Friday, November 02, 2012

Financings of the Fortnight Checks The Forecast

We’ve got forecasts on the brain this fortnight. No laughing matter: What happened on the East Coast with Hurricane Sandy was grim, and as of this writing remains so. If you haven’t yet, please take a minute to donate to the relief effort.

A continent away, we here at FOTF HQ have many colleagues, friends and loved ones directly affected by the storm; before, during and after we have watched intently. The forecast called for disaster, and the storm brought fresh appreciation for what that overused term really means. We’re always amazed how people shrug away warnings of impending danger by saying previous warnings didn’t live up to their billing. Hurricane Irene barely ruffled New York City’s feathers, so how was Sandy going to be any different? Psychologists say this all-too-human trait is a reliance on cognitive schemas – forming assumptions or predictions upon an organization of previous experience.

We here in earthquake country are taking some time this weekend to make sure our emergency supplies are refreshed and at hand. Just because there hasn’t been a Big One in our lifetimes doesn’t mean there won’t be one tomorrow.

One example of humans – indeed, Californians – trying to imagine beyond their previous experience was the creation of the California Institute for Regenerative Medicine, or CIRM, a $3 billion bond measure the state voted for in 2004 to create an untouchable reservoir of funding for stem-cell and regenerative-medicine research. Whether such a measure would pass today, with the state fighting its way through a mountain of debt, is another matter. But Californians agreed eight years ago with the forecast that warned this brave new scientific world needed a protectorate. Eight years later, those monies are slowly making their way up the R&D food chain. In our next issue of Start-Up, we’ll check in on CIRM and the effect of its public largesse, including the new stem-cell-related companies that have sprung from CIRM-funded academic projects. CIRM has also funded a handful of for-profit companies through its various grant programs, and one thing our story will explain is a new initiative that awards grants to companies with solid venture backing or corporate partnerships. One of those awards just went to bluebird bio, which we detail in our roundup below.

Bluebird also happens to be part of another story in the next issue of Start-Up. The firm's $60 million Series D round, announced earlier this year, has significant participation from crossover investors; it's one of many big venture rounds in recent months to include hedge or mutual funds. The recession drove them away from investing in pre-IPO companies for the most part, but like a slow-moving weather system, the cycle has spun back around. The crossovers are back, investing the past 12 months in a sizable number of the venture rounds of $50 million or more, and we’ll explain why – and what’s different this time.

Another company in the news this fortnight is one of the biggest crossover successes to date, Puma Biotechnology, which became public in 2011 via reverse merger but only recently gained a listing on a major stock exchange – and raised $138 million to boot, as we explain below in our roundup.
Meanwhile, the real fundraising begins this week in thousands of towns, from the nation's largest on down, to put lives and communities back together. We're forecasting a lot of hard work ahead, and we're keeping everyone who was in Sandy's path in our thoughts as we head into another edition of...

bluebird bio: The gene therapy company said October 26 it received a $9.3 million grant from the California Institute of Regenerative Medicine to push forward a Phase I/II trial of its treatment for beta-thalassemia, a genetic blood disorder. Bluebird’s lentivirus technology inserts a gene into a patient’s hematopoetic stem cells ex vivo to correct a mutation, the cells are reintroduced to the patient and prompt the bone marrow to start producing healthy red blood cells. The stem-cell angle qualifies bluebird for a grant from CIRM, which was approved by California voters as a $3 million bond in 2004 to create a steady source of stem-cell and regenerative medicine support. The bluebird grant is part of CIRM's new $60 million fund earmarked for companies that have either rounded up significant venture backing or secured a partnership. Bluebird is in the former category, having announced in July a $60 million Series D round, and puts the Cambridge, Mass. firm in the spotlight of a small renaissance for gene therapy, as we detailed in a recent Start-Up article. The field fell into disfavor for much of the previous decade, but a gene-therapy product was approved today in Europe, and bluebird has made clinical progress, with safety concerns giving way to clinical, manufacturing and commercial problems to solve. -- Alex Lash

