Saturday, February 06, 2010

DotW: IPO Medicine

The big news this week for early stage biotechs and their VC backers: The IPO Window is Officially Open!

Or maybe not.

As my colleague Alex Lash describes in this week's issue of "The Pink Sheet", Ironwood Pharmaceuticals' $188 million IPO is the proverbial elephant among the blind men. How you perceived it, depended upon where you touched it.

Let's start with the good news. Ironwood raised more money with this offering than any U.S. biotech in the past 10 years, nabbing a $1 billion post money valuation. (Only Eyetech Pharmaceuticals' 2004 $150 million raise comes close.) The company's stock price has even increased, albeit only modestly since the debut.

But for investors and would be IPO candidates, the offering was a lesson in caution. Several weeks prior to Wednesday's debut, Ironwood made the gutsy move of actually increasing its offer price 28%, confident that investor appetite for its shares would be robust based on the pre-come-out road show.

Let's just say things didn't exactly go as forecast. On Feb. 3, the company sold 16.7million shares at $11.25, significantly below its revised target range of $14 to $16 a share, and modestly below the $11.75 target predicted in SEC filings in November 2009. Moreover, nearly half the offer went to Morgan Stanley, one of Ironwood's top private investors and a banker on the deal. "There were unorthodox methods used to place shares," Cabot Brown, of San Francisco boutique bank Seven Hills, which had no connection to the deal, told our sister pub "The Pink Sheet" DAILY. "This was half a public offering."

Indeed, taken together, Ironwood's close shave and the apparent lack of widespread interest in the offering suggest investors pushed back hard or Ironwood's attempts to hit a grand slam instead of a home run.

And that could be a problem for IPO wannabees in the queue. After all few venture-backed, pre-commercial biotechs can match Ironwood's profile. The 10-year-old company's Phase III compound, linaclotide, is backed by strong clinical data and partnered on three different continents. It faces only two competitors, one in the U.S. (Amitiza from Sucampo and Takeda) and one in Europe (Resolor from Belgian firm Movetis, which incidentally managed a lucrative IPO last December).

So if investors aren't lapping up Ironwood's offering, will they have greater interest in a company like Tengion or Trius Therapeutics or Anthera, or any of the other 7 biotechs that have declared their intent to go public? (On the same day as Ironwood's debut, Anthera priced its offering at $13 to $15 a share, for a total expected raise of slightly less than its original $70 million target. It's slated to debut the week of Feb. 22.)

And should these subsequent offerings fall flat--or worse--how will that, in turn, impact the IPO climate? According to Elsevier's Strategic Transactions database, there are at least 10 privately-held biopharmas with compounds in Phase II development or later who are--how can we put this delicately?--long in the tooth when it comes to fund raising. Indeed it wouldn't surprise IN VIVO blog at all to learn companies like Portola Therapeutics, Helicon Therapeutics, and Biolex were mulling potential IPOs.

Still, venture's inability to finance itself adequately means there could be a movement to push some of these fledgling biotechs out of the financing nest before they are ready to fly solo. And rest assured, a few lackluster offerings won't just close the IPO window for brave biotechs. It will slam shut faster than Washington D.C. in a snowstorm.

Big questions to ponder as the snow falls--#snOMG!--and you rate the ads from, Budweiser, and Frito-Lay. (Wait, there's a game?) For now, it's on to Deals of the Week.

GlaxoSmithKline/Apeiron: GSK continues to access early stage innovative programs through small, back-end weighted licensing agreements. This week the big pharma inked a deal with privately-owned Apeiron worth $17.5 million in upfront cash and equity for full rights to the biotech’s Phase I biologic for acute respiratory distress syndrome (ARDS), an adverse event associated with sepsis, trauma, and post-operative complications that affects approximately 1 million people annually in emerged markets. Glaxo could be on the hook for another £207 milllion in development milestones as well as sales royalties should Aperion’s asset, APN01, a recombinant human Angiotensin Converting Enzyme-2, succeed in three indications. Although this is far from big money for GSK, the upfront payment exceeds the £10 million Apeiron has raised from Austrian and European grants and angel backers. (Apeiron is one of a growing number of companies eschewing VC.) GSK’s respiratory CEDD, one of the half-dozen semi-autonomous therapeutic areas focused units comprising GSK’s R&D operations, gets credit for the deal. But it may have its hands full when it comes to APN01’s development. As “The Pink Sheet” DAILY notes, the track records for drugs for similarly complex—and associated—conditions such as sepsis show why the unmet medical need remains high. (Xigris anyone?)—Melanie Senior

