Thursday, September 24, 2009

Financings of the Fortnight Is the One They Call Dr. Feelgood

For this fortnight's financing highlights we've selected a motley crew of creative deals that aren't your typical financing fodder, some real Live Wires. Huge anonymous private investments, dilution-sparing CEFFs, royalty monetization, massive mezzanines. But before we get to those we'd be fools not to point out the continuing surge of cash from follow-on public offerings and private placements in public biotechs.

This week Incyte Pharmaceuticals said it would raise as much as $145 million by selling up to 20.7 million shares in a follow-on offering. Oh, and it was also raising $250 million in convertible debt. Incyte joins fellow public biotechs Vivus (we knew they would--but more than $108 million?) and Rigel (which may also raise up to $108mm) in raising big FOPOs in the past two weeks. On the private placement side, there's Spectrum, going back to the well for another $50 million.

But enough vanilla--though we love vanilla, especially when there's lots of it. Let's get to the Wild Side. Shout at the Devil with us, it's time for ...

Hybrigenics and Neurocrine Biosciences: Public biotechs remain creative in how they’re raising capital when the most common routes—either via PIPEs, which based on IN VIVO’s analysis largely seem to be successful for only those that have some significant impending clinical or regulatory milestone, or FOPOs, which are enjoying a resurrection—just aren’t an option. This past fortnight both Hybrigenics and Neurocrine Biosciences signed committed equity financing facilities which give them flexibility in drawing money when they need it while avoiding significant dilution.

French biotech Hybrigenics, which is listed on Euronext’s Alternext exchange, could pull in as much as €5 million ($7.3 million) through its transaction with Yorkville-managed YA Global Master SPV fund. Over the next three years, Hybrigenics has the option to draw down as much as €200k per tranche by selling YA new shares at a cost calculated on the percentage of a volume-weighted average. YA, which did a similar albeit more expensive financing with Dutch biotech Pharming a few months ago, can either sell the stock in the open market or hang on to it, as long as its ownership is capped at 9.9%. Hybrigenics is trying to exploit the potential of vitamin D analogs, which have been shown to slow down cancer cell growth. Most likely the money will go towards inecalcitol, the vitamin D analog Hybrigenics licensed exclusively from Merck KGAA division Laboratoire Theramex three years ago. The oral candidate is in Phase II in combination with Sanofi’s chemotherapeutic Taxotere for hormone-refractory prostate cancer.

Neurocrine’s deal with Kingsbridge Capital, also carrying a three-year term, allows the CNS and endocrine-focused company to sell up to $75 million in equity (no more than 7.8 million shares) at a 5-10% discount in tranches valued up to 2.75% of Neurocrine’s market cap at the time of the draw down, but no more than $15 million. Unlike the CEFFs Kingsbridge signed last year with Acadia and Epix, the transaction with Neurocrine doesn’t include warrants. In the last few years, Neurocrine has essentially had to start over after disappointing responses from FDA have all but killed its insomnia treatment indiplon. The company seems to have shifted focus now to elagolix, a gonadotropin-releasing hormone antagonist in Phase II for endometriosis. Neurocrine has been battening down the hatches; it initiated a restructuring plan in May that cut its R&D and administrative staffs, and the savings it’s realized seem to have paid off--at the end of the second quarter, it reported $38.6 million in cash and cash equivalents. --Amanda Micklus

Xoma: Another financing strategy that avoids dilution for shareholders is royalty monetization, and no one is more familiar with that strategy than Xoma. Last year the antibody developer borrowed $55 million from Goldman Sachs through a loan secured by the low- and mid-single digit royalties it earns on sales of Genentech’s Raptiva (efalizumab) and Lucentis (ranibizumab), and UCB’s Cimzia (certolizumab), which were all produced using Xoma’s bacterial cell expression technology. On September 14, Xoma announced it will fully repay what it owes on this loan--$44.2 million in principal and interest—based on the fact that Raptiva is no longer on the market, and the chance that royalties from Lucentis could drop dramatically should Genentech move manufacturing outside of the US in 2010. In addition to using $6.9 million in its restricted and unrestricted cash accounts, Xoma has set up two financing arrangements to get the rest of the money to pay back Goldman. First it has sold the future royalty stream from Lucentis to Genentech for cash proceeds of $25 million. And simultaneously, under an existing CEFF with Azimuth Opportunity, Xoma netted $12.3 million by selling 16.3 million shares for $0.76, an 11% discount (based on the ten-day average prior to deal announcement). Xoma’s CEO Steven Engle says elimination of the Goldman loan strengthens the company’s balance sheet and reduces costs, and puts it in a good position to start partnering talks for its lead antibody XOMA52, an interleukin-1 inhibitor expected to enter Phase II soon for Type II diabetes and cardiovascular disease.--Amanda Micklus

Zogenix: The specialty pharma play Zogenix looks to be another company prepping to test the IPO waters. Earlier this summer, the company won FDA approval for its needle-free sumatriptan injection, Sumavel DosePro, designed to treat migraine and cluster headaches within 10 minutes of onset. On Wednesday Sept. 23, the privately-held company announced it had pulled in the first tranche--$36 million—of a sizeable $51 million Series B from a syndicate of backers that included Clarus Ventures, Domain Associates, Abingworth, Scale Venture Partners, and Thomas McNerney & Partners. According to the press release accompanying the news, the mezzanine round will be used to prepare for the 2010 launch of Sumavel DosePro, including bolstering inventory of the medicine and hiring 105 sales reps to promote the product. Zogenix will also be relying on the marketing muscle of Astellas, which signed a U.S.-focused co-promote deal with the company in August to market the product to primary care physicians. As part of that deal, Zogenix remains in charge of manufacturing and distribution of the migraine medicine and will promote the product mainly to neurologists. Interestingly, the specialty co. will also book all sales; Astellas will be compensated based on sales in the PCP market. (How’s that for keeping the control with the smaller player?) This latest financing shows that Zogenix’s backers are remaining committed to the company—all told Zogenix has raised $78 million in venture funding and another $20 million in debt. If the continued strength of the follow-on market portends an opening of the IPO window, Zogenix is a logical company to attempt an IPO given it already has a marketed product and a deal under its belt. Certainly investors may view Zogenix’s strategy—differentiation via drug delivery technology inlicensed from Aradigm—as a less risky proposition than that of a discovery focused biotech such as Anthera or Omeros, who recently registered to go public.—Ellen Foster Licking

Seaside Therapeutics: This Fragile X and autism focused biotech company secured $30 million in Series B funding from an anonymous investor to progress its two clinical-stage compounds. The company plans to bring STX107, which is licensed from Merck, to the clinic in October, but has even greater hopes for its fully owned STX209 compound, which has reached Phase II in both Fragile X and autism, CEO Randy Carpenter told 'The Pink Sheet' DAILY. A selective gamma-amino butyric acid type B (GABA-B) receptor agonist, '209 inhibits glutamate signaling in the brain and, theoretically, should indirectly inhibit excessive mGluR protein synthesis that causes Fragile X, according to the company. STX107 works differently. The molecule is a highly potent, selective mGlurR5 antagonist, whose mechanism of action is based on the theory that most, if not all, neurological and psychiatric consequences of Fragile X are due to exaggerated signaling through mGluR5 receptors. Founded in 2005, Seaside has not raised venture capital funds, instead amassing $66 million through grants from the National Institutes of Health and foundations, along with the largesse of its most recent, anonymous benefactor. --CM

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