Financings of the Fortnight Is Innocent Until Proven Guilty

Welcome to the jury service edition. We were called in to do our civic duty this week, and we were stunned when we made it through the voir dire and found ourselves on our feet, raising our right hand and taking an oath to well and truly try the cause before us.

Now impaneled for the first time and deciding the fate of a fellow citizen, your columnist is struck by how difficult -- and important -- it is to remember that a person charged with a crime is innocent until proven guilty. Everyone likes to think of himself or herself as open minded, but the real challenge is to keep the mind open in the pressure cooker of a criminal trial: sealed into a room, artificially separated from the outside world, and bombarded with new jargon, complicated timelines, and tangled facts, or egregious lack thereof.

We're also finding the process fascinating in the age of social media. All of us are constantly encouraged to be insta-pundits. Indeed, 140-character snap judgments are not just encouraged, they're lionized, but a juror's job is the opposite: You must banish the snap judgments. No, better yet, be skeptical of them, then gather them, shape them, and rework them into a coherent latticework of reason.

It's a weird out-of-body experience. It's also a lot like journalism, though with very different rules. While I've been deliberating with eleven others, my colleagues committed a small act of heads-up journalism, digging up notice in a Cephalon regulatory filing that the firm is starting its own in-house venture group. In case you missed it, here's our report. Cephalon joins Merck-Serono, Boehringer-Ingelheim and Shire, all recent joiners of the corporate venture club.

Any holdouts? The biggest, or so we thought, is the American Merck. Consider this response from Merck's SVP of worldwide licensing David Nicholson at last year's Pharmaceutical Strategic Outlook conference, when he was asked if Merck would ever create a biotech venture fund:

Look, there are some really fantastic VC folks out there and that's their business. Our business is discovering and developing drugs. At least to date, have we contributed to VCs and to their firms? Yes, absolutely. All parts of the various legacy companies of Merck have done that. That's something that we remain interested in. Are there concrete plans to set up a VC fund at Merck today? No. Does that rule it out forever? Who knows?

"Who knows" has arrived. Without fanfare, the big pharma has launched what it calls the Global Health Innovation Fund, a $125 million vehicle with five staffers who report into Merck's executive committee and chief strategy officer. The group's mandate is to invest beyond drugs: diagnostics, devices, information and health management tools, site-of-care services. The fund is run by Bill Taranto, who came to Merck from Johnson & Johnson, where he was most recently in charge of health care strategy and alliances. Taranto's been out stumping for the fund at conferences like this.

We asked about the fund's investments so far, and we got a tight-lipped response: Nothing yet disclosed.

Another holdout that comes to mind is Celgene. Though it's done one-off investments like the one Cephalon made in Japanese firm SymBio Pharmaceutical, which we describe below, Celgene doesn't have a venture group. But as we report in the upcoming issue of IN VIVO, executives certainly have been thinking about it -- and larger questions of how to tap into outside innovation -- as the big biotech grows more attuned to its size ($3.6 billion in 2010 sales), its dependence on one product (Revlimid, $2.5 billion in 2010 sales), and the pitfalls of having investors who want some of that cash back, dammit, instead of seeing it plowed into R&D (28% of fourth-quarter revenues) or marquee deals.

We're often accused of bringing you, dear reader, tasty little tidbits from the financial front. You can call us innocent, you can call us guilty, but you can't deny that you're reading another edition of...


Acetylon Pharmaceuticals: A few weeks back, we’d heard that oncology startup Acetylon was looking to tap a broad network of angels for an upcoming round of funding well into the double-digit millions -- a lot more money than can fit on the head of a pin. Now Acetylon has taken the first step, revealing in an SEC filing that it’s raised the first $12.4 million of a planned $30 million Series B round. Although it hasn’t revealed details about its investor group, CEO Walter Ogier said in a recent START-UP feature that Acetylon wanted to avoid working with traditional VCs. Rather, it planned to seek capital from friends and colleagues of its existing angel network, which includes The Kraft Group, a family philanthropic organization and holding company tied to the owners of the New England Patriots. The strategy appears to be working: The filing says 23 investors are already involved with the new round, more than twice the number involved in its $7.2 million Series A during 2009. (A $2 million convertible note followed last year.) Founded to investigate new drugs in the class known as histone deacetylase (HDAC) inhibitors, Acetylon is aiming to move its first drug candidate, multiple myeloma treatment ACY-1215, into the clinic. The company published and presented encouraging preclinical data about the drug in December. In a new wave of HDAC inhibitors in recent years, only two have been approved: Celgene's Istodax (romidepsin), which it nabbed in its takeover of Gloucester Pharmaceuticals; and Merck & Co.'s Zolinza (vorinostat). Both were approved for cutaneous T-cell lymphoma. -- Paul Bonanos

