Financings of the Fortnight Asks for a Moment of Silence

The Pacific gives, the Pacific takes away. There is no rhyme or reason. Life is short, strange, horrible and precious. Let's have a moment of silence and contemplation, and if you haven't helped Japan yet, please do what you can. This is one good place to start, and this is another.

Here on the other side of the Ring of Fire, where we see ourselves in the reflection across an ocean, it's been a difficult week to focus on the task at hand. But life is full of work that must be done. As our mother often told us, "If it was fun all the time, it would be called play." Boy, did we hate hearing that when we were 11 years old.

But this week, in our little corner of the biopharma world, Mom's admonition put us in mind of Exelixis, the San Francisco Bay Area firm whose discovery engine and small-molecule pipeline were once the envy of emerging biotechs everywhere.

But the firm seemed stalled for a couple years in the late stages of clinical testing, and 2010 became Exelixis' annus horribilis, if we could borrow a phrase from Her Majesty. It lost longtime CEO George Scangos to Biogen Idec, it laid off two-thirds of its 670 employees with plans for even more, a key partner for its lead compound XL-184 walked away from the program, and it shut down all R&D beyond XL-184, now known as cabozantinib.

But Exelixis, sleeves rolled up, upper lip stiff, found a silver lining at the end of the year. In November cabozantinib returned remarkable results in a small Phase II prostate cancer study. Of 20 men whose cancer had spread to the bone, 19 had their lesions shrink or disappear, an effect one investigator called "spectacular," though with the caveat that the mechanism of action remained mysterious.

And now with its drastically pared headcount, narrowed pipeline, and more interim data from the prostate study, Exelixis has enjoyed another surprising result: a stock price that rocketed from below $3 a share last summer to nearly $13 earlier this month, prompting the company to raise cash from a stock sale. And indeed it did, selling 17.25 million shares at $11 each to net $179 million. (It closed at $10.90 Thursday March 17.)

Under previous CEO Scangos, Exelixis was nimble in its fundraising, tapping what seemed like every possible source from asset financing to debt vehicles to grand-scale partnerships. That willingness continues; perhaps not surprising, as top management has remained fairly stable through the turmoil. New CEO Michael Morrissey has been a top scientist -- or the top scientist -- at the firm since 2000; longtime CFO Frank Karbe has stayed on, too.

There's a long way to go before cabozantinib proves worthy of approval in prostate cancer or any other indication, but the difficult work, not to mention the pain of letting hundreds of colleagues go, is paying off in at least one respect, as investors have voted their approval with their pocketbooks. That might be cold comfort to those laid off, or to current employees still pushing the rock up the hill toward product approval, but with the cash, Exelixis has more resources to keep fighting another week, another month, another year, and perhaps to bring a drug to market that helps patients do the same. In the end, isn't that what we all hope for?

Aerie Pharmaceuticals: North Carolina-based Aerie pulled in a $30 million Series B on March 7, with new investors Clarus Ventures and Sofinnova Ventures joining an existing syndicate that includes Alta Partners and TPG Biotech. Proceeds will fund continued development of Aerie’s glaucoma pipeline, with the lion’s share likely to support clinical trials of AR-12286, which is in the lead to become the first so-called rho-kinase inhibitor to market. These inhibitors directly modulate the trabecular meshwork, the spongy smooth-like tissue in the eye responsible for fluid outflow. Because of the new mechanism of action, it’s believed drugs such as AR-12286 can reduce intraocular eye pressures, either alone or used in combination with existing medicines. Aerie published positive top-line Phase IIb data in September 2010, building on an earlier 88-person study showing the compound was as good as Pfizer's standard-of-care Xalatan in reducing IOP, with mild to moderate eye redness observed in a minority of patients. With the genericization of Xalatan imminent, however, the commercial hurdles for next-generation glaucoma drugs have risen, and potential partners are cautious about paying too much for an asset without proof that it can dethrone a very good and cheap drug as a first-line agent. To build its case for AR-12286, Aerie is running additional Phase II trials and plans to initiate Phase III trials by year’s end. With its Series B cash, the company is certainly in a better negotiating position when it comes to partnering, with less pressure to do something near-term. It certainly helps that glaucoma clinical trials are shorter and less expensive than studies in cancer, diabetes or cardiovascular disease, allowing Aerie to keep the R&D burn low. -- Ellen Foster Licking

