Friday, February 24, 2012

Financings of the Fortnight Thinks You're Hot.... Or Not

A mother-in-law who's also a day trader sounds like the start of a "walks into a bar" joke. But trust us, such people exist. And they sometimes ask their sons-in-law for biotech trading advice, at which point their sons-in-law laugh out loud and say, "Here's the best biotech trading advice: Don't." 

Obviously a lot of people do, and (we assume) most of them understand just how risky the sector is. There are all kinds of bets to place on all kinds of companies and assets and perhaps, just perhaps, those with appetite for risk are starting to peek out from under the tarp (and we're assuming they don't duck again for cover in fear of the Gilead Sciences Hepatitis C results spreading end-of-bubble contagion over the sector). We say so because this past fortnight brought a fascinating group of financings in areas that, we can say charitably, are about as hot as a first date with Rick Santorum. 

For example, Alnylam Pharmaceuticals, once flying high on the therapeutic promise of RNA interference -- a discovery that won the Nobel Prize six years ago -- has seen much of the interest in the platform dry up and legal headaches crop up. But the firm, while cutting a third of its staff, is pressing on with its own clinical program for transthyretin-mediated amyloidosis, one of only a few RNAi-based drugs in the clinic, and last week it raised $87 million through a public offering of 8.6 million shares at $10.75 a piece. 

Another notable and counter-intuitive bet was the $100 million private placement issued by Vernalis, bought in large part by a major shareholder. Vernalis is a long-in-the-tooth UK biotech that slowly, steadily has built itself back up from a near-bankruptcy late last decade. Resilient, yes. En vogue? Mais non. As we explain below, most of the cash is being plowed into the firm's new guise as a cold-and-cough-drug marketer, a sharp and, to be frank, rather weird right turn for the long-time discovery firm. 

Staying across the pond, we note the French diabetes firm Adocia raised €25 million ($33 million) in the first European biopharma IPO of the year -- and the first one in nine months. In other words, paying newly public companies for their equity is something European public investors simply don't do these days, so when it happens, please take note. (It's also worth a mention that French orthopedic imaging firm EOS imaging went public on the NYSE Euronext February 15 and raised €38 million.)
But the most interesting deal for us this past fortnight is in Alzheimer's disease, where a lot of smart people are wondering how to treat a malady that, by the time symptoms start to appear, might be too late to treat. With huge clinical programs burning hundreds of millions of dollars to little effect, it's not a great time for start-ups to convince investors to back their early-stage work, especially when they've already had significant delays in getting to the clinic.

But Satori Pharmaceuticals said this week that three existing investors would put up $15 million in convertible debt as a bridge to the clinic -- and ideally to an exit. It could be the start-up's last chance to make a big impression in a field that, to some extent, is in retrenchment mode, with a growing realization of how vast the problem is, and even the federal government pondering how to step in. In the grand scheme of things, $15 million is chicken feed weighed against the chance of Satori bucking current conventional wisdom and having a disease-modifying effect with a drug that keeps nasty plaques from forming in the brain.

See our roundup below for a more detailed account, and let's all give a hip-hip-hooray for those with an appetite for risk, as long as they don't give our mothers-in-law any bad advice. Meanwhile, you can never go wrong hanging on every word of...

Satori Pharmaceuticals: The preclinical Alzheimer's startup said February 23 that its current venture backers have extended the firm $15 million in convertible debt to help push its lead compound into the clinic, with Phase I now slated to start in early 2013. When the firm sewed up its previous financing, a $22 million Series B round in 2008, officials were optimistic they could reach clinical studies by 2011, but the horizon retreated with the need to rework the unnamed compound, a gamma secretase modulator, into a once-a-day dosing formulation, executives say. The new cash is not equity, although officials said they contemplated raising a Series C. Instead, as the company races to file an IND, the debt option allowed faster turnaround because there was no need to negotiate a new company valuation or bring in new investors. The debt will convert to Series C shares if the company raises a new round, but Satori prefers that the $15 million bridge loan would attract Big Pharma partners -- and ultimately an acquirer -- by proving its lead drug's hypothesis in two Phase I trials. The first trial aims to show safety, without the side effects that have dogged gamma secretase inhibitors. Satori says its drug is more "selective," in that it allows the enzyme gamma secretase to do its beneficial work in some molecular pathways, while preventing it from creating the toxic amyloid beta-42 fragment that aggregates into the tell-tale plaques that foul the brains of Alzheimer's patients. In the second Phase I trial,  Satori aims to show by measuring cerebrospinal fluid (via spinal taps) that the drug indeed suppresses production of Aβ-42 without suppressing production of other amyloid beta fragments that don't appear to be harmful. Existing investors InterWest Partners, New Enterprise Associates, and Prospect Venture Partners bought the debt financing. Other Satori investors including PureTech Ventures could buy an additional $4.2 million of the debt as part of their pro-rata rights, but have not yet done so, according to Satori officials. -- Alex Lash