Tengion: Raise or fold: Those were the two options in the cards for organ and tissue regeneration firm Tengion. On March 1, two months away from running dry, the firm raised $31.4 million in a PIPE by selling 11.1 million shares at $2.83, a 13% discount to the ten-day average. Tengion also issued five-year warrants for another 10.5 million shares at $2.88. Tengion announced last month it only had enough cash to last through April, which would mark the one-year anniversary of the firm's 2010 initial public offering. The company priced 6 million shares at $5, though it wanted a stock price twice as high with fewer shares sold. The stock has since traded between $3 to $5 except for two days in mid-February, when it got a boost supposedly from rumored discussions of a stock-for-stock merger between Tengion and an undisclosed publicly traded company. But the price spike caused the potential buyer to pull out of those negotiations, according to Tengion. Device giant Medtronic was the big name in this week's stock sale. It bought 2.5 million shares and received a right of first refusal that expires Oct. 31, 2013 to Tengion’s Neo-Kidney Augment, a preclinical cell augmentation candidate designed to prevent or delay dialysis or kidney replacement by regenerating kidney tissue. Upon first glance Medtronic’s investment seems out of the ordinary, but Medtronic has been trying to build a regenerative biologics business. This past August it paid $118 million for Osteotech, which produces demineralized bone matrices, bone grafts, and structural allografts. -- Amanda Micklus

Advanced BioHealing: ABH is looking for a smoother road than what Tengion has experienced in the public domain. The Connecticut firm, also working on regenerative medicine products, has filed for an IPO with a $200 million placeholder. Just a placeholder, mind you, but it's at least a rough gauge of what the company and its advisors think of its prospects. It sells a bioengineered skin substitute called Dermagraft used to treat diabetic foot ulcers, and it would like to expand the product to treat venous leg ulcers. It's also working on a skin treatment for severe burns. This year started with a flurry of IPOs that mainly followed last year's trend of discounted pricing and, post-IPO, lukewarm reception for shares. It's something ABH's shareholders must be keenly aware of. Canaan Partners owns 41%, Safeguard Delaware 28%, and Wheatley Partners 15%. -- A.L.

SymBio Pharmaceuticals: Plenty of Western biopharmas have found interesting compounds sitting on Japanese drug makers' shelves. SymBio turns that formula on its head. The Tokyo-based specialty pharma in-licenses foreign products and brings them to the Japanese market. It just raised a ¥ 2 billion ($24 million) Series E round, which makes the company sound ancient. Not so; it was founded in 2005 by the former head of Amgen in Japan, and it shepherded the lymphoma treatment bendamustine to approval in Japan last October within four years of starting a Phase I study. The F round was led by Cephalon and JAFCO, with Cephalon boosting by an undisclosed amount its 17.5%, which it gained in its 2009 deal with SymBio to take over bendamustine rights in China and Hong Kong. Cephalon also has US rights to the drug through a deal cut by Salmedix, which Cephalon acquired in 2005. (Salmedix got the rights from Fujisawa Deutschland in 2003.) There's a lot of ink devoted to SymBio in our colleague Mel Senior's IN VIVO feature on Japanese specialty pharma here. The story is four years old -- note the reference to a "burgeoning private equity sector" -- but quotes like this one from SymBio CEO Fuminori Yoshida are timeless: "Many [non-Japanese] companies in niche areas, looking for partners in Japan, visit Japanese pharma firms, take their executives to a nice restaurant, and think they have a deal. Twelve months later, nothing happens." -- A.L.

Image courtesy of flickr user mira66 under a Creative Commons license.

Look! Up In The Sky! It's Financings of the Fortnight!

It's a bird (yum!), it's a plane... no, sorry kitty, it was the year's first blast of biopharma IPO activity that we spied in the winter sky this past fortnight. As in 2010, there were several underpowered liftoffs, a couple failures to launch, and, if you'll pardon our mixed multimedia metaphor, very little catnip for public investors.

The first debut, Pacira Pharmaceuticals, went public just as our previous thrilling FOTF episode was going to press. The 2007 spin-out of SkyePharma PLC’s injectables business grossed $42 million by selling 6 million shares at $7, half the price of the low end of its anticipated $14 to $16 range. Since then, Endocyte and AcelRx Pharmaceuticals have also reached public orbit but, as with Pacira, only by bending to public market pressure and selling more shares at a lower price than they hoped for.

