Financings of the Fortnight Leaves Its Aching Feet In San Francisco

As FOTF favorite Ted Leo and the Pharmacists once sang, there was a whole lot of walking to do at last week's JPMorgan confab. One member of the team had blisters that turned his hosiery into a reprise of the Curt Schilling bloody sock incident. Another logged more than nine miles on foot in four days (2.5 miles the first day) without going more than a few blocks from the ground zero of the St. Francis.

Open wounds notwithstanding, we took the exercise as a blessing, because the annual healthcare confab is no place to eat right. (Go figure.) Soggy pre-made sandwiches, networking-break cookies, hotel catering, coffee, coffee, coffee, then instead of a proper dinner, cocktails and fried finger foods that magically appear every five minutes.

Indeed, what better place to walk off the pounds and kilos than the winter streets of San Francisco, glowing under clear 60-degree skies, and through the commons of Union Square, replete with the frequent fragrance of cannabinoid receptor agonist combustion? (Perhaps that particular odor was left lingering from the Monday night secret-society hootenanny of biotechies who surf, an offshoot of the Longboard Luau crowd who've hung ten for a good cause going on nearly two decades now.)

We kid, of course. Indeed, other than the outdoor aromas that can often surprise visitors to San Francisco, we thought the conference had a distinct lack of the getting-high-on-your-own-supply that often permeates the JPM atmosphere. FOTF chatted at the show with some of 2011's most prolific early-stage investors with plenty of cash in their pockets, but enthusiasm didn't bubble over into hype. When we mentioned that Series A investments in 2011 for biopharma were up 33% over 2010, Third Rock Ventures' Kevin Starr -- a man not shy about making a statement, sartorial or otherwise -- quickly countered that 2010 had set a depressingly low benchmark. (More coming soon on the year's Series A rounds in START-UP's annual A-List, in which we round up 11 new companies and, in a new twist for the feature, profile two investors that aren't on the list of usual early-stage suspects.)

While investors in the money were happy to chat -- Canaan Partners, Flagship Ventures and Cowen Royalty Healthcare Partners all had new funds to discuss -- the end of year venture data showed fundraising was a long way off from pre-recession highs, making more dropouts likely in the coming year. "Capital scarcity is tremendous," Forbion Capital Partners chairman Bart Bergstein told FOTF. That's good news for firms like Forbion, whose enthusiastic LPs signed up late last year for a second extra "top-up" fund of about $50 million to help push a few maturing portfolio companies toward an exit. But it's not good news for entrepreneurs who still have champagne wishes and FIPCO dreams, trying to stay afloat until they find IPO-friendly waters.

Those waters will be tested soon. The day after everyone flew home from San Francisco, Merrimack Pharmaceuticals launched its roadshow and set its sights on a $150 million IPO. Antibiotic developer Cempra Holdings and cancer stem cell biotech Versatem also set targets of $72 million and $45 million, respectively. (As we noted in this column in November, if the public market happily embraces Verastem, the bloom might be back on the rose.)

It's all about momentum, or the perception thereof. The firms vaulting from JPMorgan straight into a roadshow must be convinced that the new year's optimism has given them a running start. To that we say, never mind the blisters, here's the...

Warp Drive Bio: In a tranched deal with both equity and non-equity components totaling $125 million, newly launched Warp Drive has drawn what will surely be one of the largest Series A deals of 2012. The start-up aims to discover and synthesize new drugs based on genetic code found in naturally occurring microbes. Third Rock Ventures led the round, while Greylock Partners and Sanofi supplied the balance of the capital; the equity component is worth up to $75 million. For its contribution, Sanofi also receives collaborative development rights on an unspecified set of products, as well as a non-exclusive option to acquire the company for pre-determined terms; Warp Drive’s shareholders, on the other hand, can force a sale to Sanofi if the company reaches certain pre-set milestones as well. Third Rock partner Alexis Borisy said those terms include a potential return of 10 times the capital invested, and could value Warp Drive at more than $1 billion. Founded by Harvard professor and Third Rock partner Greg Verdine, the company has been incubated within Third Rock for a few years, but only now has officially launched; its co-founders include Harvard genetics professor George Church and University of California at San Francisco pharmaceutical sciences professor Jim Wells. -- Paul Bonanos

