Financings of the Fortnight Starts Spring On the Right Foot

Happy spring, everyone, though it’s a bit less delicious when in many parts of the Northern Hemisphere, it’s been spring for weeks, even all winter. I give you Texoma, ladies and gentlemen.

Here at FOTF HQ, we’ve got strawberries peeking forth already (pictured above), which is enough to put a spring in anyone’s step. Closer to this column’s topic at hand, however, a couple other trends cropped up this past fortnight with the unveiling of two new funds: European-denominated cash and non-traditional sources. For the former, any cash that increases the chances of funding in the UK and EU biotech sector is a welcome sight after European VCs set a record fundraising low in 2011. For the latter, the alternative sources are Big Pharma – GlaxoSmithKline and Johnson & Johnson are providing half the capital of a new €150 million Index Ventures fund – and the UK’s largest charity, The Wellcome Trust, which unveiled a £200 million fund to invest in diverse healthcare areas with the temporary name of "Project Sigma," which sounds a bit like something James Bond would be assigned to infiltrate and destroy.

The funds won’t necessarily be confined to Europe, and the Wellcome fund is aiming beyond life sciences, but it’s safe to say -- would you please pay attention, 007 -- that a good deal of the new cash from Index and Project Sigma will flow, much-needed, into the UK and EU biotech sectors.

Note we say “sectors,” not “biotech companies,” because the Index fund will focus on developing assets, not building companies. It won’t let a thousand, let alone a dozen, traditional biotech firms bloom. But that’s not the direction the industry is going, anyway. Slowly but surely, venture-type resources are shaking loose to move products forward without traditional infrastructure and into the hands of pharma buyers that increasingly emphasize late-clinical development and marketing. Letting, instead, a thousand freelance project consultants bloom, we suppose.

Other asset-financing schemes of late include CMEA’s Velocity Pharmaceutical Development and the Atlas Venture Development Corp., which combined have publicly disclosed just one project, and Eli Lilly’s Mirror fund program, originally destined to partner with three venture firms but has made little noise since its inception a couple years ago. So we’re under no illusion that the direction is a permanent one.

Permanence is not a question for the massive Wellcome Trust, and with its new fund it has another investment outlet; it’s already been backing startups for years, such as Kymab, which made our 2010 A-List.

We’re highlighting another trend this fortnight: prostate cancer companies raising cash. The disease has seen a groundswell of treatment options in recent years, including several new drugs such as Dendreon’s Provenge (sipuleucel-T). Two more companies vying to bring drugs to market announced new cash raises to help push late-stage programs forward, although not with equal amounts of momentum, as we describe below (see Medivation and OncoGenex Pharmaceuticals).

And at first blush, three stem-cell companies announcing fundraisings in the same two weeks seemed to be another trend, but upon further review it was coincidence. Still, while two of the events were for peanuts -- $9 million for Athersys and $5 million for International Stem Cell – Aastrom Biosciences ended up with a rather convoluted and unusual situation, which we detail below.

When it comes to cell-based therapy, it's best to keep it simple -- like the vitamin D from the spring sunshine on our skin. We also highly recommend an extended dose of acute brain-cell stimulation, courtesy of....

Aastrom Biosciences: The Ann Arbor, Michigan firm said March 9 it has sold $40 million of convertible preferred stock in a private placement to Eastern Capital. The publicly traded firm, with a stock price that hasn’t cracked $3 since last June, says Eastern’s non-voting shares will convert to voting shares upon shareholder approval, required by Nasdaq because the voting shares will give Eastern more than 19.9% ownership. With accrual of shares over five years thanks to an 11.5% annual dividend (payable in stock, not cash), Eastern will eventually own about 25% of the company. Eastern is the investment arm of food packaging mogul Kenneth Dart, a US billionaire who relocated many years ago to the Cayman Islands (read: renounced US citizenship to dodge taxes). The $40 million -- which at the equivalent of $3.25 a share is an 80% premium to the pre-announcement $1.81 per share price -- is Aastrom’s largest single fund-raise ever, according to a blog post from its CEO Tim Mayleben. It gives the firm cash to push ahead with two late-stage trials, including the Phase III pivotal trial of its Ixmyelocel-T autologous adult stem cell therapy in critical limb ischemia. Mayleben also points out that the funding doesn’t have “dilutive warrants or expensive discounts,” which he describes as “expensive inducements [that] often have long-term negative consequences for existing investors.” What Mayleben didn’t mention, however, were Aastrom’s own outstanding warrants, 15 million of them, that could come due in the next few years. Those warrants are baked into analysts’ models, so Aastrom is happy to highlight the fact that the Eastern private placement doesn’t include warrants. Unless, of course, you figure that Eastern’s $40 million worth of preferred shares will eventually turn into 20 or 21 million common shares. “You could say it’s implied dilution,” Aastrom vice president of finance Brian Gibson told FOTF. “But it’s five years away, and most investors don’t have a five-year horizon.” Eastern negotiated other perks, too: The Aastrom board is waiving the shareholder rights plan – the poison pill – that would otherwise kick in, and Eastern also has participation rights for future fundraisings to prevent its own dilution. -- Alex Lash