Other biopharmas couldn't get out at all. Clarus Therapeutics, a developer of reformulated oral testosterone replacement therapy, postponed its IPO on February 11; it hoped to sell 5 million shares between $11 and $13. And Italian antibody producer Philogen canceled its second attempt to list on the Milan stock exchange after partner Bayer HealthCare Pharmaceuticals terminated a license agreement for Philogen’s two Phase II cancer candidates, radretumab and darleukin.

It's worth noting that beyond biopharma, sequencing firm Fluidigm and diagnostic maker BG Medicine went public, as did Israeli company RedHill BioPharma on the Tel Aviv Stock Exchange, though its 51.6 million shekels ($13.6 million) raised were barely a blip. (Still, it's always fun to say, "That's a lot of shekels!")

Haircuts or not, companies at least are raising money. But what about investors? We've been following post-IPO stock performance, but it doesn't tell us much about the recent debuts. So now that the year's first IPO fusillade is over and no life-science debuts are pending, let's take a different measure. Of the 16 US biopharma companies to go public since the window re-opened in late 2009 (excluding PE-backed Talecris Biotherapeutics Holdings and biofuels company Amyris), the average step-up, defined as pre-IPO valuation divided by the private money raised, for the group is 1.65x. But that figure includes the outlier Cumberland Pharmaceuticals, which privately raised $16 million but had a pre-money IPO value of $291 million. That specialty pharma ended up with an IPO step-up of 12.5x, way above the mean. Remove Cumberland, and the average for the current class drops to 1.54x.

How does that compare to acquisitions? We found 21 biopharma acquisitions in the same period of time for which we could obtain venture data. Two were outliers: Marcadia Biotech, which raised $15 million from VCs and sold to Roche for $292 million in December; and AkaRx, which raised $11 million in venture and sold to Eisai for $255 million in late 2009. The rest of the group produced a step-up of 2x, slightly better than the IPO group.

Now, we fully realize that the IPO isn't an exit, it's -- let's say it together -- just another round of financing. So those IPO step-ups are strictly theoretical. That's why we'll keep monitoring post-IPO stock performance. By the time the lock-up ends, a new public company's stock price these days has often given its venture holders heartburn to go along with their haircuts. As of last week, the 15 biopharmas in the class of 2009-2011 had seen their post-IPO share prices fall an average of 5%. (Only four days public, AcelRx isn't included, but as of this writing it's lost 20% of its IPO price.)

At a time when markets are buoyant -- heck, even the Nasdaq biotech index is up 16% since the Jan. 1, 2010 -- the cumulative loss for the recent biopharma IPO class is disheartening. As Atlas Venture partner Bruce Booth tweeted this week, "It's tough out there."

Well then. So who’s on deck? Supernus Pharmaceuticals is a spin-out of Shire Laboratories’ drug reformulations unit with two extended-release versions of generic epilepsy medications in Phase III. Ambit Biosciences, a cancer company that has partnered with Astellas on its Phase II kinase inhibitor for relapsed/refractory acute myeloid leukemia, also submitted an S-1 in December. Other companies that filed in 2010 include Cutanea Life Sciences and Horizon Pharma.

Ready for liftoff? Remember, folks, in space no one can hear you scream, especially when you're reading...


Conatus Pharmaceuticals: Liver disease specialist Conatus announced a $20 million Series B round that remains open to additional investors. First-time backer AgeChem Venture Fund of Montreal joined Conatus’ existing investors, Aberdare Ventures, Advent Venture Fund, Bay City Capital, Gilde Healthcare Partners and Roche Venture Fund. The round builds upon the startup’s $27.5 million Series A from 2007. Formed by former executives at Idun Pharmaceuticals after Pfizer acquired that startup in 2005, Conatus’ funding needs increased last summer, when it bought at fire-sale prices Idun’s assets, which the Big Pharma left idle as a result of its reorganization. Nonetheless, Conatus says most of the new money is intended to support ongoing trials on CTS-1027, a Phase II hepatitis C therapy it licensed from Roche in late 2006. The former Idun pipeline includes emricasan, a Phase II candidate that was also investigated for hepatitis C, and other drugs designed to inhibit caspases, proteins that induce apoptosis. In conjunction with the new preferred stock round, Conatus also converted promissory bridge notes issued in the interim between rounds into Series B stock. AgeChem, which typically invests in therapeutics targeting disorders related to aging, took a Conatus board seat. -- Paul Bonanos

