady career path from manager to director mately gave TLC control of a Tampa, Florida-based private oph-
to vice president at TLC, unfortunately thalmic device company, Vascular Sciences Corp, which was in the
the company’s fortunes weren’t quite so process of developing a novel blood filtration procedure — RHEO
smooth. The first years were marked by absolutely “hyper” busi- — to treat the dry form of an eye condition called age-related
ness and stock price growth. The company had taken the U.S. macular degeneration (“Dry AMD”). The Florida company had a
8 may 2 0 0 8 investor relations update
3. going public
controversial past and retinal specialists were generally skeptical became very clear to me — quickly. Some 13 million people in the
of both the company and its technology. The private managers, United States are afflicted with Dry AMD and about eight million
therefore, had great difficulty raising the capital needed to com- could reasonably be expected to benefit from the RHEO proce-
plete their clinical trials. dure. Large market.
The “voodoo” quality of the RHEO The procedure consists of eight treat-
procedure hadn’t, however, put TLC ments; each treatment required one
off one bit. After all, it wasn’t too many disposable RHEO filter set that we
our stock was
years prior that a large percentage of crushed beyond planned on selling to service providers
recognition
eye doctors had dismissed LASIK as at $1,200.00 per. Therefore, every one
and both the
complete heresy — and very quickly sell and buy percent penetration into the available
sides had gone
LASIK grew to be the world’s most market would generate $768 million
from loving
widely-performed elective surgical pro- it to hating in treatment set sales (8 million eligible
it to just not
cedure. Everything we had seen in our patients x 1 percent x 8 treatment sets x
wanting to ever
clinical due diligence process, including think or speak $1,200). Keeping in mind that this was
about it again.
an interim analysis of the pivotal trial a Medicare-eligible patient population,
data, led us to believe that the acquired there was no competing treatment and,
company’s procedure was effective in if left untreated, patients faced losing
treating Dry AMD. their vision and their independence.
It followed that the investment thesis was extremely binary: If
Needed: The Investment Story
the full pivotal trial data was positive and the FDA approved the
While we were convinced, external stakeholders largely ignored
procedure, the market could be worth billions of dollars; if FDA
the important corporate developments. The investment story
declined, the market would be worthless.
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investor relations update M ay 2 0 0 8 9
4. going public
Initially as I tried to reach out to traditional money managers a month, and spent a few days in each place meeting exclu-
to tell the RHEO story, it felt very much like I was talking into sively with locally-based hedge fund managers. I also launched
the wind. Then it dawned on me: Given their compensation a hedge fund-dedicated “TLC World” e-news service to pro-
structure and different approach to risk management, the then- vide extra historical, industry and scientific perspective for the
emerging hedge fund community was much more likely to money managers; very quickly, I became the “go-to” person for
embrace the RHEO opportunity. I had just read an article on hedge fund managers wanting to learn about anything that had
the NIRI Web site arguing that, contrary to popular belief, less to do with AMD.
than five percent of U.S. hedge funds had a short bias. And
Let’s Do an IPO!
despite this important fact, many IRO’s, CFO’s and CEO’s were
After about ten months of this kind
reportedly still reluctant to interact with
of marketing to U.S. hedge funds, TLC’s
them. I recognized that the added ben-
stock had risen more than 500 percent.
efit of targeting hedge funds was that I
One day, feeling absolutely Herculean,
wouldn’t be competing with very many Initially as
I tried to I walked into my CEO’s office and pro-
other issuers trying to get the same reach out to
claimed that I could take our Vascular
audience’s attention. traditional
money managers Sciences subsidiary public if he and
Hedge Fund Strategy to tell the RHEO
story, it felt
TLC’s board wanted me to. He agreed
My strategy was to start very slowly, very much like I without too much hesitation, but made
was talking into
building relationships with the man- the wind.
it conditional upon my personally man-
agers of smaller hedge funds — with aging the transaction all the way from
less than $50 million under manage- underwriter recruitment/selection, to
ment — and vetting the company’s prospectus drafting, to road show design
story with them. After some refinement, and execution — with the noted excep-
the story became ready for prime-time and I turned to this tion of me having to give any public presentations on my own. I
group of small hedge fund managers for personal introductions also had to continue being TLC’s sole IRO throughout the process.
