MPM Asset Management, a Boston-based venture capital firm focused on life sciences, recently created a Form-10 shell company with the assistance of the New York law firm of Feldman Weinstein & Smith.  The formation is indicative of a growing interest by venture capital firms in shell merger transactions.

The shell, called MPM Acquisition Corp., has 5 million shares outstanding.  They are controlled by Steven St. Peter, MPM Acquisition’s president and a general partner at MPM Asset Management, and Ansbert Gadicke, also an MPM general partner.

MPM Asset has sold two previous portfolio companies to SPACs.  In December 2006, it sold medical device maker Alsius Corp. to the $53 million SPAC Ithaka Acquisition Corp. for $97 million.  In August 2007, it sold biodefense pharmaceutical maker PharmAthene to the $75 million SPAC Healthcare Acquisition Corp. for $112.5 million.  St. Peter currently sits on PharmAthene’s board.

MPM Asset did not return calls for comment.

Registration filings by MPM Acquisition make no specific mention of using the shell for exiting a portfolio investment; however, securities attorneys note budding interest from venture capital and private equity firms in reverse merger transactions.  The firms have been some of the last to embrace shell mergers.

“The growing interest in SPACs as an exit strategy will hopefully lead to a greater interest in traditional reverse mergers,” David Feldman, a founding partner with Feldman Weinstein & Smith, said.  “The greatest hurdle is realizing that the market price builds over time.  The reverse merger is not the exit, but a step in that direction.”

With a virtually dormant IPO market, Feldman said the shell merger route should start to become more attractive.  Two years ago exit strategies were split 50-50 between acquisitions and IPOs.  Now, it is closer to 90-10, he said.

Additionally, venture capital geared towards pharmaceutical and biotech companies has been quicker to consider shell mergers, especially for pre-revenue companies in the Phase II trial stage, according to Feldman.  There are greater financing options available for early-stage startups and late-stage operations close to market.  For those companies still two or more years away, it can be a bit more difficult, he said.