Optimer Pharmaceuticals: How's this for a movie tagline: "In a world of drugs versus bugs, the drug side just got richer." Optimer netted $73 million in a follow-on public offering that closed February 16, and it'll put at least part of the cash toward the launch of fidaxomicin. The narrow-spectrum antibiotic is aimed at Clostridium difficile, a gram-positive bacterium that infects the gut and causes severe diarrhea. Often acquired in hospitals and nursing facilities, C. diff infection often occurs after other antibiotics have been administered, upsetting the naturally occurring flora in the intestine. Optimer officials said recently fidaxomicin is expected to improve on the observed relapse rate of 20% to 30% in patients treated with standards of care vancomycin or metranidazole. With a priority review underway and a PDUFA date of May 30, Optimer could be looking at a roll-out of fidaxomicin in the second half of the year. In the secondary offering Optimer sold 6.9 million shares at $11.25 each, 10.5% below the closing price of its stock on February 10, the day it announced the offering. The cash raise, with Jefferies & Co. as lead underwriter, adds to the $68 million upfront Optimer is receiving from Astellas Pharma Europe for development and commercial rights to fidaxomicin in Europe and selected countries in the Middle East, Africa and Eastern Europe. Optimer retains rights in the US and Asia. Oh, and in the movie, we recommend that Jean Reno plays C. difficile. -- Alex Lash and P.B.

e-Therapeutics: The publicly traded British drug discovery firm netted £16.6 million ($26.7 million) on Feb. 15 in a placing with new and existing investors, including Invesco Asset Management, Gartmore Investment and Octopus Investments. The funds will be used to move e-Therapeutics's first potential products into clinical trials. In the placement one of the company's long-term investors, the UK hedge fund RAB Capital PLC, sold most but not all of its shares at a profit, CEO Malcolm Young told our "Pink Sheet" colleagues. The firm, which went public in 2007, placed 67.7 million shares at 26 pence each, a 2% premium to the closing price of 25.5p one day earlier. e-Therapeutics uses real experimental data to develop network analytics and identify a set of protein interactions thought to produce a beneficial effect. Compounds are then evaluated to see if they can produce that particular set of effects. It is a complex and laborious process of analysis, and not a simulation exercise or in-silico computer-added drug design, Young said. Compounds can also be evaluated for effects on healthy cells, so reducing the likelihood of side-effects. As an example, e-Therapeutics started to look for substances that would turn off the protection against apoptosis that cancer cells appear to have. Its researchers identified the regulatory proteins and promoters, then found a molecule that inhibited their protective effects. This compound, ETS2101, is expected to enter clinical trials later this year. The firm's advisor Panmure Gordon said that although Invesco will now hold 47.7% of e-Therapeutics, it does not intend to run the company or make an offer for the remaining shares, which under UK law would normally be required of investors that acquire 30% or more of a company. Instead, Invesco has obtained a waiver from the UK's Takeover Panel. -- John Davis

Versartis/Diartis: Versartis' $21 million Series B round and spin-out of its lead drug into a new company made for a lot of moving parts, but well worth tracking for at least two reasons. First, Versartis is in the middle of an asset-financing experiment that could point the way for other venture investors. The motto of this new movement could be, "Buyers want drugs, not companies." To that end, Versartis was initially a one-compound company funded by Index Ventures, the European firm out in front on asset-centric financing. But with a long-acting version of Type 2 diabetes drug exenatide on board, Versartis had the option to bring in two more compounds from Amunix, the extended-release technology firm that supplies Versartis' pipeline. With a second compound -- a human growth hormone treatment for kids -- in-house and ready for the clinic, Versartis' backers decided to spin the diabetes drug into Diartis and keep each entity focused on one drug. Theoretically, the separate structures will make each more attractive to potential buyers. Index and Amunix are clear that Diartis will be for sale once Phase 1b data is in hand, perhaps next summer. To push the HGH product forward, Amunix and Index rounded up new investors New Leaf Venture Partners and Advent Venture Partners for Versartis' Series B. Amunix is now the largest Versartis shareholder, according to Amunix co-founder Willem "Pim" Stemmer. -- A.L. and Chris Morrison

Amanda Micklus crunched numbers and wrote this week's intro. Thanks, Amanda.

Photo of LOLFOTFcat courtesy of flickr user LOLren.

