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.