Financings of The Fortnight Has No Clue What Will Happen Next

Some people call it "risk/reward ratio." Some people call it "systemic uncertainty." But in the spirit of baseball's Wild Wednesday finish, in which two hallowed teams completed historic collapses and lost their playoff spots in down-to-the-wire, white knuckle fashion, we prefer to quote one of the sport's philosopher-princes, former St. Louis pitcher Joaquin Andujar. His favorite English word was "you-never-know."

The you-never-know bug bites in the strangest places. Life-science VCs have spent much of the past few years pulling back from early-stage long-term biotech bets in favor of more manageable "specialty" companies. But de-risked is a far cry from no risk, as the backers of Zogenix will tell you. As noted in our round-up below, the firm went public nearly a year ago, but the main investors have nearly tripled down on their investment, buying in at the IPO and again at the recent secondary offering as the firm's share price has fallen lower than the odds of, say, the Boston Red Sox breaking their fans' hahts one month ago.

"Wait 'til next year!" was the rallying cry of the old Brooklyn "Dem Bums" Dodgers faithful, perennial runners-up to the mighty Yankees in the golden-age 1950s; Zogenix investors could be saying the same thing. The firm hopes to file for marketing approval of its second product, a single-dose, controlled release oral formulation of hydrocodone, in early 2012, so buying low (again) could make for some well-earned last-laughing.

Speaking of comebacks, few would predict an eventual Mannkind victory in its tilting-at-windmills quest to bring an inhaled insulin to market. Not after the Exubera debacle, not after other contenders with deeper pockets and generations of diabetes experience pulled out, and certainly not after Mannkind has made life harder on itself by overpromising and underdelivering.

But with a breeze of good news at its back -- FDA has greenlighted two Phase III trials for its Afrezza product -- the firm is pressing ahead. Instead of selling stock to raise cash, it wants to test the debt market. No word yet on the rate Mannkind will pay to find the amount it wants to raise -- $370 million -- but the equity side has already weighed in, with the stock up 17% since the company made the debt announcement last week.

FOTF might have its deep-seated prejudices and sympathies on the diamond side, but unless a company is throwing spitballs at the financial rules or patient safety, we have no particular dog in anyone's hunt for financial return or regulatory approval. Though we admit, there's nothing like a good comeback story. One we're working on, which you'll see in the pages of START-UP soon, is the re-emergence of the quest for a cure for HIV/AIDS. Written off as a pipe dream most of the past decade, serious work is underway again. One big question, however, is who'll pay for it. If Big Pharma resources are shrinking and VCs are skittish, can public dollars be deployed in creative new ways?

As the king of all baseball wise men once said, the game isn't over until it's over. Unless, of course, you make too many wrong mistakes. One last piece of Yogic advice: If you come to a fork in the road, take...

Elevation Pharmaceuticals: Elevation unveiled on Sept. 26 promising Phase IIa data for its lead candidate, EP-101, a nebulized bronchodilator for moderate to severe chronic obstructive pulmonary disease. At the same time, the start-up also announced it had drawn down the second tranche, worth $17 million, of its January 2010 Series A. According to Elsevier's Strategic Transactions, that $30 million round, led by Canaan Partners, TPG Growth, Care Capital and Mesa Verde Venture Partners, was the largest A round for a respiratory-focused biotech in the past three years in the U.S. and Europe. During this time there have been 12 such financings, ranging from $8.4 million to $20 million. Elevation investors see EP-101, a reformulated version of glycopyrrolate optimized for delivery with a portable handheld nebulizer, as a blockbuster opportunity. It could provide a significant improvement in standard of care for moderate-to-severe COPD patients, who are expected to number about 1.8 million in the U.S. by the time of the drug’s anticipated market entry in 2016 or 2017, said Elevation CEO Bill Gerhart. Despite the large market, Elevation faces  commercial challenges. Therapies in the respiratory space are maturing, and competing COPD therapies from big competitors like GlaxoSmithKline (Advair), Novartis (Foradil), and Boehringer Ingelheim (Spiriva) will go generic within the next four years, raising the efficacy bar Elevation has to clear. The start-up also faces challenges from younger players like Pearl Therapeutics, which raised a mammoth $69 million Series C in 2010 to push its COPD therapy into Phase IIb. -- Joseph A. Haas and Ellen Licking

