Friday, May 04, 2012

Financings of the Fortnight Says If It Floats Like A Duck...

The biotech IPO trickle continues, with Supernus Pharmaceuticals debuting its shares May 1 and raising $50 million for its drug reformulation programs. It was a third less than the company had hoped for when it freshened up its nearly forgotten S-1 and decided last month to make a lunge for the window. It’s the seventh biopharma to debut this year – five in the US, two in France (France? Mais oui) – and folks are wondering if the opening will expand.

We would never suggest that one deal, especially one as delayed and discounted, should stand for larger trends without putting it in context. Supernus raised $49 million from private investors (with well over $100 million more raised through non-dilutive royalty deals) and a $50 million IPO. Its immediate post-IPO valuation of $120 million translates into a 1.4x step-up, about in line with the typical biopharma IPO in the post-crash era – starting in 2009, that is.

In the same time period, we found pre-IPO terms for 44 US and foreign biopharmas that eventually went public. They wanted on average to sell shares at $14.50 each (we’ve used the midpoint of initial proposed price ranges, and we’ve converted foreign currencies to dollars). Their actual average IPO price: $11.69, or a 20% discount. (Supernus: A 62% discount, from $13 to $5.)

We found the proposed number of shares to sell for 39 companies. On average they wanted to sell 6.7 million. They actually sold an average of 8.2 million, or 22% more shares than first expected. (Supernus: twice as many shares sold than expected, from 5 million to 10 million.)

In other words, with a big haircut and dilution, Supernus is a lot like its post-recession peers, but more so. There’s another resemblance: It had to sell a good chunk of its IPO shares to existing shareholders. Lead VCs New Enterprise Associates, Abingworth, and OrbiMed Advisors ponied up $33 million – a whopping two thirds of the issue. (With insiders like that, who needs outsiders?) We noted it a couple months ago: insider participation isn’t necessarily a bad omen for post-IPO stock performance. And VCs taking companies public these days know the extra outlay is likely, even necessary to get the deal done.  As Clovis Oncology CEO Pat Mahaffy, who has now taken three biotechs public, said at a conference this week of Clovis’s late 2011 successful IPO, “It would have been hard to pull off without insider participation.” It’s now the new normal, says Mahaffy.

As of this writing Supernus is up $1.06 a few days past its debut, a 21% bump. Its backers, new and old, can only hope that over time it continues to resemble its 2012 peers in post-IPO performance. As a class, they’re up 15% post-IPO (as of the April 30 closing bell), and the class of 2011 is slightly better than that at 19%. For a lot more on IPO performance since 2009, look for START-UP Magazine’s next Valuation Watch. For the choicest biotech financing morsels, stick with…

Argos Therapeutics: Once a candidate for an IPO, Argos has turned to insiders for a $25 million Series D round to support Phase III trials on its treatment for metastatic renal cell carcinoma. It’s been an up-and-down year for Argos, which readied its story for retail investors last July but cancelled the offering in March, and instead returned to existing shareholders for cash. Like publicly traded Dendreon, Argos has a personalized cancer treatment in which tumor cells are modified and infused back into the patient to provoke a tumor-specific immune response. But Argos’ timing could hardly have been worse: Days after filing its prospectus, Dendreon shares lost almost two thirds of their value as questions about uptake, reimbursement and demand arose about Provenge (sipuleucel-T). With just $2 million in the bank at year’s end, Argos held hope for a $66 million listing until late winter before scuttling the offering eight weeks ago. “Public investors would like to put companies in boxes,” Argos CEO Jeff Abbey told our Pink Sheet colleagues. “It makes it hard to differentiate ourselves, although our technology is totally different.” Forbion Capital led the new round, and insiders TVM Capital, Lumira Capital, Intersouth Partners, Caisse de depot et placement du Quebec, Morningside Group and Aurora Funds contributed the balance, bringing Argos’ total funding to $114 million since 1997. With $75 million budgeted to spend through 2015, Argos will need more capital from a partnership, private round or IPO during the interim. -- Paul Bonanos

Telstar Pharma: Astellas Pharma has gotten into the asset-financing game with Telstar, a virtual company formed around an ulcerative colitis treatment spun out by Astellas. The compound, ASP3291, was actually outlicensed to Drais Pharmaceuticals, a New Jersey firm whose cofounders, Donna Tempel and Robert Desjardins, were US senior management at one of Astellas’ predecessors. Tempel and Desjardins went on to form AkaRx with backing from Astellas Venture Management, an investment that brought one of the most lucrative returns in recent biotech memory. Drais is paying an undisclosed upfront fee and royalties on future sales to Astellas for ASP3291. Astellas’ venture arm has contributed a minor stake, less than 20%, of Telstar’s $14 million initial financing round, and parent company Astellas has various rights to the compound: the right of first refusal for the Japanese market, the right of first exclusive negotiation for any future partnering for the compound, and non-exclusive negotiations for ex-Japan markets. By depositing ASP3291 in a corporate entity separate from Drais, it should prove a cleaner exit – and faster return – if the compound succeeds in an upcoming Phase IIa trial. Telstar’s lead investors, InterWest Partners and Sutter Hill Ventures, are also investors in Drais. Astellas said it was considering a similar deal with Drais for a compound in a different, undisclosed therapeutic area. -- Daniel Poppy

Castlight Health: In its second large venture funding in two years, health care shopping pioneer Castlight Health has raised a $100 million Series D round that it says it will use to grow its commercial team and add features to its product. Announced May 1, the round was led by T. Rowe Price, Redmile Group and two major unnamed mutual funds, as well as prior investors. Founded in 2008 as Ventana Health Services, Castlight is a Web-based service that enables customers’ employees to compare out-of-pocket costs for procedures such as colonoscopies, X-rays and MRIs. In 2010, the company raised a $60 million Series C, led by non-venture backers the Cleveland Clinic and Wellcome Trust, as well as VCs such as Venrock Associates, Oak Investment Partners and Maverick Capital. The D round more than doubles Castlight’s total cash raised to $181 million. Last year, Castlight announced a 250% increase in revenue over 2010. Chief marketing officer Peter Isaacson would not detail the company’s 2011 performance, but noted that its customer base and revenue are growing “very quickly,” with many new clients being Fortune 100-sized firms. With so many companies still offering employees health care coverage, one of Castlight’s biggest challenges is determining which potential customers to target, he added. -- Joseph Haas

Transcept Pharmaceuticals: Five months after the eye-opening FDA approval of its sleep aid Intermezzo (a reformulated zolpidem, a.k.a. generic Ambien) Transcept has sold 9 million shares at $4.50 a piece in a public offering to raise $37.6 million net of expenses, not including a possible overallotment sale. Many observers had written off Transcept after the FDA gave the company a second thumbs-down in mid-2011, nearly three years after the firm originally submitted its NDA to the feds for Intermezzo, which is designed to help people fall back asleep after waking in the middle of the night. Transcept is relying on sales by US marketing partner Purdue Pharma to bring in revenue, and the marketer launched the drug last month. Transcept has earned a $10 million fee from Purdue and can draw an additional $80 million, plus royalties. The company, which went public in early 2009 through a reverse merger with Novacea, will use the new proceeds to help develop TO-2061, a low-dose version of ondansetron for obsessive-compulsive disorder. The compound has been used for twenty years to combat the nausea and vomiting caused by chemotherapy, radiation and surgery. The 4.5 million shares offered increase the outstanding share pool by 32%, with 675,000 reserved for the underwriter over-allotment. -- Alex Lash

Photo courtesy of flickrer jamiejohndavies.

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