Synageva BioPharma: On January 10, Synageva closed a follow-on offering that reinforces public investor interest in rare diseases, an area where the venture community has also taken notice, exemplified by the recent pact between Shire and Atlas Venture. Having originally only planned to raise $60 million, Synageva ended up grossing $90 million by selling 3.6 million shares, including the overallotment, at $25.18, slightly lower than the stock had been trading in previous days. The stock then closed at $31.39 on January 10. In fact, the company’s shares have been steadily increasing the past several months since Synageva gained public status, and approximately $45 million cash on hand, by merging with publicly traded viral disease developer Trimeris in June. Synageva, which ended up with 75% ownership of the combined entity, is focused on orphan metabolic disorders, an area of great industry interest the past couple years that has produced creative liaisons such as the Shire-Atlas Venture tie-up. First up is lysosomal acid lipase deficiency, a lysosomal storage disorder that prevents the breakdown of certain fats and results in build-up of fatty material in the liver, spleen, and blood vessel walls. Synageva is tackling LAL deficiency with the enzyme replacement therapy SBC102, which completed enrollment for its first clinical trial, a Phase I/II study, in December and has orphan drug designations in the US and EU. Last year, prior to merging with Trimeris, Synageva raised $25 million in venture funding and signed two rare disease research collaborations with Mitsubishi Tanabe Pharma and to-BBB. -- Amanda Micklus

Elevation Pharmaceuticals: Respiratory disease-focused Elevation closed a two-tranche, $30 million B round on Jan. 4. With significant participation from new investor Novo Ventures, Elevation should have adequate capital to move its lead candidate, a nebulized formulation of glycopyrollate (EP-101), through to the start of Phase III. The B round will be broken into two tranches, $12 million that will be drawn down this year and another $18 million, if needed, in 2013. By the end of 2013, CEO Bill Gerhart told "The Pink Sheet," Elevation should have completed a pair of Phase IIb studies of its candidate for chronic obstructive pulmonary disease and have identified the minimum effective dose for Phase III study. Elevation may not need to use the second tranche if it lands a co-development and commercialization partner for EP-101 sooner than expected, Gerhardt said. “Our original hypothesis was that the optimal time for partnering would be just prior to entering Phase III … but we think that there might be an opportunity to partner the program earlier,” Gerhart said. The time lag between tranches let Elevation minimize dilution if it partners EP-101 but promises the necessary capital to get into Phase III if a partnership doesn't materialize. Novo Ventures led the B round, investing about half of the total proceeds, and will place partner Heath Lukatch on Elevation’s board of directors. The investors from Elevation’s Series A – Canaan Partners, TPG Growth, Care Capital and Mesa Verde Venture Partners – will provide the rest of the funds, which Gerhart described as an up round. Elevation's Series A, announced two years ago, totalled $32 million in two tranches. -- Joseph Haas

Acceleron Pharma: Just before Christmas, the Cambridge, Mass. firm announced a $30 million D round, notable in part because the firm's most important strategic partner, Celgene, participated deeply enough to place its business-development chief George Golumbeski on the Acceleron board of directors. Celgene previously had a small stake in the company from their first licensing deal, inked in 2008. The new round also pushes Acceleron's venture total over $100 million, with $180 million more raised from partnerships. All that, and it's just now taking its lead compound, ACE-011 or sotatercept, into late-stage trials in chemotherapy-related anemia in patients with metastatic non-small cell lung cancer. If eventually successful, the program would represent a nifty pivot for the firm and Celgene, which originally signed on to co-develop ACE-011 in 2008 as a bone-loss drug.-- Alex Lash