Nimbus Discovery: The Cambridge, Mass. firm emerged from stealth mode on March 10 with a seed funding of undisclosed size from Atlas Venture Partners and some guy named Gates. Bill, perhaps? Yeah, we think that was it. The name sounds vaguely familiar. Nimbus is using technology from computational drug design specialist Schrödinger, which holds an undisclosed material equity stake in the biotech. Schrödinger’s in silico WaterMap technology evaluates the energy of individual water molecules at a target’s binding site, and knowing that architecture makes lead optimization much more efficient, says Atlas partner Bruce Booth. Schrödinger’s fundamental business is software, not drug development, so the company worked with Atlas to build Nimbus, which has exclusive rights to use Schrödinger’s tools around 20 targets. What further sets Nimbus apart from traditional discovery ventures is its structure as an LLC holding company that acts as an umbrella over target- or molecule-specific C-corp subsidiaries. Each time a candidate is licensed, it will be in effect an acquisition of a company that includes just the IP and data surrounding that candidate. The structure, though more complex, is reminiscent of Index Venture’s PanGenetics, which also ran multiple companies (one of which, an anti-NGF antibody, was sold to Abbott Labs) under one management and investment structure. Spending less than $2 million, Nimbus has generated an inhibitor of IRAK4, an immunokinase target implicated in various cancers and inflammatory conditions, and lead scaffolds against other targets, Booth told our START-UP colleagues. You'll have to read the upcoming issue to find out more, which we highly recommend because you'll also find out about other biotechs, such as Adimab and Ablexis that are embracing the LLC model and diving deeper into the asset-financing pool. -- Chris Morrison

BioCryst Pharmaceuticals: BioCryst has sold $30 million in debt, using milestones and royalties from its flu medication Rapiacta (peramivir) to secure the notes. The deal, which closed March 9, is an interesting twist on the typical royalty play. BioCryst created a wholly-owned subsidiary, JPR Royalty Sub LLC, and assigned it future payments due from Shionogi & Co. on the sales of Rapiacta in Japan and Taiwan. BioCryst, which also has peramivir in Phase III in the US, is eligible to receive royalties between 10% and 20% on net sales of the drug under its 2007 licensing agreement with Shionogi. JPR issued $30 million in senior secured notes, due Dec. 1, 2020, and will pay out 14% interest annually derived from the drug's income. BioCryst netted $23 million from the transaction and will use the proceeds to develop other pipeline assets, such as BCX4208 in Phase II for gout. The deal differs from other recent royalty stream deals, in which companies such as NeurogesX and Dyax obtained funding from private-equity royalty investors in exchange for future potential earnings. BioCryst is on the hook for the repayments even if the milestones and royalties from Shionogi don't come through, and it said it's reserving $3 million to cover shortfalls. -- Joseph Haas and Maureen Riordan

Omthera Pharmaceuticals: Heading into a key Phase III trial for its omega-3 cardiovascular treatment, Omthera of Bedminster, NJ, said March 14 it has raised a $34 million Series B round led by new investor New Enterprise Associates. The company will use the cash for a just-initiated Phase III trial of Epanova, which proved superior GlaxoSmithKline's Lovaza, the only omega-3 prescription treatment on the market, in a recently completed trial. Omthera is positioning Epanova as a treatment for very high triglycerides (greater than 500 mg/DL). Omega-3 fatty acids exist naturally in algae and fish oil, but prescription versions vying to compete for a potentially huge market are not all the same, varying their formulations with different ratios of two types of Omega-3s, eicosapentaenoic acid (EPA) and docosahexaenoic acid (DHA). For example, Lovaza contains 46% EPA and 38% DHA, Epanova is 55% EPA and 20% DHA, and another entry, a Phase III compound from Amarin, is 96% EPA. The new round, which is not tranched, puts Omthera's total cash raised over two rounds to $40.4 million. NEA partner David Mott, the former CEO of MedImmune, will join the Omthera board, and existing investor Sofinnova Partners joined NEA for the B round. Omthera licensed worldwide rights to Epanova from Chrysalis Pharma. -- Alex Lash

Photo courtesy of flickr user OiMax under a creative commons license.