Puma Biotechnology: The single-asset company quietly went public through a reverse merger in late 2011, but only recently did it tap the public markets for the first time, all while upgrading its listing to the New York Stock Exchange. On October 24 Puma closed out a $138 million offer, selling 8.625 million shares at $16 apiece that included more than a million additional shares purchased by the underwriters. The company was formed to develop neratinib, a small-molecule PAN-HER inhibitor licensed from Pfizer in October 20011. The compound is currently in Phase II trials to treat HER2-positive breast cancer. In November 2011, Puma reverse-merged into a shell company and raised $60 million by selling 16 million shares at $3.75 each to a group led by Adage Capital Partners, even though its stock was not listed on an exchange. It began trading publicly in April on the over-the-counter bulletin boards. Its shares closed Wednesday Oct 31 at $20.60. Part of the company’s appeal is its founder's track record. Puma is led by Alan Auerbach, who built Cougar Biotechnology around the prostate cancer drug abiraterone, brought it into Phase III, and sold it to Johnson & Johnson in 2009 for $1 billion. J&J ushered abiraterone to an FDA approval in 2011 with the trade name Zytiga. Like Puma, Cougar in 2006 reverse-merged its way to public standing and raised cash to push forward its lead candidate. The J&J deal helped peel away some of the stigma reverse mergers carry (as in, “if you couldn’t go public the normal way, how good can your company really be?”). One high-profile VC actually said last year the acquisition provided inspiration to reverse-merge the osteoporosis company Radius Health into a shell. Radius recently filed for its first public offering, aiming to bring in $56 million, and a Nasdaq listing. -- A.L.

Atara Biotherapeutics: Amgen and venture firm Kleiner Perkins Caufield & Byers jointly announced the spinout and funding of Atara Biotherapeutics on Oct. 26, creating the company to house and develop six Amgen assets. The start-up will have programs in nephrology and oncology, with assets ranging from pre-clinical to Phase I. Amgen will retain an unspecified amount of equity in the new company, while Kleiner will provide funding in its early days. A former Kleiner partner, Isaac Ciechanover, will be its chairman and CEO. Neither Amgen nor Kleiner would comment specifically on the assets or why Amgen chose not to develop them itself, and it’s not yet clear whether Kleiner will eventually close a formal Series A round or attempt to form a funding syndicate with other VCs. The biotech and venture firm have a prior relationship: Boston-based cancer drug maker Tesaro, a Kleiner portfolio company, acquired a key asset from Amgen in 2011, a year before it went public. Amgen has spun out other companies as well; it created Relypsa to house assets that formerly belonged to Ilypsa, a company it acquired in 2007. – Paul Bonanos

Aclaris Therapeutics: Newly formed dermatology start-up Aclaris announced Oct. 24 a $21 million Series A funding with the founder and former CEO of Vicept Therapeutics and  support from the same three venture capital firms that backed Vicept. Vivo Ventures and Fidelity Biosciences led Aclaris’ initial funding, and Sofinnova Ventures provided a supplementary component of the round. A $16 million Series A round from those three firms supported Vicept from its inception in 2009 through its July 2011 buyout, in which Allergan paid $75 million upfront. Aclaris CEO Neal Walker wouldn’t disclose the nature of its primary asset except to say the compound is a preclinical, topical treatment for a highly prevalent condition. The drug will have both medical and aesthetic uses. Aclaris is the second entity to emerge from NeXeption, which establishes, funds and supplies management to independent operating companies tied to individual assets it believes are potential targets for pharma partnerships. The model echoes creative asset-based financing structures that venture firms have formed, such as the Velocity group carved out of venture firm CMEA Capital, the Atlas Venture Development Corp., or Inception Sciences, which was formed by Versant Ventures to discover drugs and spin them out into single-asset virtual operating companies. But the start-ups under NeXeption’s umbrella will license rather than discover new assets, and they will be standalone entities staffed by a combination of NeXeption executives and additional employees brought in to suit their specific needs. NeXeption also shares risk with outside venture investors, while taking equity itself. NeXeption’s first company was Ceptaris Therapeutics, which is developing a topical treatment for cutaneous T-cell lymphoma. Vivo also has invested in that company, formerly known as Yaupon Therapeutics. – P.B.

 Photo courtesy of flickr user Brian Birke via Creative Commons license.

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