Financings of the Fortnight: Follow-On Fever

This week's IPOs from Cumberland Pharmaceuticals and Emdeon may have garnered all the headlines. But for portents of a future biotech IPO market--as opposed to a market in IPOs for profitable, less risky companies like Cumberland and Emdeon--look instead to what seems to be an all-of-the-sudden-white-hot follow-on market.

But one more word about IPOs before we get to the FOPO-fever. We don't mean to suggest that this week's pioneers have zero impact on or relation to investors' appetites for riskier drug discovery and development plays. For now any connection is likely psychological, but not unimportant: investors are regaining their taste for new life-sciences companies. Soon enough they'll move down the risk continuum. One correspondent suggested to us that it was like eating dry roasted peanuts: "Once you start ...". We agree, but argue that VCs need to be building more pistachio-like companies if they really want to get the ball rolling.

These days though, investors are positively nutty (sorry) about biotech follow-ons. Since our last FOTF column two Thursdays ago--which highlighted FOPOs from HGSI (net $357mm) and Orexigen ($75mm)--the floodgates have opened. We've chosen to highlight Micromet and Mannkind (see below), but there were others as well, to the tune of about $600 million worth of follow-on shares sold. And that doesn't include PIPEs. At least a dozen deals in the past two weeks brought in a total of about $100 million.

Some of the big 'uns: This morning Seattle Genetics announced underwriters had exercised their overallotment option, bringing the biotech's gross haul to $136 million. Onyx raised at least $120 million (plus at least $200 million in convertible debt). And Inspire Pharmaceuticals grossed $115 million.

The prices on these deals were pretty good too; none of the firms that raised big money were languishing near 52-week lows. If investors' appetites for biotech follow-ons remain unsated, IPOs of R&D focused companies may not be too far behind.

That said, we're not holding our breath for a flood of S-1s. But investor interest in biotech shares has other, more immediate, ramifications beyond increased underwriting revenues for investment banks. As biotech capital markets begin to thaw, pharmaceutical acquirers may become more active, sensing a market that has hit bottom and realizing that biotech prey (and the prey's investor syndicates) may eventually have other exit options. More M&A will generate more interest from investors. And thus, the cycle begins again.

But let's not get ahead of ourselves. For now content yourselves with ...

Micromet: With $49 million on hand in cash and equivalents, Micromet enhanced its cash position by netting $75 million from a follow-on public offering Aug. 4 to fund development of its pipeline of four clinical-stage antibodies. Micromet priced its offering at $5 a share on July 30 – the stock had closed trading at $5.59 the day before -- and underwriters also sold the overallotment, taking the gross haul over $80 million. The Bethesda, Md.-based biotech plans to start a pivotal trial of its lead compound blinatumomab in acute lymphoblastic leukemia next year, and two weeks ago received orphan designation for the project in Europe. It recently regained North American rights to blinatumomab from previous partner MedImmune--surely increasing its development expenses even as MedImmune continues to pay to manufacture clinical supply. Micromet also has adecatumumab in Phase II for colorectal cancer with partner Merck Serono. Each antibody is also in Phase I in a different indication: non-Hodgkin’s lymphoma for the former and metastatic breast cancer for the latter. This is by far Micromet's biggest fundraising haul, reflecting the maturation of its BiTE technology pipeline. After going public through a reverse merger with CancerVax in 2006, Micromet raised cash three times through PIPE deals. Most recently, it sold 9.4 million shares at $4.25 a share (an 8% discount) to funds including Index Ventures Growth, Abingworth, DAFNA Capital Management and Merlin Nexus, grossing $40 million. A June 2007 PIPE brought back $25.3 million and a July 2006 deal yielded $8 million.--Joe Haas

MannKind: Not giving up on inhaled insulin any time soon, MannKind has just raised $62.2 million in a follow-on public offering of 8.4 million shares including the full exercise of the overallotment. Chairman and CEO Alfred Mann, who has previously invested over $900 million of his own money into the company’s fast-acting insulin candidate Afresa according to an interview last year with IN VIVO, bought one million shares for $8.11 (the price equal to the market value immediately before the FOPO) while the remaining stock was sold for $7.35/share. Both prices are pretty good considering that in early March shares were trading around $2 and have gradually increased since MannKind submitted the NDA for Afresa on March 16, reaching a high of $8.54 on June 25, right around the time the company completed the purchase of Pfizer’s bulk insulin inventory for $3 million. Since it went public in 2004, MannKind has raised a ton of cash—$884 million, including the present deal-- through private placements and follow-ons. Most notably it brought in $401 million from a 2006 FOPO of 23 million shares, at the much higher price of $17.42 (at the same time it raised $115 million in debt). Now that Exubera has failed, and without companies like Lilly or Novo Nordisk in the picture, MannKind is the only firm left pursuing a late-stage inhaled insulin (MAP, which coincidentally also completed a follow-on recently, and Vectura/MicroDose each have candidates in Phase I). Afresa appears to have a tough road ahead and it’s clear the drug will require a REMS in light of the Exubera fall-out, as well as mandatory post-marketing studies if approved. MannKind remains in the hunt for a partner.--Amanda Micklus

