Thursday, February 21, 2013

Financings of the Fortnight Navigates Sequester Seas, Mega Moguls and Mini VCs

With several IPO hopefuls now in registration and a very odd venture round raised by a San Diego biotech, there was plenty of financing news to chew on the past couple weeks. But we’re sailing in a different direction for this fortnight’s most interesting financing.

With the sequester on the horizon, a big question mark looms over National Institutes of Health and other basic science funding. The scientific research lobbying group Research!America (that’s their exclamation point, not ours) says the NIH budget will drop by $2.4 billion, part of $3.6 billion in science research cuts across several agencies, or 7.8% of their fiscal 2011 budgets.

The $2.4 billion in NIH cuts alone is $300 million shy of the 2011 external grant totals of the National Institute of Allergy and Infectious Disease, or nearly half the total budget of the National Cancer Institute. NIH director Francis Collins has quoted studies that equate the cuts to 2,300 grants that NIH would not be able to award.

In Boston, which year after year receives the most NIH funding of any American city, health care officials and politicians are warning about 1,700 jobs lost.

As we slouch toward another 11th hour (and 59th minute) Beltway showdown, let’s focus instead for a moment on a small – OK, tiny – counterexample. In San Francisco this week, former Genentech CEO Art Levinson and friends unveiled a new science award, the Life Sciences Breakthrough Prize, which will distribute $3 million to its winners. The inaugural group holds 11, but future years the winners’ pool will be limited to five.

Like we said, tiny. And the prizes are achievement awards, not grants for future projects, so it’s by no means a replacement for NIH’s role. But as fret about the future sources of scientific funding, what caught our eye was the presence of two non-life-science people on the new foundation’s board: Facebook chief Mark Zuckerberg and super-investor Yuri Milner. In 2011, this column made an open plea for Milner to throw some of his vast sums into the life science arena.

Since then, his investment firm Digital Sky Technologies has dipped a toe, joining syndicates for cancer diagnostics firm Foundation Medicine and consumer genome analysts 23andMe. No pure biopharma or device investments yet for Yuri, as far as we can tell, and so far he's following the same late-stage pattern as his highest profile tech investments (both Foundation and 23andMe have marketed products). Still, we’re encouraged by his involvement with a group that is rewarding research-stage biomedical breakthroughs.

High-tech giants are increasingly turning their profits into venture funds, and some of those funds are trickling into health care and the life sciences. Last year, we profiled the nascent health-care ambitions of San Francisco’s Founders Fund -- which came to life in part from Facebook and PayPal investor Peter Thiel’s fortune -- and now we’re starting to see Google Ventures make a health-care splash, too. (In fact, it’s a co-investor with Milner in Foundation Medicine.) Its latest investment is cancer-data analytics firm Flatiron Health, and the new issue of START-UP has a report.

Whether they're high-tech moguls or faces in the crowd at the other end of the spectrum, new sources of life-sciences capital will always be a front-and-center topic for us and our readers. This column has followed a couple crowdfunding efforts, and now our colleagues at IN VIVO have just published a long look not just at crowdfunding but also other ways the biopharma business is tapping into more open or distributed resources. It’s a highly recommended read, as of course are all the latest articles in START-UP and IN VIVO.

Which brings us to that odd round of venture we mentioned up top: San Diego biotech Elcelyx Therapeutics just raised a $20 million Series C round, but the management formed its own fund to lead the syndicate. The entity, GSM Fund LLC, is a “friends and family” group of Elcelyx executives and others from the San Diego biotech community, CFO Martin Brown told FOTF. In planning the round, Brown also spoke with conventional VCs but had this idea in the back of his mind, particularly because Rick Barry, the founder and managing director of now-defunct Eastbourne Capital Management, had wanted to invest in Elcelyx for some time. Under the C round, Barry will join the Elcelyx board of directors. The GSM Fund members have all committed to reserves that, if called, could end up doubling their investment.

What started as a backup plan became the reality, said Brown. “I was keeping a book and pretty soon we had more than enough,” he said. “It just happened that the LLC got a first-mover advantage. The timetable was really important to us because getting the financing locked in allowed us to commit to some pivotal studies. If the financing had taken a lot longer, we would have had to put some of our plans on hold.”

There were really no secondary benefits to the LLC model for Elcelyx itself, Brown added, although it was a different story for the individual investors. “There are advantages for the investors in the way we structured this,” he said. “It’s not a typical VC fund where there are management fees and carry. Every dollar that was invested by the members of the LLC purchased shares in Elcelyx.”

Jeffrey Sohl, director of the University of New Hampshire Center for Venture Research, told FOTF that it’s rare but not unprecedented for angels to create a one-time limited partnership structure to invest in a company as sort of a mini VC.

We have more details on the Elcelyx deal in the roundup below. All you have to do is scroll down. From friends and family to Facebook fortunes, from mega-moguls to mini-VCs, we cover it all here in… 

Elcelyx Therapeutics: For its new $20 million Series C round, privately held Elcelyx led a syndicate by forming its own venture fund, GSM Fund LLC, which takes its name from Elcelyx’s proprietary Gut Sensory Modulation technology. The round includes previous backers Morgenthaler Ventures, Kleiner Perkins Caufield & Byers and Technology Partners. Those three VCs had financed a two-tranche, $21 million Series B during 2011 and 2012. The LLC is structured so that its members can be called upon to double their investment if necessary. The roster includes four area biotech CEOs, four or five local MDs, about a dozen PhDs and a host of biotech executives and lawyers. New board member Rick Barry, one of the GSM Fund contributors, owned 19.9% of Amylin Pharmaceuticals and was a major investor in Telik and Sarepta Therapeutics when he ran the now-defunct Eastbourne Capital Management. Elcelyx is working to bring both a delayed-release version of metformin (NewMet), currently in Phase II, and an over-the-counter weight-loss supplement (Lovidia) to market. “The timetable was really important to us because getting the financing locked in allowed us to commit to some pivotal studies” CFO Martin Brown told FOTF. “If the financing had taken a lot longer, we would have had to put some of our plans on hold.” – Joseph Haas