Ceptaris Therapeutics: Wait a second. Is venture debt hot? After changing its name from Yaupon Therapeutics to Ceptaris Therapeutics in January, Ceptaris has raised $15 million in a venture debt financing to help fund its transition from a clinical-stage company to one that anticipates commercializing its first product later this year. The product, formerly known as Clearazide, a topical gel formulation of the generic cytotoxin mechlorethamine, has a PDUFA date of May 27 for an indication of early-stage cutaneous T-cell lymphoma (CTCL). The company received $7.5 million at closing of the debt financing February 21, and is eligible to draw down the other $7.5 million upon FDA approval of the drug. The debt financing was backed by Silicon Valley Bank and Oxford Finance. Ceptaris, founded in 2002, had raised more than $33 million over four rounds of financing, most recently bringing in a $14.4 million Series D last August. Chairman and CEO Stephen Tullman explained that the non-convertible debt financing offered Ceptaris several advantages over another VC round, not the least of which was preventing further dilution of the company’s stock. "At this time venture debt offers us the lowest cost of capital,” he said. -- Joseph Haas

Vernalis: British biotech Vernalis joined the follow-on fiesta of the fortnight with a $104 million private placement of its stock to fuel its transformation into a marketer of prescription cold and cough medicines. The cash helps pay for a new development deal struck with privately held Tris Pharma, which has spent more than seven years developing 12-hour extended release liquid formulations. Vernalis will pay development milestones on up to six new cold drugs that Tris funds, develops and submits for approval to the FDA. The active ingredients are already marketed in the US, so the products could be ready for filing in 12 to 24 months, Vernalis CEO Ian Garland said in a February 10 conference call. Vernalis has exclusive marketing rights to the products, and their core patents on extended-release liquids expires in 2029, Garland said. It's a remarkable pivot and the latest incarnation for Vernalis, with roots going back two decades, although not a complete surprise that it would aim for a nearer-term product to in-license. In 2010 Garland said Vernalis was on the hunt for something in neurology or oncology. Also, Garland has experience marketing cough and cold medicine when he ran the US business of Celltech (now UCB Pharma) in the 1990s. That Vernalis could raise $100 million is also remarkable, considering it was nearly bankrupted by the US rejection of its migraine drug Frova (frovatriptan) in the expanded indication of menstrual migraine. It sold US rights and restructured in 2008, and soon after Garland took over with the plan to rebuild through licensing deals backed by its discovery platform, such as this 2009 tie-up with GlaxoSmithKline. The recent placement totals 342 million shares at £0.20 a piece, a 7% premium. It was sold to existing backers, including Invesco Asset Management, and new buyers. Invesco already owns 42.9% of Vernalis; its purchase would have triggered an obligation to buy Vernalis outright, but Vernalis is waiving the condition to let the sale go through. Shareholders must approve the sale February 28. -- John Davis

Exelixis: As Exelixis continues to push top candidate cabozantinib through a Phase III trial for medullary thyroid cancer, the oncology drug developer has again turned to the public markets for financing. Exelixis netted $65 million in its latest follow-on offering, selling 11 million shares to the public at $5.50 apiece, plus an additional 1.65 million to its underwriters. Goldman Sachs was the sole book-running manager in the offering, while Cowen & Co. was co-manager. Exelixis said earlier this month that it aimed to sell 10 million shares, but it raised its target upon pricing the offering Feb. 10. In a Feb. 22 regulatory filing, the company said it had $284 million in cash, cash equivalents, marketable securities and long-term investments as of Dec. 31. With anticipated payments from partners and the newly-raised cash, Exelixis said it has enough capital to cover its next 12 months’ worth of expenses. The company expects to pursue a more lucrative prostate cancer indication for cabozantinib if the drug is approved for MTC. Exelixis last raised money in March 2011, when it netted $180 million by selling shares at $11 apiece. The company raised about $285 million in four other secondary offerings between 2003 and 2007. -- Paul Bonanos

Photo courtesy of XcBiker via a Creative Commons license. Soooooo hot.

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