Thursday, August 13, 2009

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

No comments: