Friday, September 16, 2011
By our measure, at least five new health-care funds debuted or made news in recent days. Count with us:
1) Longitude Capital Management filed a document that showed it has raised $159 million toward a target of $375 million for its second fund.
2) A new entity called Navimed Capital, founded by The Carlyle Group's former health care guys, said it would start investing in later-stage companies looking for expansion capital. Managing director Ryan Schwarz declined to chat while they were in fundraising mode, but at Carlyle Schwarz was involved in two $600 million funds, so let's assume for now Navimed is going large, too.
3) A former OrbiMed Advisors partner is looking to raise $400 million for a hedge fund focused on small publicly-traded health-care firms, VentureWire reported.
4) General Electric said it and four venture firms were putting up to $100 million to work to spur submissions of new ideas in breast cancer diagnostics. It's not immediately clear how much of that cash would become awards from a panel of judges and how much would turn into equity investments by GE and its VC friends. (When FOTF sees the phrase "up to" in front of a big number, we think "biobucks.")
5) Our own colleagues have the scoop on Merck making at least $500 million available in two corporate venture funds, one of which FOTF disclosed this spring.
Even if all those nine-digit numbers don't pan out, it's a lot of cash potentially shaking out of the money tree and into the health care sector. But based on the latest dreadful venture fundraising data -- in the second quarter, the lowest number of funds raised capital since 1995 -- we probably shouldn't read too much into it. Mind you, those data are for all venture sectors, not just health care. But who's going to argue that health care is more attractive right now than other sectors? Anyone?
Well, OK. Atlas Venture partner Bruce Booth is. Or at least he argued earlier this summer, in a paper co-written with one of the new Navimed partners (who calls himself "The Bij," no less) that, oh yes indeed, the life sciences have been more attractive than other sectors (to which we add the standard boilerplate caveat that past results are no guarantee of future performance). For the record, we also believe there's a good argument to make for a little more respect for the life sciences, and biopharma in particular, a point we emphasize in START-UP magazine's upcoming VC Survey feature.
But we won't go so far to suggest that the fundraising news this fortnight signals a resurgence. After all, there's a massive backlog of IPOs -- planes on the tarmac, if you will, waiting for economic thunderstorms to pass -- but only 7% are health care related. And there's very little optimism in our corner of the world about the near future. From our life-science VC survey, less than 20% of our respondents said an IPO was a likely outcome for their maturing portfolio companies in the next five years. This week, Abingworth partner Jonathan MacQuitty said at a networking event that "maybe three" of the 35 or 36 privately held firms in Abingworth's portfolio would do IPOs. (There's more on one of Abingworth's companies below.)
This is why VCs are trying new models like asset-based financing, or welcoming corporate venture firms into their syndicates in hopes of having more potential acquirers down the road. It's all about widening the funnel. Otherwise, you can check in any time you like, but you might never leave. Could be worse. At least the room service is fast, the showers are hot, and you get a complimentary copy of...
InterMune: Padding its pockets in time for the European launch of idiopathic pulmonary fibrosis drug Esbriet (pirfenidone), InterMune could gross as much as $231 million in a concurrent public offering of equity and debt announced September 13. It's coincidentally (we assume) the same day its former CEO was banned from doing business with federal health care programs for his role in off-label marketing of InterMune's drug Actimmune. The biotech will sell 4 million common shares at $24 each and is separately offering $135 million in seven-year 2.5% convertible senior notes. Underwriters can buy an additional 600,000 shares and $20.25 million in notes through the 30-day overallotment period. News of the financing sent the stock down to $24.20 the day the deal was announced after trading in the $25 to $27 range the previous week. The cash will help build its EU commercial infrastructure for Esbriet, which the company is handling itself because of the niche patient population for IPF, a rare and fatal disease for which there are no treatments. On September 15 the company launched Esbriet in its first European territory, Germany, and is charging more than expected: $51,000 per patient per year, higher than the target range of $32,000 to $45,000 previously set by management. The price hike comes even though a few companies have recently withdrawn their drugs from Germany due to tough comparative benefit assessments under new pharmaceutical reimbursement laws. Launches in other major EU countries are planned for 2012. In the US, InterMune needs cash for pirfenidone's Phase III ASCEND trial, which enrolled its first patient in July. The double-blind placebo-controlled trial was triggered by an FDA complete response letter in May 2010 that requested additional testing to provide more evidence of pirfenidone’s efficacy in reducing lung function decline. Trial results are expected in mid-2013, with a potential FDA approval in early 2014. -- Amanda Micklus