Cephalon/Mepha: Generics, that low margin, but inherently stable business, remains a sexy proposition. Any doubts look no further than Cephalon’s purchase this week of the private Swiss generics firm Mepha for $590 million. One year after it launched the option-to-acquire party with its $100 million bid for Ception, a privately held biotech developing the Phase IIb/Phase III reslizumab for the rare autoimmune condition eosinophilic esophagitis, Cephalon is now talking up diversification and internationalization. (Or is the internationalisation?) “This is about growing top-line and bottom line, and generating cash,” Cephalon CEO Frank Baldino said on a conference call announcing the deal. Like other drug makers (including Pfizer), Cephalon’s late stage pipeline is thin and the specialty pharma faces revenue pressure given the 2012 genericization of its juggernaut, Provigil. In addition to providing much needed near-term revenue, this deal is also about building a European commercial infrastructure. Thanks partly to Mepha, 30% of Cephalon’s global sales will now be ex-US. Bidding for Mepha, owned by Germany’s Merckle family and sister to ratiopharm, another generics firm on the auction block, was apparently competitive. Still the ultimate price tag for the deal was just 1.5 times Mepha’s 2009 sales.—Jessica Merrill and Ellen Licking

Medco/DNA Direct: On Feb. 2, the pharmacy benefits manager Medco announced the acquisition of privately-held DNA Direct, a decision support services outfit for payors, providers, and patients to help ensure the appropriate use of more than 2,000 available genetic and molecular diagnostic tests. Financial terms of the deal were not disclosed. Five-year-old DNA Direct, which had backing from Firefly Investment and Lehmi Ventures, will become a wholly-owned Medco subsidiary and its current prez, Ryan Phelan, will remain at the helm. The deal was apparently driven by Medco’s need to bolster its commercial side rather than its R&D capabilities, according to “The Pink Sheet” DAILY. DNA Direct charges fees only for its consulting services; it does not make money on the tests it recommends and supplies to individuals. The company started out focused on the consumer, but has shifted to a B2B model in which it helps health plans choose appropriate genetic tests for their physicians and members. Thus, it’s a good fit with Medco's personalized medicine program. The deal comes approximately three years after Medco reorganized the front end of its pharmacy operations into Therapeutic Resource Centers, a network of six sites each focused on one disease. Medco is not the only PBM to tap into the burgeoning genetic counseling market. In November, CVS Caremark announced a partnership with genetic benefits manager Generation Health.—Mark Ratner

Abbott/Pierre Fabre: Abbott continues to look for alliances or acquisitions in high growth therapeutics areas, this week inking a deal for Pierre Fabre’s preclinical antibody targeting the cMet receptor, h224G11. cMet’s definitely a target that’s caught Big Pharma’s attention. Late last year, Novartis ponied up $150 million (plus $60 million in near term milestones) to acquire Incyte’s Phase III JAK 1/JAK2 inhibitor and its Phase I oral cMet inhibitor. In that transaction, acquiring rights to the late stage JAK1/JAK2 inhibitor clearly drove the deal economics, so it’s a bit surprising to discover Abbott is paying $25 million upfront, plus two years of research expenses and undisclosed milestones to get its hands on Pierre Fabre’s not yet studied in humans mAB. (Who says you have to get to POC to make money on a deal?) Under the terms of the collaboration, Abbott will be responsible for all further development of h224G11, which has shown promising results in treating a range of solid tumors (including prostate, lung and gastric cancers), as well as the mediation of chemotherapy resistance. The addition of h224G11 bolsters the Big Pharma’s oncology pipeline, which also includes a PARP inhibitor and a monoclonal antibody targeting a unique epitope of the epidermal growth factor receptor. Beyond oncology, other priority therapeutic areas include cardiovascular disease, immunology, and pain. In November 2009 Abbott paid $170 million to acquire PanGenetics’ treatment for chronic pain, an antibody targeting nerve growth factor.--EFL

Qiagen/Pfizer: Pfizer has enlisted Qiagen to develop a companion diagnostic for its experimental glioblastoma immunotherapy PF-04948568, which Pfizer licensed from Celldex Therapeutics in 2008. The diagnostic, a real-time PCR assay to detect the EGF receptor variant vIII RNA, was one of the programs underway at DxS, which Qiagen acquired in September and has now established as its Manchester, UK, Center of Excellence for Companion Diagnostics. Terms were not disclosed, but it’s always good news for the field of personalized medicine when a pharma company reaches out for development of a companion diagnostic – especially when it’s done early in clinical trials, in this case at Phase II. Qiagen is among the more interesting emerging players in molecular diagnostics. Historically a supplier of kits and reagents, not a developer of tests (at least that was the case prior to its acquisition of Digene), Qiagen’s emphasis has always been on simplicity of processes and procedures. It appears to be adopting the same philosophy with molecular diagnostics development: in the press release announcing the deal, it specifically noted that the new test was designed for a simple workflow.--MR

Image courtesy of flickrer higlu via a creative commons license.

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