Financings of the Fortnight Hops Across the Pond

The United Kingdom isn't really Europe, as any Euroskeptic worth his warm pint would tell you. But we were still surprised to see a flurry of financing news coming from the Isles in August, when, famously, everyone across the pond and beyond is supposed to be off catching a few rays.

Biotech doesn't take a summer holiday, apparently. Still, three newly-minted UK firms announcing Series A fundraisings within the same week at the end of August is reason enough for a double-take. Life-science venture in Europe (and yes, we include the UK) has been weak-kneed, as our London-based colleagues wrote a few days ago. That's not surprising, with the austerity measures in the UK and a continent-wide debt crisis adding to an investment attitude already more cautious than what's found in the US. Nearly half the 27 fundraisings by private European biotech companies so far this year have been for sums totaling $10 million or less, a "drip-feed" mentality that some argue can be counter-productive as start-up managers constantly scramble for the next meager slice of humble pie. (Then again, some say hungry executives are the best kind.)

Whatever your views on human motivation, there's no denying this year's frugality, which becomes more pronounced if we weed out the two massive rounds at the start of the year that went to Danish firm Symphogen for €100 million ($131 million) and Circassia for £60 million ($98 million).

One bright spot has been Series A financings, which in Europe have averaged just over $12 million each this year, thanks in part to the debuts of several Swiss firms firms such as Shield Therapeutics. (See here and here for more.) Duly noted that Switzerland, while smack-dab in the middle of Europe, doesn't play in the euro-zone and, thus, isn't subject to the same economic vicissitudes.

Economic Darwinians like to talk about creative destruction: tear down an old structure to give breathing room to new ones. The UK has historically been dominated by large drug firms, so the crumbling of these monoliths around the edges -- such as the recent shuttering of Pfizer's Sandwich labs, though nothing to cheer about when announced this past February -- might eventually generate start-ups.

But such gestation needs time. Take for example Autifony Therapeutics. It's the second newco born from the dissolution of GlaxoSmithKline's neuroscience division, which the London-based Big Pharma announced in February 2010. Autifony is the first of the week's trifecta of UK start-ups that caught our attention, and unlike the first GSK neuro-spinout, last year's Convergence Pharmaceuticals, Autifony is still preclinical, with a pipeline of small molecules targeting voltage-gated ion channels to address hearing loss. GSK still holds about 25% of the company. SV Life Sciences and Imperial Innovations, the tech-transfer-plus arm of London's Imperial College, are each in for up to £5 million. (Read more about Imperial's new fund and aggressive investment plans here.) Only a £3 million tranche is currently in play, however -- drip, drip, drip -- until the firm can complete a toxicity package in about a year, its co-founder told our Pink Sheet colleagues. If the full £10 million goes in, GSK's current stake would drop to 13.2%, and GSK has no future rights to any of Autifony's programs.

The other two brand-new UK startups, KalVista Pharmaceuticals and Mission Therapeutics, are detailed below in our roundup. There were venture fundings in other parts of the world, too: Ardelyx in California, highlighted below, Affinium Pharmaceuticals in Texas and Toronto, and Spinifex Pharmaceuticals down under.

Alas, we can only choose four. As experienced globetrotters, we know the importance of traveling light. Take just the essentials: Pepto-Bismol, a featherweight rain slicker, a hidden wad of $20 bills to bribe the border guards, and of course...



Mission Therapeutics: Spun out of labs at the University of Cambridge, Mission's ubiquitin-based research is still in early days, prompting acting CEO Niall Martin to call the £6 million ($10 million) Series A funding "a bold move by our investors to take on a company like ours." Announced Aug. 25, the round was led by Sofinnova Partners and included corporate venture from GlaxoSmithKline's SROne and the Roche Venture Fund, as well as £1.3 million from Imperial Innovations. It's Imperial's first bet on a Cambridge spin-out and more evidence, along with the Autifony deal described above, that its new mandate to invest beyond the alumni of Imperial College is no window dressing. Mission is focused on cancer, but beyond that, it's too early to talk about indications of interest. They're quite specific about their targets, however: ubiquitin enzymes E2, E3 and de-ubiquitylating enzymes (DUBs) involved in the DNA Damage Repair (DDR) signaling pathway, which cells use to monitor their genomes for damage. The Series A funds should last two-and-a-half to three years, according to Martin, enough to get the new company to, or close to, pre-clinical validation with one or two of its main target/protein areas. Mission joins start-ups such as CellCentric and ProGenra in the race to target the ubiquitin pathway. -- Melanie Senior

