What is Going on With Gun Control Right Now in 2021?
Just a general warning. The statements presented may start to sound like a conspiracy theory, but I promise you, dear reader, it is not.
There's been much talk at the range recently about the new proposed gun control by the Biden Administration. Many people are perplexed. We get a ton of questions, emails, and phone calls asking, "Will this affect me?", "What can I do?", "Why are they doing this?" among others.
I want to answer these questions as best as I can. We've been in the firearms industry here at TMGN since 2013 and have had a shop & range since 2015, so we've seen tons of changes from different administrations. There is a clear agenda here, and I'm reasonably sure most gun owners are going to be a little unhappy with the information I'm about to deliver.
So, I guess the main question to answer first would be, how did we get here? Right now, we're looking at two (maybe more, who knows what the future holds) rule changes coming from the Biden DOJ and the ATF. These rule changes are an example of the Biden Admin governing by executive fiat, as they know they don't have the votes in the Senate to pass any of their gun control agenda. But let's unpack this. This situation is a culmination of events starting way back.
NFA (National Firearms Act): The National Firearms Act of 1936. The NFA was the first major federal gun control act in American history. The NFA created a tax and registry for Suppressors (sometimes called silencers), Short Barrel Rifles & Shotguns (referred to as SBRs / SBSs respectively), and Machine Guns. If you wanted to own any of these items, you'd have to submit to a lengthy background check and pay a $200 tax. (Equivalent to $4400 in 1934) In return, you'd receive what's known as a "tax stamp" showing that you were approved to own any of these "NFA items".
FFL: Federal Firearms License, shortened to FFL is used interchangeably to refer to a Firearms licensee aka a Dealer, or the physical License that is given by the federal government for the ability to manufacture firearms and/or to sell them. FFLs are overseen by the ATF.
ATF Form 4473: The main form that people are required to fill out when purchasing a firearm. FFLs are required to hold this form on site for 20 years. The forms are used in the event a firearm is used in a crime, the ATF can "run a trace" on that firearm and figure out who it was last transferred to.
NICS: The National Instant Criminal Background Check System. The NICS conducts background checks on people who want to own a firearm or explosive, as required by law. When a person tries to buy a firearm, the seller, known as a Federal Firearms Licensee (FFL), contacts NICS electronically or by phone. The prospective buyer fills out the ATF form 4473, and the FFL relays that information to the NICS. The NICS staff performs a background check on the buyer. That background check verifies the buyer does not have a criminal record or isn't otherwise ineligible to purchase or own a firearm.
1968 Gun Control Act: The creation of the system that we all know today. The GCA created the FFL system, banned mail-order guns, and more. This law has been updated a few times, most notably in 1993 with the Brady Handgun Violence Prevention Act, which created the NICS system we use today. The GCA replaced and updated the Federal Firearms Act, an older provision enacted in 1938.
2008 Heller Decision: In DC V Heller, the supreme court ruled that the 2nd Amendment protects an individual's right to possess a firearm, unconnected with service in a militia, and use that firearm for traditionally lawful purposes. Before this, gun control advocates argued that the 2nd Amendment had more to do with state militias than individual firearm ownership. With this decision, the Supreme court said that view was incorrect.
Stabilizing Brace: Sometimes called a pistol brace. A Device designed to help shooters with limited mobility stabilize their firearm more easily. Attached to the rear of a gun, usually equipped with straps or some way to allow the shooter to use their forearm to help stabilize the firearm while shooting.
Bump Stock: Bump fire stocks are gun stocks that are specially designed to make bump firing easier, which assist semi-automatic firearms with somewhat mimicking the firing motion of fully automatic weapons but does not make the firearm automatic. Essentially, bump stocks assist rapid fire by "bumping" the trigger against one's finger (as opposed to one's finger pulling on the trigger) thus allowing the firearm's recoil, plus constant forward pressure by the non-shooting arm, to actuate the trigger.
Ghost Gun: Made up term to make "homemade firearm." It's made to sound scary to those with little firearms knowledge. It has been common practice for people to build their guns. It's also perfectly legal to do and has been for years, contrary to what corporate media outlets would like you to believe. If you make a firearm in your house for personal use, it's legal and does not have to be serialized or registered. Although it still must conform to Federal firearms law and not violate the NFA.
So, where do we start?
The United States has a long history of gun control. But let's not be complete pessimists here. On the bright side, the ability to carry a pistol concealed for self-defense has been significantly expanded in recent years and has been trending towards fewer restrictions nationwide since 1976 when Georgia established the "Shall issue" process we have today. (Shall issue is when you are guaranteed a permit should you complete the state's process for acquiring said permit. whether that means taking a class or paying a fee. Inversely, States like Maryland and California use a process called "May Issue" where even if you complete the requirements for obtaining a permit, the state must still deem your "reason" for having said permit to be permissible. This has been declared unconstitutional in D.C. but that's a story for a different time.)
What is ironic here is that if you were to look at crime statistics, most crimes committed with a firearm, said firearm is a handgun. Why? It's simple. Criminals prefer smaller, more concealable firearms. It's hard to conceal an AR15, regardless of barrel length. Ironically when anti pistol legislation is proposed, it's much harder for the government to pass. So, the anti-gun lobby has (for now) given up on the issue. Instead, they've targeted the scary-looking modern sporting rifles of today. Most notably, the AR15. However, their aim does extend to most semi-automatic rifles that accept a detachable box magazine.
Now that we've established what they're after, let's talk about the events leading up to today.
On the evening of October 1st, 2017, Stephen Paddock opened fire upon the crowd attending the Route 91 Harvest music festival from the 32nd floor of the Mandalay Bay hotel. He killed 60 people and wounded 411. It was the deadliest mass shooting in the history of the United States. Paddock was able to achieve high rates of fire with a device known as a bump stock.
President Donald Trump ordered his Justice Department to find a way to ban the bump stock. The DOJ decided to classify the bump stock device as a machine gun in December of 2018, going into effect in March 2019. Since the only legal way to own a machine gun is to have a registered one on the NFA before 1986, bump stocks were effectively made illegal, and anyone in possession of one would be subject to 10 years imprisonment and a $250,000 fine.
The problem here is that a bump stock isn't a machine gun. It's not even a firearm at all. It's a piece of molded plastic that uses the gun's recoil, discharging a round to "bump" the trigger. It does not guarantee automatic fire, nor does it modify a semi-automatic rifle and "convert" it to full auto. The firearm itself would remain semi-automatic, and the bump stock would allow the user to fire faster, using the force of the recoil.
Most gun owners weren't up in arms over the bump stock ban. Public opinion of the ban was positive. More comments supported the proposed rule change on the federal register than opposed it—a rare thing for gun control. Many gun owners viewed bump stocks as a novelty and wrote it off entirely. The issue, though, was much more complex. It had little to do with the bump stock itself and much more to do with reclassifying an item that was not a firearm itself under the NFA and effectively banning it with no recourse for gun owners.
Fast forward to 2020. In May, the ATF announced it was changing its 4473 form. The form change would go into effect in November of 2020. Most gun owners are familiar with this form, even if they don't know it by name. It's the form that is filled out anytime that you purchase a firearm from a firearms dealer. It holds all the information of the individual looking to buy a gun before the FFL performs a background check through the federal NICS system.
"Why is a simple form change relevant?" you might ask. Well, the ATF did update the form itself. But the ATF also changed the layout of the form dramatically. Before the change, the ATF had all the personal information for the individual filling out the form on the first page. The firearm information was located on a separate page. The change moved the buyer's information and the firearm information (serial number, make, model, and more) to the first page. Here's where we get into speculation a bit, but I promise, there's a reason for it.
I believe that the ATF is setting up for eventually keeping a digital database of 4473s. They are currently forbidden to do this by law. The only way that they're legally allowed to keep physical 4473 forms is at one of their facilities in Martinsburg, WV. That facility is so full of paperwork that recently, the floor just caved in.
What's also important to know is that 4473 forms can (and should) be destroyed by dealers after 20 years. That means that the ATF will never keep those forms on file. Good FFLs do this. The only way for the ATF to acquire 4473 documents is if an FFL goes out of business, closes, or loses their license, they will need to turn over the forms that have not yet hit the 20 year mark. The ATF doesn't like this. So eventually, I'm sure we'll see a push for the ATF to digitize their data collection (hence the change to the 4473 form, as digitizing forms becomes much easier with all critical data on the first page).
A quick side note here is that the government should never know what firearms you own. It's your constitutional right to own firearms. The same way it's your constitutional right to speak your mind. You wouldn't want the FBI to keep a database of your text messages, would you? Same concept. We also know from history that keeping a database of firearms owner information eventually leads to a registry. Gun registries ALWAYS precede confiscation. If you look at history, this is always the case. It's better to not allow for a registry so that confiscation cannot occur because doing even light research on what happens to disarmed populations is a scary thing.
So let's continue with what's going on currently.
