Financings of the Fortnight Tells A Tale of Two Conferences

Investors gauging the market mood look for signs. We also spent two days this week at the BioInvestor Forum in San Francisco looking for signs that the current biotech climate is anything but a bummer.

No dice. Everyone we spoke with thought attendance felt light; the show runners at BIO countered that registration was up 5% over last year then blamed the first day's obvious loneliness on traffic snarls caused by President Obama's visit to San Francisco. Most of the company presentations we attended had fewer than 10 people in the room, and that included the company's PR rep and the guy or gal running the A/V gear. On the second day, organizers cut the main room in half to make the panel discussions feel more intimate.

The biggest sign of malaise was the title of the final panel: "Opportunities or Apocalypse? Prophecies for 2012." To even contemplate the A-word in what's supposed to be an industry-boosting event was a sign of how sour the mood is right now. Still, Matthew Perry of Biotechnology Value Fund, Bryan Roberts of Venrock, Kurt Von Emster of VenBio, and Ron Laufer of MedImmune Ventures did their level best to buck everyone up. Perry prophesied con mucho gusto that old-school biotech companies, built on groundbreaking science, will start going public in the next 12 to 18 months before even having late-stage clinical data.

While the word "apocalypse" literally hung over everyone's head the entire time on the projection screen, an exit sign glowed over Roberts' right shoulder. No one on stage seemed to notice. How's that for symbolism?

Another sign of the "new normal" of the decreased influence of traditional venture capital: big drug makers aren't just being more aggressive with their own in-house venture arms, they're also thinking hard about deploying capital as limited partners to back venture groups struggling to raise money during the Great Shakeout. Both Merck & Co. and Eli Lilly have taken steps to invest in early stage science via the LP route: Merck through its Merck Research Venture Fund, which our industrious colleagues were first to report here, and Lilly via its Mirror fund initiative, which has encountered some speed bumps.

On another panel, the topic was not building companies but asset financing -- moving drugs forward in the most efficient manner possible and into the hands of the strategic buyers who need to refill pipelines. While David Collier of CMEA Capital was on stage discussing his firm's asset-financing plans through a CMEA-funded vehicle called Velocity Development Corp., another venture firm across the country made good on a similar plan. Atlas Venture unveiled its first asset-based limited-liability corporation, Arteaus Therapeutics, which we detail below.

An antidote to the subdued investment scene was a short walk away (or a cable car ride, if you prefer). In a Nob Hill hotel conference room, the World ADC Summit brought a packed house of mainly scientists together for talks on antibody-drug conjugates, a field that needed three decades to produce an exciting commercial product: Seattle Genetics' Adcetris (brentuximab vedotin), which received FDA approval in August. We're not counting Mylotarg (gemtuzumab ozogamicin), which Wyeth had approved in 2000 but never caught on and was removed from the market in 2010 for safety concerns.

The mood at the ADC Summit was palpably different: an acknowledgment that the door is wide open to a vast array of technological advancements, some of which could be quite disruptive and are being driven by small venture-backed firms. One of those firms was Syntarga, with drug-and-linker technology, that agreed to be acquired in June by its Dutch neighbors Synthon; former Syntarga CEO Vincent de Groot, now a vice president at Synthon, told IN VIVO Blog that ADC innovation will come "from all angles," and what's now known is only the visible part of a technological iceberg. Seattle Genetics, Immunogen and Genentech will need to continue to innovate to ensure their tenure as ADC leaders isn't short-lived -- not that those companies are standing pat. (For more background on the rising ADC tide, have a look at our story from December.)

To be fair, BioInvestor also had a lively panel discussion dedicated to ADCs peopled with executives from some of those small firms. But the ADC Summit in particular was a reminder that there is plenty of enthusiasm to create biomedical innovation (yes, among the Big Pharma, too). The enthusiasm to open one's wallet to fund such innovation, however, is quite a different story.

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Arteaus Therapeutics: Earlier this year, Atlas Venture said it would explore a new asset-based funding model, yet another experiment by a venture firm in an effort to improve returns from early-stage products. Its first such investment appeared Oct. 19 with the launch of Arteaus Therapeutics, a company without employees created solely to house a Phase I migraine drug spun out of Eli Lilly & Co. Atlas and OrbiMed Advisors provided $18 million in Series A funding to Arteaus, a start-up designed to be even more virtual than most virtual companies. It will be structured as a limited liability corporation (LLC) and will be controlled primarily by Atlas Venture Development Corp., a stand-alone offshoot of Atlas intended to direct operations at several companies like Arteaus simultaneously. Atlas partner and acting Arteaus CEO Dave Grayzel said the cash will fund clinical trials to show proof of concept rapidly; if that’s achieved, Lilly holds an option to reacquire the asset at undisclosed pre-negotiated terms, and therefore deliver an exit for Atlas and OrbiMed. A bit of irony: Lilly has been working to build exactly this type of relationship with three venture funds in what it calls the"Mirror" portfolio. Those plans have not gone quite as expected, with at least one fund, CMEA Capital, not participating. (Lilly said in early 2011 that one of its venture partners had accepted two molecules, one from Lilly and one from a third party.) Atlas is not one of the Lilly "Mirror" funds. The molecule, an antibody being studied as a prophylaxis for migraines, binds with calcitonin gene-related peptide (CGRP); both Merck and Boehringer Ingelheim have halted development of CGRP antagonists designed to treat acute migraines. -- Paul Bonanos