Jounce Therapeutics: Jounce is the latest project incubated by Third Rock Ventures to see the light of day. The firm emerged from stealth mode Feb. 14 to reveal a $47 million Series A round, in which Third Rock was the sole investor. Jounce will attempt to develop cancer immunotherapies using a proprietary development platform, which company executives say will be a broader approach than that taken by some others in the field. Although it hasn’t yet named any specific targets, Cambridge, Mass.-based Jounce has already identified antibodies it plans to develop. A group of three Third Rock partners will serve as Jounce’s interim management team, including Cary Pfeffer as CEO, Robert Tepper as chief scientific officer and Robert Kamen as chief business officer. In an interview with our “Pink Sheet” colleagues, Pfeffer said the 2011 approval of Bristol-Myers Squibb’s cancer immunotherapeutic Yervoy (ipilimumab) for metastatic melanoma spurred Third Rock’s increased interest in the field. After establishing the company quietly later that year, Jounce’s management has built an advisory board that includes key research specialists from the University of Texas MD Anderson Cancer Center, Johns Hopkins University, the University of Chicago and the Georgetown Lombardi Comprehensive Cancer Center. – Lisa LaMotta and Paul Bonanos

Retrophin: The pediatric orphan disease firm, whose shares trade over the counter, raised $10 million in a private placement to help complete what could be a pivotal Phase II trial for its lead candidate. RE-021 is being tested to treat focal segmental glomerulosclerosis (FSGS). With an eye toward the favored status insurers and regulators are granting orphan drugs these days, Retrophin in-licensed the small molecule a year ago from Ligand Pharmaceuticals for $1 million upfront. Ligand had tested the compound to treat hypertension, but in its new indication Retrophin hopes to gain accelerated approval from FDA. The biotech  was founded in 2011 by then-hedge fund manager Martin Shkreli, who has since shuttered his MSMB Capital Management to devote himself to running the company. In December 2012, Retrophin completed a reverse merger with an OTC-traded shell company. Shkreli told FOTF that Retrophin will likely do either another reverse merger with a company on a major exchange or de-list and conduct an IPO.  In the placement, Retrophin sold 3.3 million shares at $3 each, a 6% discount to its close on Feb. 12, the day before the financing was announced. The deal included 1.5 million warrants, each with an exercise price of $3.60. On Feb. 20, Retrophin shares closed at $4.20, giving it a market cap of $35 million. MSMB led a $4 million Series A round in May 2012. – Stacy Lawrence

e-Therapeutics: The UK network pharmacology company said February 11 it would seek to raise £40 million in a follow-on offering, upon approval of its shareholders. The cash would help finish Phase I studies of its lead cancer therapy ETS2101 then move it through Phase II testing in brain cancer and Phase Ib/II testing for several other cancers. The company hopes the clinical activity will lead to licensing in 2017. Part of the new fundraising will come from existing investor Invesco Asset Management, which will boost its stake in e-Therapeutics from 45.9% to 49.9%, the company said. New shares will be priced at 32 pence each, a 4% premium to the closing price February 10. E-Therapeutics is one of a handful of companies to use modeling of disease pathways (sometimes called network biology or systems biology) to identify the critical points to attack and match them with drug candidates. Another publicly traded network-based company with products in the clinic is Merrimack Pharmaceuticals, which debuted on the Nasdaq one year ago. Merrimack has used its network biology platform to build an antibody combination product, which we describe in a feature in the new START-UP magazine. – Alex Lash

All of the Rest
: Bind Biosciences, which is selectively targeting disease sites with its Accurin platform, raised an $8.7 million tranche out of a potential $20.25 million from foreign investors… To support its human plasma gelsolin for inflammation, BioAegis Therapeutics closed on a $3 million round… Reports here and here state that Aerial Biopharma has completed the second tranche of its $12 million Series A financing… Ophthalmic implant maker PolyActiva completed a $A9.2 million Series B… Longbow Capital led a £1.5 million financing for UK drug discovery company DomainexHelmedix, which is developing autoimmune peptides derived from helminthic worms, raised $A1.25mm in funding… Burrill & Co. was the sole investor in Strand Life SciencesSeries B… To back its work on injectable drug delivery devices, Unilife completed a $12 million registered direct offering… Regenerative medicine company Cytomedix could realize up to $27.5 million in a combination loan and equity financing…  Developer of oncolytic viruses Oncolytics Biotech publicly raised $32 million… In a FOPO, Medgenics, which is delivering therapeutic proteins using the patient’s own tissue, grossed $29.4 million Imprimis Pharma completed a $9.7 million public sale in support of its drug reformulations using the Accudel system… Cancer therapeutics and diagnostics company Novelos closed on a $5.5 million FOPOStem Cell Therapeutics announced a units offering TetraPhase Pharma filed for an IPO to advance work on antibiotics against multi-drug resistant infections… Ambit Biosciences re-filed for its IPO after withdrawing its offering in June 2011… Deerfield Management loaned Discovery Labs $30 million to support development of its candidates for RDS in premature infants… With commitments of $245 million, Lux Capital closed its third fund focused on energy, technology, and health care. -- Amanda Micklus

Photo courtesy of flickr member potat0man.

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