KalVista Pharmaceuticals: Big Pharma isn't the only storehouse of compounds worth mining as sources for new companies. To create KalVista, SV Life Sciences and Novo A/S have spun out a basket of potential eye disease treatments from a small specialty shop in their portfolios. Each investor has put £4 million into KalVista, which now holds small molecule kallikrein inhibitors targeting the eye disease diabetic macular edema (DME). KalVista got the assets from Vantia Therapeutics, a urology specialty firm that itself was spun out of Ferring Pharmaceuticals in 2008. Crockett says KalVista's compounds could be useful for DME patients who don't respond to Roche/Genentech's Lucentis (ranibizumab), especially if the firm is ultimately successful developing an oral formulation. For now, though, it's pushing an injectable that could reach the clinic by the end of 2012. DME is becoming a competitive space, and KalVista will likely need some differentiation. Through its acquisition of Fovea Pharmaceuticals in 2009, Sanofi is working on both a plasma kallikrein inhibitor for retinal-vein-occlusion induced macular edema and a DME-specific compound. For a therapeutic area nearly abandoned by Big Pharma in the previous decade, eye disease is driving a lot of deal flow. SV Life Sciences wants to do with KalVista what it did with Swiss biotech ESBATech, reorganizing it around ophthalmology and selling it to Alcon in 2009 for up to $590 million, with the non-ophtho assets spun out into yet another newco, Delenex Therapeutics. -- M.S.

OrbiMed Advisors: As promised, the prominent New York-based health care investment firm is moving into royalties. It already has venture capital funds, hedge funds, and mutual funds under its auspices. In the spring of 2010, it closed a $550 million fund, dubbed Caduceus IV, that was slightly larger than its predecessor but aimed for roughly the same allocation mix: 60% biopharma, 25% devices, and the rest diagnostics. At that time, its partners told our friends at START-UP that the royalty fund was in the works but wouldn't discuss potential fund size. Now we know: The $600 million "Royalty Opportunities" fund will be domiciled in Luxembourg and follows established firms such as Paul Capital, Royalty Pharma, and Cowen Healthcare Royalty Partners into the arena. (OrbiMed also turned to those firms to find some of its new royalty team.) Royalty deals can be quite nuanced with complex structures, but two frequent templates are upfront payouts to drug makers in exchange for all future rights to downstream sales royalties; and debt structures that use royalties as collateral. Orbimed says it'll lean heavily toward the latter. It has pursued royalty-related deals from its other funds, with about 25 already on the books, but wanted to create a dedicated fund to give its limited partners an avenue to lower but less risky returns, targeting 2x over five to seven years instead of the minimum threshold of 3x of typical venture funds, said OrbiMed partner Carter Neild. -- Paul Bonanos and Alex Lash

Ardelyx: In another showing of corporate venture backing this fortnight, Amgen Ventures has joined the investor syndicate for Ardelyx, which completed a $30 million Series B preferred stock financing on August 31. The cash will help complete a Phase II trial of its lead compound, RDX5791, for constipation-predominant irritable bowel syndrome. The funding is a significant jump from the $22.3 million Ardelyx reported as the total for the round in this July Form D filing. Existing shareholders New Enterprise Associates, CMEA Capital, and individuals were also involved. The 2007 start-up focuses on mineral metabolism imbalance and metabolic disorders says it now expects to finish a Phase II trial by early next year and provide the first efficacy data for RDX5791, an NHE3 sodium transport inhibitor. At a different dose or regimen, RDX5791 also has potential in preventing excess dietary sodium absorption to help control hypertension, the company said. Its other two agents are in preclinical testing: RDX002 (an NaP2b phosphate transport inhibitor for chronic kidney disease) and RDX009 (TGR5 agonist for Type II diabetes). All three molecules have restricted systemic absorption and primarily target transporters and receptors in the intestines to affect only cardio-renal, metabolic, and gastrointestinal functions. Because of their minimal systemic nature, Ardelyx believes its drugs will avoid the side effects and thus be safer than current systemic treatments on the market. -- Amanda Micklus

Many thanks to Melanie Senior for her help this week.

Photo of the world's most adorable frog is courtesy flickr user Benimoto via a Creative Commons license.