We're big fans of Fortune columnist Dan Primack (not pictured here). But we couldn't help notice this line in his Thursday morning "Term Sheet" newsletter: "Small company IPOs are just fine."
It's a big reason we're seeing schisms in hybrid venture firms, with the health-care side shutting down or leaving to join other like-minded investors. For the former, see the Scale Venture Partners story that broke this week (scoop to Primack!); for the latter see our blurb below on the Morgenthaler/Advanced Technology Ventures news or our "Pink Sheet" story here.
We're not surprised the high-tech froth of recent months hasn't bubbled over into the biotech sector, but might we be on the verge of a froth-sharing moment thanks to Groupon? For those of you who've been glued to a lab bench the past couple years, Groupon is the online daily coupon service that, despite getting caught with its hand in the creative-accounting cookie jar, raised $700 million in its Nov. 3 IPO. Other hot tech firms like Zynga (games for Facebook) and Yelp (unfiltered reviews from the unwashed masses) are grabbing hold of its coat tails, but might a few biotechs follow?
But when a biotech with cutting-edge technology that's at least a year away from putting a drug into the clinic files its paperwork, we take notice. Verastem? Really? Remember just a few months ago when VCs told us as part of our life-science venture survey the only thing they were less eager to fund than stem-cell related companies was RNAi-related companies?
Granted, Verastem is going after cancer, but to do so it's using technology from the Whitehead Institute to create cancer stem cells, against which they screen small-molecule compounds. Now, Verastem was able to attract venture money -- in fact it raised a Series C just as it filed its S-1 (with a $50m target, current backers have poured in $68 million and include Longwood Founders Fund, MPM Bioventures, CHP, and Bessemer Venture Partners). But it'll require extremely biotech-savvy public investors, who are already more freaked out than the caterer at a Berlusconi Bunga-Bunga party, not to hear "stem cells" and "preclinical" and not say, "Take $100 million more in venture cash and call me in seven years." Perhaps we're overstating the potential for cold feet. It's often too easy to find warning signs in the risk-factor section of a company's S-1, which includes everything but the possibility of flaming asteroids crashing to Earth, but this sentence caught our eye: "Research on CSCs [cancer stem cells] is an emerging field and, consequently, there is ongoing debate regarding the existence of CSCs."
Perhaps the recent deal struck by Celgene -- $45 million for exclusive use of Quanticel Pharmaceuticals' cancer genome analysis technology and options to buy Quanticel outright -- is a validating moment. One of Quanticel's cofounders at Stanford specializes in the isolation and characterization of individual cells, including those that are tumorigenic, or stem-cell-like, within a tumor. Is Celgene's cash commitment a sign that the study of cancer stem cells is about to yield clinical results, and thus, more interest from drug makers willing to pay premiums for the technology?
That's a big question that Verastem's backers hope potential investors might ask, too. Because if the public market buyers don't see the real connection between cutting-edge science and tangible benefits, they'll just move on to the next Groupon.
How's this for a spontaneous Web-based daily discount? Free of charge, it's...
