Serial entrepreneurs Nicholas Franano, M.D., and William Whitaker, Esq., founded Novita Therapeutics, LLC, in June of 2009. Novita currently has its headquarters in Olathe, Kansas at the Kansas Bioscience Park Venture Accelerator. To date, Novita has issued two classes of equity: Common Interests issued to the founders and Preferred Interests issued to investors.
Approach to Product Development
Drug and medical device development involves a series of distinct stages.
The optimal size, culture and capabilities of companies engaged in discovery and early stage product development differs substantially from companies engaged in later stage product development and the marketing of approved products.
Rather than accept the inherent tradeoffs in trying to bridge these two cultures in a single company, Novita has developed a structure that enables separate organizations to be optimized for each stage and streamlines the transfer of development programs from one organization to another with minimal disruption.
Novita’s role in this system is to identify nascent product opportunities and complete early stage "proof of concept" product development and then spin out the products into a new company (Newco) that can develop them through to a later stage exit or commercial launch.
Novita's investment structure dovetails with its product development strategy and aligns the interests of Novita, its management and team members, and its investors.
Novita’s investors have purchased equity in Novita in the form of Preferred Interests. These investors have the opportunity to exchange their Preferred Interests in Novita for preferred equity in Newco spinout companies that are created by Novita, leveraging the valuation negotiated by venture capital investors who are financing the Newco spinout companies. In recognition of the risk of early investing, holders of Novita Preferred Interests who exchange their Novita equity for Newco spinout equity will receive a 4.25% annual dividend in additional Newco equity and will receive a discount on the Newco equity price of 5% for each year they have held the Novita convertible preferred interests, up to a maximum of 20%.
Those investors who hold some of their investment in Novita for the full seven years until maturation of the Preferred Interests will receive a dividend on their remaining Novita holdings.
Novita will typically raise the first round of capital for the Newco spinout companies, after which Newco management will be responsible for developing the products and raising additional rounds of capital. Investors who exchange equity in Novita for equity in Newco spinout companies will realize a return on their Novita investment through the sale of their Newco equity.
While angel and seed-stage equity investments can sometimes yield very large returns, Novita understands the risks associated with this type of investment.
Novita is committed to reducing these risks through a series of risk mitigation strategies outlined below:
- Investors may be eligible to receive Kansas Angel Tax Credits. Novita is a “qualified company” under the Kansas Angel Tax Credit program and therefore investors are eligible to receive a 50% Kansas tax credit up to a maximum of $50,000 per individual for a $100,000 investment. The availability of these tax credits to investors is subject to Novita having been issued credits in amounts sufficient to cover the maximum amount of credits for which the investor is qualified. Investors who are not able to use the total amount of their tax credits in any one year may carry forward these unused credits indefinitely and use them in future years to offset Kansas tax liability on a dollar-for-dollar basis. For investors without Kansas tax liability for the past 3 years, the credits can be sold for cash. With this industry-leading program, the state of Kansas benefits from the diligence carried out by individual investors and, in return, reduces the risk of those investors going forward. The program has been vital in the creation of a substantial number of businesses in Kansas and has contributed in a meaningful way to economic growth in the State.
- Generation of passive losses to offset passive income. Most successful biopharmaceutical and medical device companies experience a period of losses during product development prior to generating large returns. The LLC structure at Novita allows investors to harvest these passive losses, allowing them to be used to offset passive income from other investments. When combined with Kansas Angel Tax Credits, the actual capital at risk in Novita is reduced to a fraction of the original investment.
- Potential for diversification from a single investment. Picking winners and losers in early stage technology investments is challenging. Many investors seek to diversify their early stage life science investments over multiple companies in order to reduce the risk of capital loss. At Novita, investors have the option of exchanging their Preferred Interest equity in Novita into preferred equity in multiple Newco spinout companies, thereby achieving some level of diversification. Holding Novita Preferred Interest equity until maturation accomplishes a similar objective in that investors are depending upon Novita's diversified holding in spinout equity to pay dividends to the investor, rather than depending on a more concentrated holding in a single company for a return.
No Offer of Securities
Nothing contained on this website constitutes an offer to sell or a solicitation or advertisement of an offer to purchase securities, which may made only by a written disclosure document complying with applicable law and a determination by Novita that the offeree is an appropriate purchaser and has not been solicited by any means of general solicitation.