PETALUMA -- Oculus Innovative Sciences is moving forward with its plan to launch a spinoff company, Ruthigen Inc., which will seek federal approval for a new drug that can possibly prevent a variety of surgical infections.
At the same time, Oculus (Nasdaq: OCLS) recently announced an underwritten public offering of 8.6 million shares of its common stock, at 40 cents per share, that generated approximately $3.45 million.
Proceeds will go toward retiring some debt and for general corporate purposes, including providing startup funding for Ruthigen.
"It enables us to have access to some working capital," Hoji Alimi, chief executive officer of Oculus, said.
The new company, like Oculus, will be traded on the Nasdaq and will seek an initial public offering sometime this year, ideally as soon as possible to capitalize on investor interest in biotech and medical companies, according to Mr. Alimi.
While it's too soon to say how much Ruthigen will look to raise in the IPO, Ruthigen CFO Sameer Harish and Mr. Alimi said initial costs for getting its new drug, RUT58-60, to the level of FDA approval is roughly $45 million to $50 million. It hopes to receive approval for the drug by 2017.
"The amount we raise will be dependent on many factors. An important metric is how much we need to get the product through the FDA," Mr. Harish said.
Mr. Alimi will step down as CEO from Oculus to be the chief executive at Ruthigen, although he will remain on the board of directors for Oculus. Jim Shultz, previously chief operating officer of Oculus, will become its CEO.
The main motivation in forming Ruthigen is to develop the new drug, which is similar to Oculus' flagship product Mircocyn, a solution used in wound care treatment, dermatology, oral care, and other areas of treatment.
It differs, though, in the way it can treat infections specifically related to organ exposure, and Mr. Alimi said it could be used in up to 47 million surgical operations in the U.S.
"Most recently, we came across a way to significantly improve the efficiency of Microcyn," Mr. Alimi said. The solution is currently being widely used in Mexico, particularly in animal care. Ruthigen could be particularly beneficial in surgeries such as abdominal, pulmonary, cardiovascular and others that involve the exposure of organs.
Spinning off Ruthigen could help ease the burden of development costs for the drug, thereby eventually helping to increase the value of its share price, Mr. Alimi said.
"What we wanted to do was to include the value of this drug for our shareholders," he said. "Right now we're really focused on increasing our revenue and growing in terms of earnings per share. It really made sense with discussion with our investors that we should spin off a different company with different management and a different board."
Oculus, which has 37 employees in Petaluma and 78 company-wide, has a separate facility in Santa Rosa, but it will likely seek a larger space to accommodate growth. The new company also hopes to tap into an increasingly visible bio and med tech industry in Sonoma and Marin counties and plans on adding jobs in the future.
For the third quarter of fiscal 2013, ended Dec. 31, Oculus reported total revenues of $3.5 million, compared with $2.8 million for the same period in the prior year.