In Nov. of 2020, Joe Biden won the Presidential election. During his campaign, he had been known for extra inflammatory statements on gun control. Saying, "Yes, I'm coming for your assault weapon" and associating himself with Robert-Francis "Beto" O'Rourke, promising to nominate him as Gun Czar. Robert-Francis had famously said during a debate, "Hell yes, we're coming for your AR15." When speaking to union workers at a campaign stop, he told a worker who asked him about his gun control plans: "we'll take your AR14s away".
On December 18th, 2020, the ATF announced that it was planning to treat pistol braces as stocks and felt that they were being used to skirt the NFA and create unregistered Short Barrel Rifles. Gun owners came out in droves to comment on the Federal Register. A mere five days later, the ATF withdrew the pending rule change.
In 2021 things were quiet for the start of the year, President Biden primarily focusing on infrastructure, coronavirus, and taxes. That is until April 7th, 2021, when he held a press conference, announcing six actions that Biden is taking on gun control.
The Justice Dept. will make a rule to "help stop the proliferation of ghost guns."
The DOJ will, after that, issue a rule about stabilizing braces.
The DOJ will publish model "Red Flag" legislation for states.
Biden will nominate David Chipman to serve as the Director of the ATF.
The DOJ will issue an annual report on firearms trafficking.
The Biden admin is investing in "evidence-based" community violence interventions.
At that moment, there was little information about any of the incoming rules. The only clear thing was that Biden's nominee for the ATF would be David Chipman. David Chipman is a current gun-control activist and ex-ATF agent for those of you who don't know. For all the Biden campaign sloganeering on "Healing a Divided Nation," David Chipman has turned out to be one of the most divisive nominees yet, and one who has a clear ideological bias.
We know that David Chipman has a bias because during his confirmation hearings in May of 2021, He stated that he "supports a ban on AR15 style rifles." He also has written numerous articles and made many public statements on his opposition to Americans owning firearms.
One of the most important things to know about David Chipman is that in 2017 he wrote an article for Giffords called "Legal and Lethal – 9 Products That Could Be the Next Bump Stock". In the article, he speaks about how Congress must take action and ban things like High-Capacity Shotguns, AK & AR Style pistols, AR Pistol Arm Braces, 50 Caliber Rifles, Muzzleloaders, and more.
Shortly after David Chipman's hearing, the DOJ announced its rule on "Ghost Guns." Of course, It covers more than just people making firearms in their homes. The ATF decided firearm parts now need to be classified as firearms. Therefore, those parts need to have their background check done at the time of purchase. Their reason is that the gun control act of 1968 hasn't been updated. At the time of writing, the GCA didn't account for all the different parts that citizens could purchase separately. It's estimated that if you took the average AR15 and applied this rule, the AR15 would have 12 or more regulated parts that would require a background check. Meaning that if you buy an AR15, under this new rule, you'd be buying 12 different legal firearms built into one legal firearm. Make sense? I don't think so.
If you know anything about the history of the 1968 GCA, you know this is a total fabrication. A law prior called the Federal Firearms Act, which DID regulate parts, was replaced by the 1968 GCA. Congress found regulating firearm parts to be an "unworkable solution" and decided to regulate firearms by "frame or receiver," not multiple parts.
The ATF is also looking to classify items that they feel are "readily assembled" into firearms themselves. The definition of this is extremely unclear. My guess is that they are targeting 80% kits. 80% Kits are uncompleted firearm receivers in an 80% done state, meaning that legally they aren't considered firearms. The purchaser can complete these firearms themselves at home with some significant work, depending upon the kit and type of receiver. These kits are typically popular with hobbyists, not so much with criminals.
Lastly, this little lost detail that may be the most important of all: 4473 forms must be held INDEFINITELY by FFL holders, which means that FFLs can no longer destroy 4473 forms after 20 years.
Now here we are at the latest announcement, the ATF's proposed rule on stabilizing braces.
On June 7th, 2021, the ATF announced its proposed rule change for "factoring criteria for firearms with attached stabilizing braces." What they've done is create an overly complicated worksheet to ban all firearms with braces attached to them.
The proposed rule change goes like this: If your handgun has a brace on it, the ATF has a worksheet that determines if that brace, in its configuration on your pistol, creates a "short barrel rifle." (Defined as a firearm with a stock and a barrel length of under 16 inches.) Essentially, the ATF thinks that people are using braces to skirt the NFA and create short barrel rifles without paying the tax and registering their guns on the NFA registry. So, they've made the most complicated worksheet imaginable, named Worksheet 4999, to figure this out. The worksheet takes things into account like weight, length of pull, optic or scope on your pistol, and use two hands to fire the gun (which all people do even when shooting non-braced firearms) many more criteria if you score too high, oops! You have an illegal firearm.