Constellation Pharmaceuticals: Epigenetics player Constellation Pharmaceuticals made news this week, pulling in the third tranche of its Series A and hiring a new CEO, Mark Goldsmith, to replace acting chief and Third Rock Ventures Partner, Mark Levin. The biotech, which formed in 2008 with great fanfare, raised $14.8 million in funding from its backers last year, and closed on the remaining $17.2 earlier this month. No new investors were announced with this final tranche: in addition to Third Rock, Venrock and Column Group co-led the Series A, and Altitude Life Science Ventures also participated. The financing, which should last the company into well into 2010, will be used to push forward Constellation’s most advanced programs--still tightly under wraps—and to hire additional scientists, while building the management team. Goldsmith’s acceptance of the top spot marks the beginning of the long-promised moves by Third Rock partners away from the day-to-day management of the company. Goldsmith most recently was an entrepreneur-in-residence with Prospect Venture Partners, after stints as SVP of Genencor and CEO of Cogentus Pharmaceuticals, which officially closed shop earlier this year. A scientist-physician trained in microbiology and immunology, he’s had to immerse himself in the field of epigenetics, an emerging field of science that aims to understand how misregulation of a second layer of genetic information—the packaging of DNA into chromosomes—can result in human disease. His near-term goals, he says, are to advance the top projects (sorry no additional details yet but the focus is still on histone methyltransferases and histone demethyltransferases), enhance the platform (which he calls a product engine), and “put in place one high quality strategic corporate alliance.” He’ll have his work cut out for him. In addition to Constellation, another well-financed start-up, Epizyme, is gunning for the top spot as “the epigenetics company.” Like Constellation, Epizyme is also built around the discoveries of leading scientific thinkers, boasts top-tier managerial talent, and has A-List backers. (For more on both companies, check out this feature from March 2009's START-UP.) Beyond these two companies a number of start-ups are attempting to develop inhibitors to histone deactylases (HDACs), an enzyme family also implicated in epigenetics. And coincidentally the start-up Acetylon landed roughly $7 million in financing this week as well.--Ellen Foster Licking

XDx: Perhaps motivated in part by Human Genome Sciences’ recent positive Phase III data for lupus candidate Benlysta, Bristol-Myers Squibb last week led a $14.4 million venture round for molecular diagnostics company XDx. Earlier this year, Bristol partnered with XDx, tasking the Brisbane, Calif., biotech to identify biomarkers for systemic lupus erythamatosus. Bristol's Orencia (abatacept) is in Phase III trials for lupus, a disease that hasn't seen a new therapy in generations; a companion diagnostic could give Orencia a market edge if it is approved for lupus (it's currently sold for RA). XDx, which markets the AlloMap HTx assay to help identify heart transplant patients with low probability of organ rejection, has been working on applying its molecular expression testing technology to lupus since licensing gene expression intellectual property from the University of Minnesota two years ago. In addition to Bristol, the early-August round was financed by XDx’s existing investors: Burrill Venture Capital, Duff, Ackerman & Goodrich, Integral Capital Partners, Intel Capital, Kleiner Perkins Caulfield & Byers, Sprout Group, and TPG Biotechnology. XDx filed an IPO in October 2007 but withdrew it last September citing poor market conditions; the current financing is its seventh venture round. Between December 2004 and May 2007, the biotech raised approximately $72 million in Series D, E and F financings. XDx said it will use the Series G proceeds to support new and ongoing R&D projects and commercial activities related to AlloMap. CEO Pierre Cassigneul said the firm hopes to expand the market for AlloMap, which it says can reduce the need for invasive biopsies and potentially lower dosing of immunosuppressant drugs in transplant patients, and predicted the firm would break even financially next year.--Joe Haas

image from flickr user Joe Seggiola used under a creative commons license

Financings of the Fortnight: Sunshine Breaking Through?