Mannkind: Despite the setbacks for its inhaled insulin Afrezza, MannKind is far from drawing its last breath. The firm said Sept. 23 it hopes to sell $370 million in debt, partly to help pay for a pair of pricey Phase III studies needed to get the drug approved by FDA. In addition to the Phase III trials, the proceeds will be used to commercialize the product and build out a manufacturing facility in Connecticut. Afrezza’s development program has been long and tortuous. After two "complete response" letters from FDA, the company said in August that the agency had confirmed designs of two Phase III trials -- one in type 1 diabetes and one in type 2 disease -- using a new next-generation inhaler developed for the product. With the complete response letters, the agency had questioned, among other things, the use of an older inhaler in clinical trials, but the company had hoped new trials would not be necessary. During a Sept. 12 investor meeting, CEO Alfred Mann said the two new trials would include about 1,000 patients and wrap up in the second half of 2012. “We have a clear path to approval now,” he said. But investors know to be wary. Company executives have been prone to overly optimistic pronouncements, such as the near-promise of a big partnership for Afrezza by the end of 2009 that never materialized.-- Emily Hayes

Zogenix: Poster child for the post-meltdown class of biopharma IPOs has to be Zogenix.The specialty delivery play, with a needle-free injectable migraine product, thought it could slip through the tenuous window that opened last year, setting its offering at 6 million shares at $12 to $14 a share. Zogenix slipped through all right, but only with the ugliest of haircuts, with buyers beating it down to 14 million shares at $4 per. Sure, bankers sometimes shoot unrealistically high on purpose as part of the managing-expectations dance, but a 69% discount and all that dilution? On Sept. 16, the public market voted again, as Zogenix priced 30 million shares at $2 each. The stock had been trading near $3 the previous week. No wonder so many VCs ask out loud about the merits of rushing is to go public. According to the prospectus, three of Zogenix's venture investors -- Domain Associates, Clarus Ventures and Scale Venture Partners -- are buyers in the most recent deal, although their ownership percentages in Zogenix will drop. The same investors, plus a few more, were also buyers at the IPO, making up more than half of the proceeds. The IPO isn't an exit, VCs tell us all the time, but the FOPO? Zogenix's top two VCs have now effectively tripled down: Domain has gone from 3.5 million shares before the IPO to more than 10 million, and Clarus from 3.5 million to 9.5 million. Zogenix shares closed Sept. 28 at $2.05. -- AlexLash

Tokai Pharmaceuticals: Massachusetts-based Tokai said it reeled in $23 million for what it called a Series D3 round of financing led by Novartis Venture Fund and Apple Tree Partners. The money will take the company through Phase IIb testing of lead compound galeterone (TOK-001), which it is studying for the treatment of castrate-resistant prostate cancer. Company officials said they've successfully completed a Phase I trial but have yet to release the results. The cash should last Tokai through 2013, said Seth Harrison, chairman of Tokai and a managing general partner at Apple Tree. "We want to go from a Phase II -ready company to a Phase III-ready company over the course of the next one and half to two years," Harrison told "The Pink Sheet" last week. The Phase I trial included 49 patients and began in 2009. The company said the results were"very encouraging" but would not reveal details. Tokai plans to present results of the study at upcoming oncology meetings. The funding comes as other castrate-resistant prostate cancer treatments are hitting the market, namely Johnson & Johnson's Zytiga (abiterone), which J&J acquired when it shelled out nearly $900 million for Cougar Biotechnology; and Dendreon's Provenge (sipuleucel-T), whose launch has failed to live up to investor expectations. Harrison said that Tokai will look into options for an exit once galeterone is Phase III-ready, and toward that end it brought in a seasoned biotech dealmaker, MartinWilliams, to take over from Harrison as CEO. Before Tokai, Williams was chief business officer at RNAi platform firm Dicerna Pharmaceuticals, where he brokered a partnership with Kyowa Hakko Kirin. Earlier, Williams was chief business officer at Synta Pharmaceuticals, where he helped take the company public in 2007 and negotiated a $1 billion collaboration with GlaxoSmithKline for its lead product, the metastatic melanoma treatment elesclomol that later failed miserably in Phase III trials. -- Lisa LaMotta

Photo courtesy of flickr user Blyzz via a Creative Commons license.