Probably the most egregious thing about Worksheet 4999 and the proposed rule change is that at the top of the sheet, there's a disclaimer that essentially allows the ATF agent to deem your firearm as an illegal SBR regardless of if you pass the worksheet criteria and they feel that you are trying to circumvent the NFA. So even if you pass the worksheet, your agent may decide they feel like you've violated the law, and unfortunately, this rule change gives them the power to do so.
So, where does this all come together?
It's obvious when you look at what's happened and what's been proposed where the Biden admin is headed for gun control. They are testing the waters right now with these two proposed rule changes, but I guarantee this is not the end. These current ideas have been taken right from the David Chipman "Legal and Lethal" playbook. There's a part where Chipman writes this about semi-automatic rifles:
"The danger posed by firearms that enable shooters to continue firing in this manner is the same reason Congress chose to include machine guns in the NFA when it was originally enacted: these weapons enable a shooter to fire many bullets very quickly. Semi-automatic firearms equipped with large-capacity magazines do not, however, fall under the NFA. The NFA refers to machine guns as those firearms that discharge more than one shot without manual reloading, by a single function of the trigger. Firearms developed since the NFA and equipped with large capacity magazines rarely require manual reloading, but they can expel a lot of ammunition in a brief period. They do so by allowing a trigger to be pulled many times very easy and ensuring that there is almost always another bullet ready to go. Despite this, large-capacity magazines and semi-automatic firearms equipped with them (sometimes called "assault weapons") are not regulated under the NFA, even though they pose an incredible danger to our communities."
Take note here of Chipman's idea that any semi-automatic rifle that can accept a "high-capacity magazine," which I would assume is a magazine above ten rounds, is essentially a machine gun because they don't need to be reloaded as often.
We should look to this article as essentially the playbook that the ATF will take in the future. They are words right from the potential Director's own thoughts.
What potentially makes this situation more sinister is that they have the legal precedence to do so because of the bump stock ban. On top of that, the ATF's next move of indefinite holds on 4473s, and the eventual argument for moving to a digital system means that you can bet that there will at some point be a push for a registry of who owns what.
As I said, it sounds like a conspiracy. The puzzle pieces are all laid out in front of you. It's our duty as gun owners to fight back and secure our rights. We all need to leave comments on both proposed rule changes. Even if you're a defeatist that doesn't think that the comments will dissuade the ATF from stomping on your rights, keep in mind that groups will use your comments like Firearms Policy Coalition and Gun Owners of America to sue the ATF immediately should these changes take place.
This article has been a longer piece than usual, but I hope it's helped you understand where we are today with gun rights. In the time it took you to read this article, you could have commented on both proposed rule changes, so please make your way to regulations.gov and make your voice heard!
KIMM finds solution to medical waste problem, which has become a major national issue
A medical waste treatment system, which is capable of 99.9999 percent sterilization by using high-temperature and high-pressure steam, has been developed…
A medical waste treatment system, which is capable of 99.9999 percent sterilization by using high-temperature and high-pressure steam, has been developed for the first time in the country.
Credit: Korea Institute of Machinery and Materials (KIMM)
A medical waste treatment system, which is capable of 99.9999 percent sterilization by using high-temperature and high-pressure steam, has been developed for the first time in the country.
The Korea Institute of Machinery and Materials (President Seog-Hyeon Ryu, hereinafter referred to as KIMM), an institute under the jurisdiction of the Ministry of Science and ICT, has succeeded in developing an on-site-disposal type medical waste sterilization system that can help to resolve the problem caused by medical waste, which has become a national and social issue as the volume of medical waste continues to increase every year. This project was launched as a basic business support program of the KIMM and was expanded into a demonstration project of Daejeon Metropolitan City. Then, in collaboration with VITALS Co., Ltd., a technology transfer corporation, the medical waste treatment system was developed as a finished product capable of processing more than 100 kilograms of medical waste per hour, and was demonstrated at the Chungnam National University Hospital.
Moreover, the installation and use of this product have been approved by the Geumgang Basin Environmental Office of the Ministry of Environment. All certification-related work for the installation and operation of this product at the Chungnam National University Hospital has been completed, including the passage of an installation test for efficiency and stability conducted by the Korea Testing Laboratory.