Orphazyme: The rare-disease bandwagon keeps rolling. Danish biotech Orphazyme has just completed a €14 million ($19 million) Series A fundraising, despite being founded only two years ago. The tiny firm is developing therapies for lysosomal storage diseases, following in the much larger footsteps of Genzyme and Shire. VCs have tabbed the subsector as one of the most attractive as they search for diseases both regulators and payors look favorably upon, although there are signs that Big Pharma's enthusiasm for the space could bring more regulatory demands from developers. Another rare disease start-up to nab an eye-opening Series A was Ultragenyx Pharmaceutical, which we noted here. The Orphazyme investment also adds to the mini-explosion of Series A rounds in Europe over the past month: five since the middle of August that total a not-to-be-sneezed-at $84 million. The round included funds from new investor Aescap Venture, which joined existing investors Novo Ventures and Nordic-based Sunstone Capital. Novo Seeds, another fund associated with Novo A/S, originally provided seed capital to Orphazyme when it was set up in 2009, based on the work of founders Thomas Kirkegaard Jensen and Marja Jaattela of the Danish Cancer Society. The researchers showed that heat-shock proteins (HSP), which are produced by cells when they are subjected to higher temperatures or other stresses, stabilize the cell membranes of lysosomes, acting as "molecular chaperones." Orphazyme is developing a recombinant version of HSP70, named Orph-001, currently in animal studies. It could be possible for a single HSP to treat a number of lysosomal storage diseases,which consist of a group of around 45 rare genetic disorders. Many of them are untreatable and mainly affect children who die at a young age. Useful therapies have been developed only for a handful of these disorders such as Gaucher disease and Fabry's disease. -- John Davis
Valeritas: The maker of V-Go, an insulin delivery device for Type-II diabetics, reeled in a massive $150 million Series C round, but it wasn't easy. The firm was burning more cash than expected; it notched its FDA 501(k) clearance for V-Go in December but needed manufacturing capacity before launch. In stepped private equity firm Welsh, Carson, Anderson & Stowe to lead the C round, but at a hefty price: a controlling stake in the company. "We found someone with deep pockets," said Tom Rodgers, a partner at Advanced Technology Ventures, one of Valeritas' existing investors. FOTF caught Rodgers and fellow Valeritas investor Jonathan MacQuitty of Abingworth at a networking event this week, where MacQuitty said Valeritas' cash burn made closing the round more nerve-wracking than the syndicate would have liked. Valeritas plans to use the money from the latest round of financing to finish the manufacturing of the product and begin its commercialization. CEO Kristine Peterson told our Pink Sheet colleagues that the Bridgewater, NJ company has yet to determine how large the sales effort will be, but expects its commercialization efforts will get underway at the end of 2011 or the beginning of 2012. The company expects V-Go, a hybrid patch/pump, to fill the gap between the 94% of diabetics that use injectible pens and syringes and the more expensive, complex insulin-delivery pumps that often cost thousands of dollars. While insulin pumps replace the need for periodic injections, they require the use of a catheter and those patients to be attached to the pump most of the time. V-Go would allow patients to have the convenience of a typical pump without its disadvantages. Many pharmaceutical companies interested in diabetes are now offering complementary devices to go with their pharmaceutical offerings, and simpler is often the order of the day. Valeritas' other returning investor sare MPM Capital, Pitango Venture Capital, ONSET Ventures, HLM Venture Partners, Agate Medical Investments, CHL Medical Partners and Kaiser Permanente Ventures. -- Lisa LaMotta and Alex Lash
Crescendo Bioscience: The developer of molecular diagnostics wins this fortnight's financing daily double in one of the more unusual maneuvers we've ever seen. First the firm, which in November launched its first test VectraDA for monitoring rheumatoid arthritis disease activity, just closed a $31 million series C financing, which was led by Aeris Captial and included existing investors Mohr DavidowVentures, Kleiner Perkins Caufield & Byers, and others. But Crescendo is adding a $25 million loan from diagnostic innovator Myriad Genetics, which includes a three-year option to acquire Crescendo at a multiple of revenues once those revenues hit an initial threshold. According to Crescendo CFO Bill Salisbury, the multiple that would be applied is higher the faster revenues are growing. If Myriad does not exercise, the debt is to be paid off in years four to six. And if Crescendo goes public during the option period and Myriad still declines the option, Myriad can convert the debt to equity at the IPO price. The unusual combination of a loan plus an option makes this portion of the recent fund-raising non-dilutive to Crescendo’s investors. It also assures that Crescendo can continue to operate independently: both parties saw the latter as a critical element for the deal until Myriad decides to exercise the option, says Salisbury. The deal is in keeping with Myriad's goal of diversifying revenues outside of oncology. Myriad acquired specialist testing lab Rules-Based Medicine in April for $80 million, adding expertise in the development of companion diagnostics in cancer, infectious diseases and neurological and inflammatory disorders. Of note, and to pound on a theme we've emphasized all year in IN VIVO, Myriad, Crescendo and Rules-Based Medicine all adopt the specialist CLIA lab, drill-down-deep-into-a-disease-area model predominant in complex diagnostics development today. This way of delivering tests and related services has been common in oncology and genetic testing, in part to assure the quality of gene and gene expression based tests requiring DNA amplification, which require a high level of operator expertise. We’re now seeing it in other disease areas and with other kinds of analytes as the foundation for building franchises in those specific diseases, unlike the traditional horizontal big-box diagnostics model aimed at getting as many tests onto a single proprietary platform as possible. Crescendo’s Vectra DA test may use a set of relatively easy to measure quantitative protein markers. But in rheumatology, diagnosis relies mostly on tools around signs and symptoms, which are highly subjective. As Myriad’s interest attests, it’s an area where it makes sense to try to innovate using complex biomarker strategies and a strong information component. -- Mark Ratner
Photo courtesy of Flickr user iti+minibebi through a Creative Commons license.