Financings of the Fortnight Tries to Beat the Summer Heat

First, the good news. We had our favorite scrumptious local ice cream treat to finish off lunch today. You really should try one. (Not the one pictured above, but it's still good. Trust us.)

Wait, there's other good news: venture capitalists invested $1.24 billion in biotech in the second quarter of 2011, a 46% jump from the previous quarter. It's the highest quarter since... since....! Well, since the 2nd quarter last year ($1.37 billion). So, it "bounces back" from what, exactly? Even the dismal year of 2009 had a similar figure, $1.19 billion raised in the fourth quarter. It's a nice short-term bump, but not necessarily the breakthrough everyone's looking for.

[UPDATE: DowJones VentureWire released its VC numbers the day after this post went up. DJVW tallied $1.1 billion raised by biotech, up 36% from the first quarter. The different numbers are nothing new for the dueling data houses. FOTF tried to find an explanation last summer.]

Further clouding the picture (a.k.a. the bad news) is a second set of venture data released by the National Venture Capital Association: the previous quarter saw the lowest number of venture funds raising cash since 1995. Welcome to the shakeout. The number of venture dollars raised has decreased every year since 2007, down to last year's $13.3 billion, but larger inflows per firm this year have so far added up to $10.2 billion raised. The take-home lesson: VCs might be folding up shop, but those who remain are attracting more cash.

That's across all industries. NVCA and its survey partner Thomson Reuters don't break out fundraising by sector. For a little more color, though, we've got a treat for you. You can put it between oatmeal cookies and dip it in chocolate if you wish.

Our colleagues have recently updated what we call the "gas-tank" chart: Which life-science VCs are revving for a refill, and which are running on empty. It's coming soon to a START-UP magazine near you, but FOTF got a sneak peek. Since our last gas-tank update in July 2010, several firms have raised new funds (Advent Venture Partners, Avalon Ventures, Third Rock Ventures), while others listed as running low last summer are again pounding the hot pavement, stumping for cash. For example, Sofinnova Ventures is trying to match its vintage-2006 $375 million fund. Our European colleagues have noticed the stirrings, too.

But no matter how much we equate shoe leather with optimism, there's no getting around the shakeout. Everyone thinks the life-science VC sector will shrink in the next three years. Trust us, we've asked. (And you'll see the results in an upcoming issue of START-UP.)

As we love to remind you, not all venture capital is distributed equally. Call us bleeding-heart wasteful-spending underdogs, but we love to see the new ideas and emerging science get funded, so when we see a slight recovery in Series A rounds in the first half of 2011, as noted in our previous column, we think hey, maybe this time the good news outweighs the bad news. It might not be a massive hot fudge sundae, but it could be a little cherry on top. Or if you prefer, life is far from parfait, but once in a while you get your just desserts. Loosen your waistbands, everyone, it's time for a heaping helping of...


Essence Group: Healthcare services holding company Essence Group Holdings completed a $61 million round of funding that included contributions from private equity firm Camden Partners Holdings of Baltimore and blue-chip Silicon Valley VC Kleiner Perkins Caufield & Byers. It’s the latest large funding in the healthcare IT sector, an area that has attracted increased attention and investment since the passage of the Affordable Care Act last year. It also follows KPCB’s 2009 investment in employee health incentives start-up Red Brick Health. For Essence, it’s nominally a “Series 2” round, following a recapitalization of several previous rounds as a “Series 1." According to a company spokesman, the funding brings Essence’s private investment to more than $120 million. Previous rounds had included numerous individual investors, including KPCB partner John Doerr. Essence will use the funds largely to support marketing of its Lumeris subsidiary’s TackleBox software, a cloud-based collaborative communications system for accountable care organizations that includes clinical and financial outcomes management and decision support capabilities. St. Louis-based Essence also operates its own health plan, while a third subsidiary, ClearPractice, is a vendor of electronic medical records and revenue management software package for small physician groups. -- Paul Bonanos