Through collaboration with VITALS Co., Ltd., a corporation specializing in inhalation toxicity systems, the research team led by Principal Researcher Bangwoo Han of the Department of Urban Environment Research of the KIMM’s Eco-Friendly Energy Research Division developed a high-temperature, high-pressure steam sterilization-type medical waste treatment system by using a high-temperature antimicrobial technology capable of processing biologically hazardous substances such as virus and bacteria with high efficiency. After pulverizing medical waste into small pieces so that high-temperature steam can penetrate deep into the interior of the medical waste, steam was then compressed in order to raise the boiling point of the saturated steam to over 100 degrees Celsius, thereby further improving the sterilization effect of the steam.
Meanwhile, in the case of the high-pressure steam sterilization method, it is vitally important to allow the airtight, high-temperature and high-pressure steam to penetrate deep into the medical waste. Therefore, the research team aimed to improve the sterilization effect of medical waste by increasing the contact efficiency between the pulverized medical waste and the aerosolized steam.
By using this technology, the research team succeeded in processing medical waste at a temperature of 138 degrees Celsius for 10 minutes or at 145 degrees Celsius for more than five (5) minutes, which is the world’s highest level. By doing so, the research team achieved a sterilization performance of 99.9999 percent targeting biological indicator bacteria at five (5) different locations within the sterilization chamber. This technology received certification as an NET (New Excellent Technology) in 2023.
Until now, medical waste has been sterilized by heating the exposed moisture using microwaves. However, this method requires caution because workers are likely to be exposed to electromagnetic waves and the entrance of foreign substances such as metals may lead to accidents.
In Korea, medical waste is mostly processed at exclusive medical waste incinerators and must be discharged in strict isolation from general waste. Hence, professional efforts are required to prevent the risk of infection during the transportation and incineration of medical waste, which requires a loss of cost and manpower.
If medical waste is processed directly at hospitals and converted into general waste by applying the newly developed technology, this can help to eliminate the risk of infection during the loading and transportation processes and significantly reduce waste disposal costs. By processing 30 percent of medical waste generated annually, hospitals can save costs worth KRW 71.8 billion. Moreover, it can significantly contribute to the ESG (environmental, social, and governance) management of hospitals by reducing the amount of incinerated waste and shortening the transportation distance of medical waste.
[*Allbaro System (statistical data from 2021): Unit cost of treatment for each type of waste for the calculation of performance guarantee insurance money for abandoned wastes (Ministry of Environment Public Notification No. 2021-259, amended on December 3, 2021). Amount of medical waste generated on an annual basis: 217,915 tons; Medical waste: KRW 1,397 per ton; General waste from business sites subject to incineration: KRW 299 per ton]
As the size and structure of the installation space varies for each hospital, installing a standardized commercial equipment can be a challenge. However, during the demonstration process at the Chungnam National University Hospital, the new system was developed in a way that allows the size and arrangement thereof to be easily adjusted depending on the installation site. Therefore, it can be highly advantageous in terms of on-site applicability.
Principal Researcher Bangwoo Han of the KIMM was quoted as saying, “The high-temperature, high-pressure steam sterilization technology for medical waste involves the eradication of almost all infectious bacteria in a completely sealed environment. Therefore, close cooperation with participating companies that have the capacity to develop airtight chamber technology is very important in materializing this technology.” He added, “We will make all-out efforts to expand this technology to the sterilization treatment of infected animal carcasses in the future.”
President Seog-Hyeon Ryu of the KIMM was quoted as saying, “The latest research outcome is significantly meaningful in that it shows the important role played by government-contributed research institutes in resolving national challenges. The latest technology, which has been developed through the KIMM’s business support program, has been expanded to a demonstration project through cooperation among the industry, academia, research institutes, and the government of Daejeon Metropolitan City.” President Ryu added, “We will continue to proactively support these regional projects and strive to develop technologies that contribute to the health and safety of the public.”
Meanwhile, this research was conducted with the support of the project for the “development of ultra-high performance infectious waste treatment system capable of eliminating 99.9999 percent of viruses in response to the post-coronavirus era,” one of the basic business support programs of the KIMM, as well as the project for the “demonstration and development of a safety design convergence-type high-pressure steam sterilization system for on-site treatment of medical waste,” part of Daejeon Metropolitan City’s “Daejeon-type New Convergence Industry Creation Special Zone Technology Demonstration Project.”
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The Korea Institute of Machinery and Materials (KIMM) is a non-profit government-funded research institute under the Ministry of Science and ICT. Since its foundation in 1976, KIMM is contributing to economic growth of the nation by performing R&D on key technologies in machinery and materials, conducting reliability test evaluation, and commercializing the developed products and technologies.
