Friday, February 12, 2010

Financings of the Fortnight's Symphonic Overtones

Not to hijack FOTF for what is clearly DOTW territory, but how about that Alexza deal with Biovail, eh?

Alexza licensed its novel loxapine formulation, which is being developed for schizophrenia and bipolar patients with acute agitation and is delivered via its Staccato single-dose inhaler, to serial CNS in-licensor Biovail yesterday for $40 million up-front and--you know what? You'll have to wait for DOTW to get the rest of our take on the deal (or read up on it in Thursday's Pink Sheet Daily). [You could also come to our annual Pharmaceutical Strategic Outlook confab (Feb. 24th and 25th in NYC) and get the skinny straight from Alexza's CEO Tom King.]

But this being a financing post, what interests us most for now is how Alexza was able to get its drug candidate through the clinic in the first place. (It awaits an FDA decision later this year). The answer: project financing.

But here's the rub. Even though Alexza's drug has been quite successful in the clinic--and now on the deal front--the biotech's arrangement with Symphony didn't have its financier singing the sweetest of tunes.

In 2006 Alexza got $50 million from Symphony to push forward two projects, effectively forming a newco to fund their development (Symphony Allegro). Symphony also got 2 million warrants to buy Alexza shares at $9.91 apiece. AZ-004 and AZ-002 (the latter drug, a Staccato formulation of alprazolam, posted "inconclusive" results in a Phase IIa study in patients with panic attacks) could be repurchased by Alexza following proof-of-concept for a set price--nearly twice what Symphony paid. Alexza whisked 004 through the clinic pretty quickly, but for Symphony's model to work, Alexza's share price needed to rise enough for the biotech to access non-dilutive funding to take the programs back from Symphony (see the deal specs here).

And that didn't happen. Alexza's shares were waaaaay under water, despite the clinical success of 004. For the biotech to buyback its programs from Symphony Allegro, the terms of the deal needed to be renegotiated. In June 2009, the companies did just that: Alexza bought back 004, 002 and 104 (a low dose version of 004 for migraine, added to the deal in 2007) for about $18 million in a stock transaction that gave Symphony about a 23% stake in the biotech.

Symphony still hasn't earned back its $50 million, even on paper. Its 23% stake is valued somewhere around $33 million (its warrant coverage--under the renegotiation that's 5mm warrants to buy shares at $2.26 for five years--has bobbed above and below the surface since the terms were amended). Even the Biovail deal didn't seem to move investors, who pushed shares of Alexza lower on the news, to close at $2.62 on the day.

For more on Symphony's model--and the hard times it faces as investors are increasingly unmoved by positive clinical news--see this January 2009 IN VIVO feature and this June 2009 story from "The Pink Sheet".)

Symphony had seen the model work before (its deal with Isis, for example) but without help from the public markets, it was dead in the water. AZ-004 may get the nod from FDA later this year and turn into a success for all concerned, and a relief for Symphony. Allegro was much more of a project than it bargained for.

Ironwood Pharmaceuticals: Is it one of the financings of the fortnight? For sure. Have we already given you our take on this deal? Yes (blog), yes (Pink Sheet Daily) and yes (Pink Sheet). Are we going to do it again? Not so much. Eh, not yet, anyway.--CM

Alnara Pharmaceuticals: This Cambridge, Mass.-based biotech really brought home the bacon for liprotamase, its Phase III recombinant, non-porcine pancreatic enzyme replacement therapy, by raising $35 million in a Series B round that closed Jan. 28. (Click here for our Strategic Transactions deal record.) Liprotamase, being developed as an oral, non-systemic tablet for exocrine pancreatic insufficiency in cystic fibrosis patients, successfully completed its Phase III development program last fall. Currently available PERTs are made by harvesting pancreatic enzymes from pigs. MPM Capital, which led the Series B round, sees great potential in the product and will place its managing director, Ashley Dombkowski, on the company’s board. MPM was joined in the round by returning investors Third Rock Ventures, Frazier Healthcare and Bessemer Venture Partners. Noting that Alnara remains on track to file an NDA for liprotamase this quarter, Dombkowski hailed the medicine's “positive long-term safety and nutritionally relevant data” and said the filing will place Alnara “on the cusp of significant value creation opportunities.” In addition to the imminent filing, Alnara also is developing a second formulation of liprotamase for the pediatric CF population. --Joseph Haas

Syndax Pharmaceuticals: When START-UP profiled Syndax Pharmaceuticals in the 2007 A-List group, the young biotech had essentially just started operations with an HDAC inhibitor program in-licensed from Bayer Schering AG, and a platform built on theory that epigenetic changes to the tumor phenotype would restore targets that sensitize tumors to treatment and reduce resistance to targeted combination therapy. A few years later, investor interest in this cancer player has not waned--on February 3, Syndax filed a Form D revealing it’s raised an additional $9 million on top of the $40 million Series A from 2007. (MPM Capital, Domain Associates, and Pappas Ventures are among the company’s previous backers.) And Syndax could still draw down another $7 million in this tranche, bringing the Series A total potentially to $56 million. Syndax is still awaiting Phase II data on entinostat (SNDX275)--its lead candidate from the Bayer deal targeting the HDAC isoforms 1, 2, and 3--in combination with a number of drugs including erlotinib and azacitidine. Trial results are expected at the end of 2010. For venture backer MPM, this is the second big investment in epigenetics; the VC has also heavily backed Epizyme, which in October '09 announced its $40 million Series B.--Amanda Micklus

Merus BV: Corporate venture continues to be a relatively reliable source of funding for early-stage biotechs. (For our takes on corporate venture, see here and here). One of the most active corp VCshas struck again: the Novartis Option Fund (part of the Novartis Venture Funds) was a lead investor on Merus BV’s €21.7 million ($30.7 million) Series B financing, announced on January 29. Pfizer, Bay City Capital, Life Science Partners, and Series A backer Aglaia Oncology Fund also participated. Merus, a seven-year-old Dutch biotech, has two platforms (both derived from the MeMo transgenic mouse): one produces full-length bispecific antibodies; the other, called Oligoclonics, generates combinations of three to five monoclonal antibodies sourced from one clonal cell line (the PER.C6 line, exclusively licensed from Crucell NV in 2004). Merus believes this Oligoclonic mixture of multiple antibodies, which have the same immunoglobulin light chain variable so that all binding sites are functional, will be more efficacious than a single monoclonal antibody. The Series B is the first disclosed amount of venture financing for the company (it raised an undisclosed sum in its January 2006 Series A). With the current round, Merus expect to have enough cash to move its candidates for oncology, inflammation, and infectious disease into Phase I. Meanwhile, as is its M.O., NOF has secured an exclusive option to the cancer program in exchange for an up-front payment and milestones, all of which could total $200 million, plus sales royalties.--AM

flickr image by Lady T 220 used under a creative commons license

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