No one we know would say that biotech’s financing drought is ending. Hardly seems possible.

But conversations are taking on--dare we say it-- a slightly more optimistic tone. The Nasdaq biotech index, for one thing, continues its upwards trajectory. Most of that performance, we admit, stems from good news out of big-cap players like Elan, Amgen, Gilead and maybe a few others. It’s not a sustained small-cap phenomenon – yet.

Certainly no one’s predicting the imminent opening of an IPO window (closest thing we’ve seen to a pharma IPO filing is Vitamin Shoppe).

Indeed, there are plenty of what we’d probably call financings-under-duress, the kind of deals both investors and companies have to do to keep fighting. Oxigene, for example, followed the Alexza pattern in buying back, at a discount, its financing partnership with Symphony Capital – saddling Symphony with a lot more stock in Oxigene, and thus a lot more risk. More upside, too, of course – but that wasn’t what Symphony’s model was designed for.

We’d also note that pharma continues to provide not merely the only exits for biotech, but a fairly substantial percentage of its financing, too. Corporate VC remains at center stage – with the Avila financing from the Novartis Option Fund only the most recent example.

But a few bits of unexpectedly good news are at least quickening the industry’s pulse. Human Genome Sciences surprised the market by meeting the primary endpoint in the first of two Phase III trials on Benlysta, the first lupus drug in years to actually show real clinical results. HGS acted fast and raised more than $300 million – the industry’s biggest common-stock offering since Vertex raised $320 million back in February. Orexigen, too, raised a not-too-shabby $75 million after it announced that its obesity drug Contrave had met virtually all of its clinical goals in its Phase III programs.

And deals like Amgen’s with GlaxoSmithKline on denosumab likewise indicate why biotech does have an argument or two in its long-term favor. GSK paid a ton of money for a relatively limited set of rights – indeed, most surprisingly, agreeing to split indications on the drug with Amgen (you’ll remember that Amgen virtually destroyed the split-indication deal nearly a quarter of a century ago with its EPO deal with Johnson & Johnson).

And for those cock-eyed optimists in the group, there is some talk about IPOs. Quiet talk, perhaps. But at least a few people have speculated about Portola, which thanks to big deals with Novartis and Merck, doesn’t have to worry about financing expensive later-stage trials for the next several years and can instead focus on advancing its earlier-stage programs. And should either elinogrel (with Novartis) or betrixaban (with Merck) prove particularly interesting, well, there’s a nice little tinge of acquisition in the air to entice an IPO investor.

So, on that optimistic note, let’s get to some of the more interesting deals we’ve seen over the last fourteen days.




Avila Therapeutics: In a deal that combines equity financing with an option on an early-stage research program, Novartis Option Fund led a $30 million Series B financing on July 27 for Avila Therapeutics, which uses its proprietary Avilomics platform to design and develop covalent drugs in the areas of cancer, autoimmune disease and viral infection (you can see our write-up from The Pink Sheet” DAILY, here). NOF is a $200 million fund that seeds innovative companies through initial and follow-on investments – the initial investment is coupled with a program option to provide early validation of the company’s technology. Avila says it will use the proceeds to advance its first program into clinical development – its lead programs are a protease inhibitor for hepatitis C (AVL181) and a molecule targeting the Btk kinase (AVL291), an emerging target in oncology and autoimmune disease. The Waltham, Mass.-based company did not say which of those programs would advance to clinical development first, and neither company identified the therapeutic target of the program for which NOF has option rights. Avila says its drugs work through protein-silencing – the molecules’ covalent nature enables them to bond strongly, selectively and resiliently to disease-causing proteins, theoretically producing superior therapeutic outcomes. The drug candidates’ covalent bonding also makes them effective against mutations in disease targets, according to Avila. Participating with NOF in the Series B were Avila’s original investors – Abingworth, Advent Venture Partners, Atlas Venture and Polaris Venture Partners. The four VC firms staked Avila with $21.3 million in Series A funding in 2007, and also made a convertible debt purchase this past May that initially brought Avila $5 million and eventually could yield $15 million. – Joe Haas