This research was conducted with the support of the project for the “development of ultra-high performance infectious waste treatment system capable of eliminating 99.9999 percent of viruses in response to the post-coronavirus era,” one of the basic business support programs of the KIMM, as well as the project for the “demonstration and development of a safety design convergence-type high-pressure steam sterilization system for on-site treatment of medical waste,” part of Daejeon Metropolitan City’s “Daejeon-type New Convergence Industry Creation Special Zone Technology Demonstration Project.”
IFM’s Hat Trick and Reflections On Option-To-Buy M&A
Today IFM Therapeutics announced the acquisition of IFM Due, one of its subsidiaries, by Novartis. Back in Sept 2019, IFM granted Novartis the right to…
Today IFM Therapeutics announced the acquisition of IFM Due, one of its subsidiaries, by Novartis. Back in Sept 2019, IFM granted Novartis the right to acquire IFM Due as part of an “option to buy” collaboration around cGAS-STING antagonists for autoimmune disease.
This secures for IFM what is a rarity for a single biotech company: a liquidity hat trick, as this milestone represents the third successful exit of an IFM Therapeutics subsidiary since its inception in 2015.
Back in 2017, BMS purchased IFM’s NLRP3 and STING agonists for cancer. In early 2019, Novartis acquired IFM Tre for NLRP3 antagonists for autoimmune disease, which are now being studied in multiple Phase 2 studies. Then, later in 2019, Novartis secured the right to acquire IFM Due after their lead program entered clinical development. Since inception, across the three exits, IFM has secured over $700M in upfront cash payments and north of $3B in biobucks.
Kudos to the team, led by CEO Martin Seidel since 2019, for their impressive and continued R&D and BD success.
Option-to-Acquire Deals
These days option-based M&A deals aren’t in vogue: in large part because capital generally remains abundant despite the contraction, and there’s still a focus on “going big” for most startup companies. That said, lean capital efficiency around asset-centric product development with a partner can still drive great returns. In different settings or stages of the market cycle, different deal configurations can make sense.
During the pandemic boom, when the world was awash in capital chasing deals, “going long” as independent company was an easy choice for most teams. But in tighter markets, taking painful levels of equity dilution may be less compelling than securing a lucrative option-based M&A deal.
For historical context, these option-based M&A deals were largely borne out of necessity in far more challenging capital markets (2010-2012) on the venture front, when both the paucity of private financing and the tepid exit environment for early stage deals posed real risks to biotech investment theses. Pharma was willing to engage on early clinical or even preclinical assets with these risk-sharing structures as a way to secure optionality for their emerging pipelines.
As a comparison, in 2012, total venture capital funding into biotech was less than quarter of what it is now, even post bubble contraction, and back then we had witnessed only a couple dozen IPOs in the prior 3 years combined. And most of those IPOs were later stage assets in 2010-2012. Times were tough for biotech venture capital. Option-based deals and capital efficient business models were part of ecosystem’s need for experimentation and external R&D innovation.
Many flavors of these option-based deals continued to get done for the rest of the decade, and indeed some are still getting done, albeit at a much less frequent cadence. Today, the availability of capital on the supply side, and the reduced appetite for preclinical or early stage acquisitions on the demand side, have limited the role of these option to buy transactions in the current ecosystem.
But if the circumstances are right, these deals can still make some sense: a constructive combination of corporate strategy, funding needs, risk mitigation, and collaborative expertise must come together. In fact, Arkuda Therapeutics, one of our neuroscience companies, just announced a new option deal with Janssen.
Stepping back, it’ s worth asking what has been the industry’s success rate with these “option to buy” deals.
Positive anecdotes of acquisition options being exercised over the past few years are easy to find. We’ve seen Takeda exercise its right to acquire Maverick for T-cell engagers and GammaDelta for its cellular immunotherapy, among other deals. AbbVie recently did the same with Mitokinin for a Parkinson’s drug. On the negative side, in a high profile story last month, Gilead bailed on purchasing Tizona after securing that expensive $300M option a few years ago.
But these are indeed just a few anecdotes; what about data since these deal structures emerged circa 2010? Unfortunately, as these are mostly private deals with undisclosed terms, often small enough to be less material to the large Pharma buyer, there’s really no great source of comprehensive data on the subject. But a reasonable guess is that the proportion of these deals where the acquisition right is exercised is likely 30%.