to the institutional sales desks and the respective personalities We decided to list the IPO on both NASDAQ and the TSX, the
that they relied on most. latter largely in order to accommodate TLC’s by-now minority
With the help of these sales desks, I organized and executed Canadian shareholder base. Vascular Sciences had no real infra-
an “expert tour” with a knowledgeable and somewhat folksy structure of its own (no internal council and no permanent CFO)
TLC optometrist from Oklahoma to [expertly, of course] dis- and didn’t have audited financial results. We were forced to run a
cuss Dry AMD and the RHEO treatment with money managers. rather cumbersome dual process where we — the issuer’s council,
We traveled to one or two major cities, usually once or twice underwriter’s council, the lead bankers and I — worked on the
10 may 2 0 0 8 investor relations update
5. going public
front part of the book while our interim CFO worked with the or moral obligation I have no choice but to take with me to the
external auditors to complete the financial section. grave, we finally filed the S1 for the spin-out of Vascular Sciences
— now renamed OccuLogix — in August 2004. Following
Enter the Speculators
SEC review of the document (OccuLogix was incorporated in
About half way through drafting, conflicting speculation on
Delaware), the drafting and filing of amendments, and more, our
TLC’s plans for Vascular Sciences emerged. On one side, a large
IPO road show was launched approximately 13 weeks later. The
and well-known hedge fund reportedly initiated a significant
tour brought us to 15 North American cities over 14 business
short position in TLC, theorizing that no attempt would be
days. Our original pricing range was $8-$10, but that was raised
made to IPO the RHEO business and, even if there was, the IPO
to $10-$12 about half way through marketing. We priced at $12
would fail. After establishing their position, they (according to
(33 percent above the original filing mid-point), raising $100
reliable sources) paid or otherwise encouraged a small “inde-
million at a post-money valuation of $525 million.
pendent” research shop to put out a series of very negative and
inflammatory reports on both TLC and the RHEO procedure. In Lesson: Tailor the Audience to the Message
contrast, Canada’s national daily newspaper started to run uncon- By tailoring our audience to our message instead of the other
firmed stories that an IPO was imminent and that the analysts way around, and by embracing non-traditional investment man-
were expecting it to be a huge success. agers instead of running away from them, we were able to pull
off the “impossible.” OccuLogix was reportedly the first non-FDA
That T-Shirt
approved/pre-revenue medical device company to successfully go
This is about the time that the t-shirt comes in. A friend on
public on a major U.S. exchange in over a decade. It was also the
the sales desk of a lead underwriter sent me an over-the-top
largest healthcare IPO in Canadian market history. Most impres-
and once-in-a-lifetime invitation. Picture this opportunity for
sively (I think), TLC achieved $295 million in aggregate cash
the IRO of small-cap: The private helicopter picks me up in
and paper gains — primarily from its
Toronto and brings me to the front lawn
retention of 53 percent of OccuLogix’
of a rented mansion in the fabled Long
shares — through the OccuLogix IPO
Island “Hamptons.” There, 20 or so of
in return for its original $6 million
America’s most successful and wealthiest To his credit,
he did send
investment.
hedge fund managers, a few institutional
me an official End of story: I moved exclusively to
salespeople and this IRO are to enjoy a u.S. open
T-shirt (two
OccuLogix from TLC following the
fully-catered weekend attending the U.S.
sizes too IPO and, after many more twists and
Open at nearby Shinnecock Hills Golf small) to
“make up” for
turns, recently left to co-found my own
Club. I felt like a rock star! Because we
my loss. IR agency in Toronto. While I feel
had already engaged the underwriters,
equally comfortable operating on both
and TLC trusted me to keep our plans
sides of the northern border, I believe
for Vascular Sciences to myself, I was
now that my true niche is in helping
given the green light by management
Canadian and other non-U.S. issuers
to accept the invitation. My dreams
successfully navigate and penetrate the U.S. capital markets.
were quickly dashed when the bankers got wind of the plan.
There were many hard-won lessons for me coming out of the
They believed the risk that I might let something slip, however
IPO — and I hope that NIRI IR Update readers can benefit from
remote, wasn’t worth taking. They instructed the salesperson to
some of the story as told here by a former corporate IRO. And, I
un-invite me. To his credit, he did send me a t-shirt (two sizes
am keeping the T-shirt. IRU
too small) to “make up” for my loss.
The OccuLogix IPO in 2004 Steve Kilmer is co-founder and managing partner of Kilmer-Lucas. E-mail
him at stephen@kilmerlucas.com. Web site: www.kilmerlucas.com
After an extraordinary amount of effort by all parties, and
a series of underwriting group intrigue that out of legal and/
investor relations update M ay 2 0 0 8 11