Limerick Biopharma: South San Francisco, Calif.-based Limerick recently raised $15 million in a Series C round with its existing investors to begin advancing its Cellular Transport Pump Activators into clinical development. Giving the company some additional credibility, Corey Goodman, co-founder of Exelixis and Renovis and more recently the head of Pfizer’s Biotherapeutics and Bioinnovation Center, took on the chairman’s job (he’s served on Limerick’s board since 2007). Limerick’s CTPAs offer promise both as chaperone therapies and in monotherapy for cholesterol disorders. Primarily, CTPAs are intended for adjunctive use with existing or experimental drugs to improve their side-effect profiles and efficacy by activating cellular transport pumps to redistribute drugs away from areas where they have adverse effects. In theory, this will minimize toxic side effects without reducing a drug’s intended activity. While testing its candidates in the areas of immunosuppression and pain, however, Limerick also discovered that CTPAs remove cholesterol from peripheral and pancreatic beta cells, lowering serum cholesterol and glucose. The company’s secondary goal, therefore, is to develop CTPAs as therapies for hypercholesterolemia and hyperglycemia. Founded by Wendye Robbins, a Stanford professor and former president of NeurogesX, Limerick has raised $35.5 million total since 2006. The July 15 Series C was led by OVP Venture Partners, which previously was known only for leading seed and Series A rounds. In addition to OVP, Limerick’s other returning investors include Altitude funds, Arch Venture Partners and Sevin Rosen Funds. The firm hopes the current round can provide funding through proof-of-concept of one of its lead programs – one is set to begin Phase I study in immunosuppression this year, while another that could enter the clinic in 2010 will be targeted at metabolic disease. – Joe Haas

Cognition Therapeutics: There are a few drugs on the market that treat symptoms of Alzheimer’s disease, but the goal is to actually stop disease progression. Along with the actual scientific challenge of figuring out how to treat the disease, there’s also the problem in testing candidates: trials for such drugs are expensive and long. Plenty of costly failures litter the way (like Myriad Genetics’s Flurizan in Phase III—closely following Lundbeck’s lost $100 million up-front payment in their deal for the candidate). But the medical need and economic opportunity for solving the Alzheimer’s problem keep producing big new deals. For proof, just see Pfizer’s deal for dimebon and J&J’s recent investment in Elan’s Alzheimer’s immunotherapy program including bapineuzumab. Financing for biotechs breaking into the disease-modifying arena is picking up too (see Satori Pharmaceuticals), and now Cognition Therapeutics has pulled down a $1.2 million Series A financing—through the sale of equity and conversion of notes--from investors led by Ogden CAP. Founded in 2007, the company is developing small-molecule inhibitors of toxic beta amyloid oligomers, which are associated with memory loss and neurodegeneration. The start-up’s drug libraries were licensed from California State University Channel Islands where they were designed by former Amgen medicinal chemist Gilbert Rishton, PhD, who is now Cognition’s chief scientific advisor. Rishton’s chemical conditioning method takes extracts from terrestrial and ocean plants and adds chemical reagents to produce the low molecular-weight candidates, which are eventually screened in cellular assays that monitor the toxic oligomer’s effects on biological functions in mature primary hippocampal neurons. Cognition was seeded in 2007 with $200,000 in funding from Pittsburgh Life Sciences Greenhouse, which also participated in the current round.—Amanda Micklus

OxiGene: On July 21 OxiGene announced two financing events that will keep it alive for another year -- through the third quarter of 2010. The company, which works on vascular disrupting agents, closed a registered direct offering that grossed $10 million. It sold 6.25 million shares at $1.60, a 20% discount based on the ten-day pre-announcement average, as well as short- and long-term warrants to purchase up to 5.6 million in common shares. It also managed to grab another $12 million by buying back Symphony Vida Holdings, an off-balance sheet entity created with private equity firm Symphony Capital Partners. In October 2008 Symphony provided Vida with $15 million in cash to support development of OxiGene’s Oxi4503 (combretastatin A1 diphosphate), which is in Phase I for solid tumors, and Zybrestat (fosbretabulin) in ophthalmology. At the time, Symphony granted OxiGene a four-year option to acquire Vida for twice the amount that Symphony invested in the entity. But Sympony would only make that money if OxiGene lasted that long. So OxiGene is issuing Symphony $12.5 million in stock to pay for Vida ($2.5 million less than Symphony actually put into the financing vehicle) to get the $12 million cash still in the vehicle -- with Symphony now into OxiGene a lot more deeply than it ever planned to be (it owns 44% of the biotech). More or less the same thing happened with Symphony’s original deal with Alexza – which likewise bought back the Symphony vehicle for a big slug of stock, giving Symphony a 23% stake.—Amanda Micklus


Image from Flickr user Magh and used under a creative commons license.