This estimate comes from triangulating from a few sources. A quick and dirty dataset from DealForma, courtesy of Tim Opler at Stifel, suggests 30% or so for deals 2010-2020. Talking to lawyers from Goodwin and Cooley, they also suggest ballpark of 30-50% in their experience. The shareholder representatives at SRS Acquiom (who manage post-M&A milestones and escrows) also shared with me that about 33%+ of the option deals they tracked had converted positively to an acquisition. As you might expect, this number is not that different than milestone payouts after an outright acquisition, or future payments in licensing deals. R&D failure rates and aggregate PoS will frequently dictate that within a few years, only a third of programs will remain alive and well.
Atlas’ experience with Option-based M&A deals
Looking back, we’ve done nearly a dozen of these option-to-buy deals since 2010. These took many flavors, from strategic venture co-creation where the option was granted at inception (e.g., built-to-buy deals like Arteaus and Annovation) to other deals where the option was sold as part of BD transaction for a maturing company (e.g., Lysosomal Therapeutics for GBA-PD).
Our hit rate with the initial option holder has been about 40%; these are cases where the initial Pharma that bought the option moves ahead and exercises that right to purchase the company. Most of these initial deals were done around pre- or peri-clinical stage assets. But equally interesting, if not more so, is that in situations where the option expired without being exercised, but the asset continued forward into development, all of these were subsequently acquired by other Pharma buyers – and all eight of these investments generated positive returns for Atlas funds. For example, Rodin and Ataxion had option deals with Biogen (here, here) that weren’t exercised, and went on to be acquired by Alkermes and Novartis (here, here). And Nimbus Lakshmi for TYK2 was originally an option deal with Celgene, and went on to be purchased by Takeda.
Option deals are often criticized for “capping the upside” or creating “captive companies” – and there’s certainly some truth to that. These deals are structured, typically with pre-specified return curves, so there is a dollar value that one is locked into and the presence of the option right typically precludes a frothy IPO scenario. But in aggregate across milestones and royalties, these deals can still secure significant “Top 1%” venture upside though if negotiated properly and when the asset reaches the market: for example, based only on public disclosures, Arteaus generated north of $300M in payments across the upfront, milestones, and royalties, after spending less than $18M in equity capital. The key is to make sure the right-side of the return tail are included in the deal configuration – so if the drug progresses to the market, everyone wins.
Importantly, once in place, these deals largely protect both the founders and early stage investors from further equity dilution. While management teams that are getting reloaded with new stock with every financing may be indifferent to dilution, existing shareholders (founders and investors alike) often aren’t – so they may find these deals, when negotiated favorably, to be attractive relative to the alternative of being washed out of the cap table. This is obviously less of a risk in a world where the cost of capital is low and funding widely available.
These deal structures also have some other meaningful benefits worth considering though: they reduce financing risk in challenging equity capital markets, as the buyer often funds the entity with an option payment through the M&A trigger event, and they reduce exit risk, as they have a pre-specified path to realizing liquidity. Further, the idea that the assets are “tainted” if the buyer walks hasn’t been borne out in our experience, where all of the entities with active assets after the original option deal expired were subsequently acquired by other players, as noted above.
In addition, an outright sale often puts our prized programs in the hands of large and plodding bureaucracies before they’ve been brought to patients or later points in development. This can obviously frustrate development progress. For many capable teams, keeping the asset in their stewardship even while being “captive”, so they can move it quickly down the R&D path themselves, is an appealing alternative to an outright sale – especially if there’s greater appreciation of value with that option point.
Option-based M&A deals aren’t right for every company or every situation, and in recent years have been used only sparingly across the sector. They obviously only work in practice for private companies, often as alternative to larger dilutive financings on the road to an IPO. But for asset-centric stories with clear development paths and known capital requirements, they can still be a useful tool in the BD toolbox – and can generate attractive venture-like returns for shareholders.
Like others in the biotech ecosystem, Atlas hasn’t done many of these deals in recent funds. And it’s unlikely these deals will come back in vogue with what appears to be 2024’s more constructive fundraising environment (one that’s willing to fund early stage stories), but if things get tighter or Pharma re-engages earlier in the asset continuum, these could return to being important BD tools. It will be interesting to see what role they may play in the broader external R&D landscape over the next few years.
Most importantly, circling back to point of the blog, kudos to the team at IFM and our partners at Novartis!
Major typhoid fever surveillance study in sub-Saharan Africa indicates need for the introduction of typhoid conjugate vaccines in endemic countries
There is a high burden of typhoid fever in sub-Saharan African countries, according to a new study published today in The Lancet Global Health. This high…
There is a high burden of typhoid fever in sub-Saharan African countries, according to a new study published today in The Lancet Global Health. This high burden combined with the threat of typhoid strains resistant to antibiotic treatment calls for stronger prevention strategies, including the use and implementation of typhoid conjugate vaccines (TCVs) in endemic settings along with improvements in access to safe water, sanitation, and hygiene.