Regeneron Pharmaceuticals: It's every little biotech's dream: sign several platform-validating licensing deals, save a few choice molecules (or regions, or indications) for itself, bring a drug to market that could put a lickin' to one of the big boys, then borrow a barrelful of non-dilutive cash for the commercial war chest. Regeneron hasn't yet shown that its wet age-related macular degeneration treatment Eylea (aflibercept) can beat Genentech/Roche's Lucentis; in fact, thanks to a three-month PDUFA delay, it must wait until Nov. 18 for approval. But it's got the cash for the battle. Regeneron announced October 18 it raised $400 million in convertible debt, payable over five years at 1.875%. As commercial chief Bob Terifay told IN VIVO this summer as part of an analysis of biotechs that manage to bring a first drug to market, the firm is shifting significant resources to the commercial side for the first time. Eylea would actually be Regeneron's second approved drug; its first, Arcalyst(rilonacept), treats a family of ultra-rare diseases and requires scant commercial outlay. Eylea sailed through its FDA advisory committee meeting and is still expected to win approval. If Regeneron can convince doctors and payors of Eylea's benefits (fewer injections, for example) it could take market share from Lucentis, the proper use and price of which has been thrown into question by the CATT study. Bayer HealthCare has rights to Eylea ex-U.S. -- Alex Lash

SAGE Therapeutics: Third RockVentures is one of the few VCs willing to make big bets on early stage science these days. With the announcement on October 18 of its solo staking of SAGE, a Boston start-up developing novel medicines for schizophrenia, depression, and other CNS conditions, the investment group makes its first major bet in neuroscience. It’s a move that’s been expected since October 2010 when Steven Paul, former EVP of Lilly Research Laboratories and a neuroscientist by training, joined Third Rock Ventures as a venture partner. Underpinning SAGE is a proprietary chemistry platform called PANAM, referring to the start-up's intent to develop positive and negative allosteric modulators of GABA and NMDA receptors. Both proteins are critical actors that respectively play a role in the transmission of the inhibitory and excitatory neurotransmitters, gamma-aminobutyric acid and glutamate. Third Rock has been incubating the company for more than a year, building its IP position and an advisory board of top-notch academics. "It will be hard for anyone else to mimic this approach given what we've consolidated over the last year," interim CEO Kevin Starr(and a Third Rock partner) told “ThePink Sheet” DAILY. Both Starr and Paul said the $35 million Series A, which may or may not be tranched, is enough to take four or five programs forward simultaneously. One of those seems likely to be a positive allosteric modulator for schizophrenia that has “encouraging” data, according to Paul. Interestingly,one family of targets SAGE won't be pursuing is the metabotropic glutamatereceptor (mGluR) family, among the hottest targets of interest inside many big pharmas and biotechs, including Lilly, Johnson&Johnson, and Addex Pharmaceuticals. –- Ellen Foster Licking

BIND Biosciences/Selecta Biosciences: These two Boston-area nano-medicine companies already have much in common: both were co-founded by Massachusetts Institute of Technology professor Robert Langer and Harvard Medical School professor Omid Farokhzad, and both feature Flagship Ventures as an original investor. But they're now connected in another way: simultaneous investments by Rusnano, the Russian state fund for nanotechnology run by former Russian politician Anatoly Chubais, who ran the privatization process under Boris Yeltsin. Announced Oct. 27, Rusnano is investing $25 million in each company, making it the largest investor in rounds totaling $47.5 million for each company, with new and existing investors filling out the slate. Both BIND and Selecta will open subsidiaries in Russia to tap into scientific talent as well as clinical trial populations. Both firms have advanced a lead candidate from their platforms. Selecta, with its Synthetic Vaccine Particle platform, is just now entering the clinic with its program for smoking cessation. BIND, whose Accurin platform aims to accumulate systemic cytotoxins in higher, more targeted concentrations, is in Phase I with its lead progam BIND-014, a reformulated version of the chemotherapy docetaxel, aimed at advanced or metastatic solid tumors. -- A.L.