Coronado Biosciences: Forgive us the easy pun, but Coronado, based in New York City, hopes to worm its way onto the public markets via a Form 10 filed on July 15, which effectively registers its private shares as common stock. The firm's lead therapy, not yet in the clinic, is made of the microscopic eggs of the parasitic pig whipworm and meant to treat autoimmune disorders. If the FDA allows the IND, the first test will be in Crohn's disease patients. The treatment is based on the "hygiene hypothesis" that modern humans, especially in developed countries, have cleansed their environments too well. Parasites like Trichuris suis -- which only briefly colonize humans before being flushed out-- are in fact necessary immune-system triggers. Without them, Coronado believes, we don't have the proper T-cell regulation, leading to autoimmune diseases, in the gut and elsewhere. Coronado says it plans to file an IND in the third quarter and complete a Phase I dose-escalation study by end of year. Its second candidate, slated for the clinic next year to test against acute myeloid leukemia, is a lysate that activates natural killer (NK) cells. Founded in 2006, the firm has racked up $43 million in losses. The Form 10 is the first step to making its shares tradeable, but there's no guarantee Coronado will win a listing on a major exchange. It does not intend to hold an underwritten IPO, according to its Form 10 filing. Coronado acquired regional rights to the worm treatment earlier this year as part of its acquisition of Asphelia Pharmaceuticals. That came on the heels of a management overhaul, in which its CEO and CFO were let go, but not before collecting $860,000 and $700,000 in compensation for 2010. -- Alex Lash

Merrimack Pharmaceuticals: Oncology drug developer Merrimack hopes to become the latest pharma to reach the public markets. The Cambridge, Mass.-based company filed paperwork with the SEC for an IPO potentially worth $172.5 million in the coming months, which would bring liquidity to a large and diverse investor group that has supported the start-up since its inception in the 1990s. The offering’s proceeds would support ongoing development of a pipeline whose most advanced drug is just reaching Phase III, a reformulation of the chemotherapy agent irinotecan dubbed MM-398, intended for use in metastatic pancreatic and gastric cancer patients who did not respond to Eli Lilly’s Gemzar (gemcitabine), the standard of care. MM-398 is slated to enter Phase III trials in the fourth quarter and will be compared to fluoruoracil and leucovorin. Merrimack already reaps licensing revenue from a partnership with Sanofi around its antibody MM-121, for which the pharma paid $60 million upfront for worldwide rights in 2009. Merrimack has raised more than $250 million to date, much of it in recent years. It now counts large funds affiliated with Fidelity Investments, Credit Suisse First Boston, and TPG-Axon among its top investors. The firm has four compounds total either in the clinic or soon to enter, and says it's also developing companion diagnostics for each compound. Despite near-record activity in IPOs in the month of July, the only biopharma firm slated to go public soon is Horizon Pharma, which has one pain-killing drug recently approved and another nearly ready for marketing application.-- P.B.

SARcode Biosciences: The San Francisco Bay Area ophthalmology company hopes there's not a dry eye in the house after its latest cash infusion, a $44 million B round led by Sofinnova Ventures. The firm plans to use the money to push forward development of its lead compound, a nonsteroidal anti-inflammatory small-molecule antagonist of the integrin lymphocyte function-associated antigen-1 (LFA-1) to treat dry eye. Dry eye is caused by a number of factors, including age, menopause, environmental factors, medications, certain diseases like diabetes, and even prolonged staring at a computer screen. (Uh-oh.) SARcode plans to begin the first of two Phase III trials later this year and to report data in June 2012, and CEO Quinton Oswald told "The Pink Sheet" this week that his troops might bring it to market and sell it without a partner. He said 100 to 120 sales reps could market it to ophthalmologists. Oswald was previously an executive at Roche Holding's Genentech, where he helped launch Lucentis (ranibizumab), a commercially successful macular degeneration drug with sales of $2.9 billion in 2010. The new round included new investor Rho Ventures, as well as returning investors Alta Partners and Clarus Ventures. The round closed July 14 and should fund the company through 2012.-- Lisa LaMotta

Image courtesy of flickrer infowidget via a Creative Commons license. Mmm.