Credit: IVI
There is a high burden of typhoid fever in sub-Saharan African countries, according to a new study published today in The Lancet Global Health. This high burden combined with the threat of typhoid strains resistant to antibiotic treatment calls for stronger prevention strategies, including the use and implementation of typhoid conjugate vaccines (TCVs) in endemic settings along with improvements in access to safe water, sanitation, and hygiene.
The findings from this 4-year study, the Severe Typhoid in Africa (SETA) program, offers new typhoid fever burden estimates from six countries: Burkina Faso, Democratic Republic of the Congo (DRC), Ethiopia, Ghana, Madagascar, and Nigeria, with four countries recording more than 100 cases for every 100,000 person-years of observation, which is considered a high burden. The highest incidence of typhoid was found in DRC with 315 cases per 100,000 people while children between 2-14 years of age were shown to be at highest risk across all 25 study sites.
There are an estimated 12.5 to 16.3 million cases of typhoid every year with 140,000 deaths. However, with generic symptoms such as fever, fatigue, and abdominal pain, and the need for blood culture sampling to make a definitive diagnosis, it is difficult for governments to capture the true burden of typhoid in their countries.
“Our goal through SETA was to address these gaps in typhoid disease burden data,” said lead author Dr. Florian Marks, Deputy Director General of the International Vaccine Institute (IVI). “Our estimates indicate that introduction of TCV in endemic settings would go to lengths in protecting communities, especially school-aged children, against this potentially deadly—but preventable—disease.”
In addition to disease incidence, this study also showed that the emergence of antimicrobial resistance (AMR) in Salmonella Typhi, the bacteria that causes typhoid fever, has led to more reliance beyond the traditional first line of antibiotic treatment. If left untreated, severe cases of the disease can lead to intestinal perforation and even death. This suggests that prevention through vaccination may play a critical role in not only protecting against typhoid fever but reducing the spread of drug-resistant strains of the bacteria.
There are two TCVs prequalified by the World Health Organization (WHO) and available through Gavi, the Vaccine Alliance. In February 2024, IVI and SK bioscience announced that a third TCV, SKYTyphoid™, also achieved WHO PQ, paving the way for public procurement and increasing the global supply.
Alongside the SETA disease burden study, IVI has been working with colleagues in three African countries to show the real-world impact of TCV vaccination. These studies include a cluster-randomized trial in Agogo, Ghana and two effectiveness studies following mass vaccination in Kisantu, DRC and Imerintsiatosika, Madagascar.
Dr. Birkneh Tilahun Tadesse, Associate Director General at IVI and Head of the Real-World Evidence Department, explains, “Through these vaccine effectiveness studies, we aim to show the full public health value of TCV in settings that are directly impacted by a high burden of typhoid fever.” He adds, “Our final objective of course is to eliminate typhoid or to at least reduce the burden to low incidence levels, and that’s what we are attempting in Fiji with an island-wide vaccination campaign.”
As more countries in typhoid endemic countries, namely in sub-Saharan Africa and South Asia, consider TCV in national immunization programs, these data will help inform evidence-based policy decisions around typhoid prevention and control.
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About the International Vaccine Institute (IVI)
The International Vaccine Institute (IVI) is a non-profit international organization established in 1997 at the initiative of the United Nations Development Programme with a mission to discover, develop, and deliver safe, effective, and affordable vaccines for global health.
IVI’s current portfolio includes vaccines at all stages of pre-clinical and clinical development for infectious diseases that disproportionately affect low- and middle-income countries, such as cholera, typhoid, chikungunya, shigella, salmonella, schistosomiasis, hepatitis E, HPV, COVID-19, and more. IVI developed the world’s first low-cost oral cholera vaccine, pre-qualified by the World Health Organization (WHO) and developed a new-generation typhoid conjugate vaccine that is recently pre-qualified by WHO.
IVI is headquartered in Seoul, Republic of Korea with a Europe Regional Office in Sweden, a Country Office in Austria, and Collaborating Centers in Ghana, Ethiopia, and Madagascar. 39 countries and the WHO are members of IVI, and the governments of the Republic of Korea, Sweden, India, Finland, and Thailand provide state funding. For more information, please visit https://www.ivi.int.
Incidence of typhoid fever in Burkina Faso, Democratic Republic of the Congo, Ethiopia, Ghana, Madagascar, and Nigeria (the Severe Typhoid in Africa programme): a population-based study
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