Morgenthaler Ventures/Advanced Technology Ventures: One result of the painful venture shakeout has been consolidation. Limited partners frustrated by weak returns are choosing to allocate funds among specialized firms rather than diversified ones. That’s bad news for hybrid firms that invest in both tech and life sciences, who are increasingly finding the model untenable. Case in point: the venerable Morgenthaler Ventures, whose biotech team split from the firm to join forces with two partners from Advanced Technology Ventures and form a new life sciences-only fund, as yet unnamed. A Morgenthaler spokesperson declined to discuss the situation, but a source close to the firm told "The Pink Sheet" DAILY that the seven-person team had originally aimed to raise a life science-only fund of about $200 million within Morgenthaler, but instead separated from the organization. The group had already allocated its half of the $400 million fund Morgenthaler closed in 2008, while the firm’s tech team continues to invest its share. ATV, meanwhile, had downsized over the past year, retaining only its general partners. ATV and Morgenthaler have invested side-by-side in several companies, including UCSF spinout Calithera Biosciences, catheter technology developer Ardian (acquired by Medtronic for $800 million), and microbial diagnostics startup Second Genome. Of course, not every hybrid firm is in trouble; Avalon Ventures, for one (profiled here), closed an oversubscribed $200 million fund in January. Avalon founder Kevin Kinsella may not appreciate Big Pharma’s negotiating tactics, but he and his LPs will surely enjoy the mammoth return from its previous fund: It holds a 6.1% stake in online game maker Zynga, slated to go public this month at a valuation that could exceed $15 billion. -- Paul Bonanos
AffiRis: The Strungmann brothers, who have invested in a string of German biotech companies since they sold their generics company Hexal to Novartis six years ago, have targeted Austria's AffiRis as their first biotech investment outside Germany. Through their investment vehicle, Santo VC, the Strungmanns have taken a €20 million equity stake in the Vienna vaccines company. At the same time AffiRis' existing investor the MIG Fund, a Munich venture firm, put in €5 million. Santo and MIG have also acquired an option to increase their stake in AffiRis by a further €30 million. The move underlines the support of entrepreneurial families in Europe for the biotech sector, not just during this tough funding period but historically. Firms such as Merck KGaA and Roche were family-run for decades and descendants of the founders still hold substantial stakes. Another German biotech benefactor is software mogul Dietmar Hopp, who has invested more than €300 million in at least 15 firms -- mainly around his home town of Hoffenheim -- in the past decade through his firm dievini Hopp Biotech Holding. AffiRis is collaborating with GlaxoSmithKline on a potential Alzheimer's disease vaccine, one version of which is in Phase II clinical trials. It also received $1.5 million in October from the Michael J. Fox Foundation to support development of a Parkinson's disease vaccine scheduled to enter Phase I clinical trials early in 2012. The new funding plus the option represent a huge step-up for the firm, which previously had raised €11.5 million in a Series A and extension, all from MIG. -- John Davis
Rempex Pharmaceuticals: Rempex gets high marks for fundraising, but low marks for creative naming. A spin-out of assets from the former Mpex Pharmaceuticals -- which makes us sad they didn't try, say, "Mpex 2: Electric Boogaloo" or "Mpexer Than Ever" -- the firm announced November 9 it completed the first closing of a Series B financing that could reach $67.5 million, the seventh-highest Series B figure for a biotech in the last five years according to Elsevier’s Strategic Transactions database. Just ahead of it: a pair of $70 million fundraisings from Amyris Biotechnologies in 2007 and Relypsa last year. (Yes, Relypsa was a follow-on to Ilypsa, so perhaps boring sequel names are the way to go.) New backers Frazier Healthcare Ventures and Vivo Ventures joined existing shareholders SV Life Sciences, OrbiMed Advisors, and Adams Street Partners in Rempex’s round, which brings the total equity in the June 2011 start-up to $76 million. Rempex was established with the infectious disease assets from Mpex, which was acquired this past April by Axcan Pharma (now Aptalis Holdings). Axcan bought Mpex primarily for Aeroquin, an aerosolized form of levofloxacin in Phase III for pulmonary infections in cystic fibrosis. That left several preclinical candidates to be spun off, and now Rempex, led by former Mpex management, is aiming for FDA approval for a gram-negative therapeutic sometime early next year. The spun-out assets also include efflux pump inhibitors partnered with GSK in a 2008 deal that gave the Big Pharma’s infectious disease CEDD an exclusive option to EPIs combined with GSK antibiotics. -- Amanda Micklus
NewLink Genetics: NewLink debuted on the Nasdaq Friday, Nov. 11 and raised $43 million by selling 6.2 million shares at $7 each. The share price was well below the $10-$12 range it hoped to hit, and shares traded flat in the first half of the day of the firm's debut. Ames, Iowa-based NewLink has a lead immunotherapy drug for pancreatic cancer, and the IPO proceeds will help pay for Phase III trials, with 161 patients already enrolled as of Sept. 1 toward an enrollment goal of 700. The firm has received fast-track and orphan designation for the drug in adjuvant treatment of surgically-resected pancreatic cancer. The immunotherapy, dubbed HyperAcute Pancreas, is allogeneic; it does not depend on the patient's own cells. The most high-profile cancer immunotherapy on the market is Dendreon's Provenge (sipuleucel-T), which modifies a patient's own cells before re-infusing them back into the patient. NewLink is not venture-backed. The only listed institutional 5% stockholder is Stine Seed Farm, also of Iowa. CEO Charles Link owns 17% of the company. -- A.L.