Tarsa Therapeutics: Tarsa said March 16 it has raised a $28 million Series B round as it heads toward US and European regulatory filings for its oral recombinant calcitonin Ostora by the end of 2012. It would be the first oral formulation on the market of calcitonin, used to treat osteoporosis in post-menopausal women. Tarsa in-licensed rights to the Phase III compound from Unigene Laboratories in 2009. Novartis markets Miacalcin and Upsher-Smith sells Fortical, both nasal-spray formulations. New investor Foresite Capital led the round and was joined by existing A round backers Novo AS, MVM Life Science Partners and Quaker BioVentures. Tarsa raised a $24 million Series A round in 2009, led by MVM. Tarsa is bullish about Ostora’s market potential because Novartis announced earlier this year that as part of a restructuring it was abandoning its own effort to develop an oral version of calcitonin. Recently conducted follow-on market research indicated that Tarsa can hope to pick up about 20% of new and existing post-menopausal osteoporosis patients when Ostora reaches the market, thanks also to diminishing use of bisphosphonate therapies caused by safety concerns, Tarsa CEO David Brand said. Last year, Tarsa announced that Ostora had demonstrated statistically significant superiority and similar safety in a Phase II trial using Fortical as a comparator. -- Joseph Haas

OncoGenex Pharmaceuticals: The 12-year-old Seattle-area firm said March 16 it has raised nearly $50 million in a public stock offering as it revamps its late-stage clinical program for the prostate cancer treatment custirsen, which is partnered with Teva Pharmaceutical Industries. The increasingly crowded prostate cancer field has been shaken up recently by positive data from Johnson & Johnson’s Zytiga (abiraterone) and Medivation’s MDV-3100, prompting Medivation to raise cash through a debt offering (see below). OncoGenex had $65 million in cash and equivalents at the start of the year, which it expected to last only until 2014. Teva is largely responsible for the increased cost of custirsen development and OncoGenex’s $30 million allotment is already set aside. Instead, the new cash will help develop OGX-427 beyond its indications of prostate and bladder cancer, where it’s currently in Phase II testing, CEO Scott Cormack told our Pink Sheet colleagues. Cormack said earlier this month the big shifts in thecustirsen program – cancellation of a trial in second-line castration resistant prostate cancer (CRPC); a new combination trial with Sanofi’s Jevtana (cabazitaxel); and expansion of a currently enrolling trial in a first-line chemotherapy CRPC setting. Custirsen is an antisense agent meant to boost the effects of chemo. Leerink Swann and Stifel Nicolaus Weisel led the offering, with help from Lazard Capital Markets and William Blair & Co. Underwriters have a 30-day option to buy up to 624,750 additional shares. -- Lisa LaMotta

Medivation: The once-high-profile Alzheimer’s company is now a prostate cancer developer, and on the strength of recent data from its new focus the San Francisco biotech raised nearly $260 million in convertible debt in an offering that closed March 19. The firm could join newly approved prostate cancer sponsors J&J, Dendreon and Sanofi, thanks to Phase III data from the AFFIRM trial of MDV3100, its androgen signaling receptor inhibitor, that showed side effect rates tracking those of placebo. MDV3100 also showed an overall survival (OS) benefit of nearly 5 months beyond placebo (18.4 months vs. 13.6 months), and 8.3 months of progression-free survival vs. 3 months for placebo, based on PSA tests. The OS benefit was large enough to spur discontinuation of the trial so all enrollees could go on the drug. It could have other advantages over the recent approvals: unlike Zytiga, it does not have to be administered with prednisone, it’s less complicated to prescribe and administer than Provenge, and it appears much safer than Jevtana. Medivation has partnered MDV3100 worldwide with Astellas Pharma. The notes, due in April 2017, pay 2.625% interest until April 2015, at which point Medivation can redeem them based on certain parameters of its stock price at that time. Citigroup ran the debt sale with help from Credit Suisse Securities Jefferies & Co. William Blair & Co. and Leerink Swann. – Staff reports

Photo "Sympathy for the Strawberry" courtesy of the FOTF Art Collective.