Financings of the Fortnight Wonders About The Wolf

Huffing and puffing and blowing the NIH down?

The biggest financial news of the fortnight had to be the U.S. government’s failure to avoid the sequester budget cuts, and the odd collective yawn it produced. Even with the sword of Damocles poised above various agencies, markets kept climbing – including the Nasdaq and AMEX biotech indices (respectively up 3% and 2.5% this week, as of this writing). The stock shrug led some to accuse President Obama and his supporters of crying wolf.

Pre-sequester, one of the federal agency heads making dire predictions was NIH director Francis Collins, who said on a February 25 conference call that “somewhere in the neighborhood of 20,000 jobs will be lost.” Collins also pointed out the sequester will lead to delays and lost time in important drug development projects focused on cancer treatment, a universal influenza vaccine and Alzheimer’s disease.

(For "The Pink Sheet" DAILY's full sequester coverage, click here.) 

Now that the cuts are coming, we asked around to see if, in our little corner of the world, the wolf was still howling. In other words, how might the cuts trickle up into the biotech startup realm, with potentially fewer innovations to hone into new companies? Part of that trickle flows through the technology transfer offices of major non-profit research centers, so we started there. What do they think?

Scott Forrest, the tech transfer chief at the prolific Scripps Research Institute  of Technology in La Jolla, Calif. – which has helped spawn biotechs such as FoldRx Pharmaceuticals, now part of Pfizer, aTyr Pharma, CovX Research (also bought by Pfizer), Receptos and Ambrx -- told The In Vivo Blog he didn’t expect any near-term pain in the next, say, six months. "Beyond that, we’re practicing watchful waiting," said Forrest. "We just don’t know what to expect."

We wondered if there's a correlation between NIH budgets and biotech company formation. Bob Coughlin, the head of the biotech trade group in Massachusetts, the state that receives the most NIH funding, told us "the long-term effect will be seen four, five, ten years from now when we don’t have new therapies and ideas in our pipeline of future companies." 

But the National Venture Capital Association has never done a study on such correlation -- and its life science policy VP Kelly Slone told FOTF she isn't aware of one. So until we crunch those numbers ourselves, there’s no precedent to gauge potential fallout by that measure.

Todd Sherer, the president of the Association of University Technology Managers wouldn’t go as far as to predict the impact on company formation. But Sherer, who also runs tech transfer at Emory University in Atlanta, said funding does correlate to invention disclosures: "So if funding dollars go down, there will be some latency, perhaps two or three years, but expect to see a drop in the number of new invention disclosures that turn into licensable technology."

Sherer also said that the tech transfer bottleneck, already an impediment, will only get worse. "Through the global financial crisis, universities haven’t increased patent budgets or [added staff], despite the federal funding increases and the number of new inventions arriving. So we’ve had more inventions coming our way, but no increase in staff or budget to handle them, and with fewer outlets [among VCs or pharmas to license them]. We’re just now coming out of a perfect storm. I’m afraid we left important innovation along the roadside during the financial crisis, and we’re about to head that way again," said Sherer.

VCs like to say that the best technologies and product candidates will always rise to the top and attract money. But with the life-science venture population shrinking, and those remaining often in pursuit of later-stage investments that won’t take so long to mature, fewer VCs are even looking toward academia. As part of its annual A-List feature in January, START-UP asked dozens of life-science VCs to name the best sources of innovation. Only 15% said academia. Unscientific, true – but Sherer wasn't surprised by the sentiment. With universities dabbling more in translational science, and big drug companies forging ties left and right with academics, he said the odds of getting something licensed might be better when going "directly to Big Pharma and big biotechs and avoiding the start-up route. I haven’t seen data that that’s the case, but conceptually it seems possible." 

This all may be moot when the new federal budget is negotiated. But with wolves at the door and fiscal hawks flapping their wings -- and gums -- we aren't predicting anything. Howl as much as you want, but you'll never filibuster long enough to avoid...

Tesaro: Basking in the afterglow of its successful 2012 IPO, the publicly traded oncology developer sold 5.4 million common shares in a secondary offering at $18 per share that raised net proceeds of $91 million for the Boston-area company. Tesaro says the cash will go toward its development programs, rolapitant, niraparib and TSR-011, which were all in-licensed. The $18 price was $1.09 below the firm’s closing price February 22, the last business day before the offer was announced. Since the announcement Tesaro shares have risen to $24.36 a piece as of mid-day trading March 7. The firm, which debuted in late June at $14 a share, was one of several in the IPO class of 2012 to finish the year above its offer price. It’s a prime example of a recent biotech phenomenon that constrains the number of companies able to go public, but rewards those that manage to squeeze through the window. Tesaro executives and directors stand to benefit, as they owned nearly 70% of the company before the secondary offering. Their holding now stand at nearly 60%. Tesaro was formed by the former executive team of MGI Pharma, which was bought by Eisai in late 2007 for $3.3 billion. New Enterprise Associates, InterWest Partners and Kleiner Perkins Caufield & Byers were Tesaro’s three main venture backers, and all three still have Tesaro board seats. There were 13 biopharma and diagnostic IPOs on U.S. exchanges in 2012, and three venture-backed firms have debuted so far this year. (We’re not counting Pfizer’s animal-health spinoff Zoetis.) Citigroup and Morgan Stanley led Tesaro’s underwriters, who sold their full overallotment of 708,000 shares. -- Alex Lash

Ablynx: Belgium's publicly-traded Ablynx has raised €31.5 million ($41.2 million) in a private placement announced February 28, two weeks after announcing positive Phase II results for ALX-0061, a second rheumatoid arthritis-targeted product from the company’s Nanobody platform. The placement is the second largest financing in Europe’s therapeutic biotech sector this year, trailing only the $60.9 million raised by e-Therapeutics in February. Nanobodies are small-sized, single-domain antibody fragments that penetrate deep into target tissues. They also bind strongly to human serum albumin, which prolongs their circulation time in the body. The funds will support further development of ALX-0061, an IL6R inhibitor, and other Nanobodies. The funds give Ablynx greater flexibility over future development plans, allowing it to consider co-development or co-promotion – it has 25 programs in its pipeline, including five at the clinical development stage, and a roster of Big Pharma partners, including Boehringer Ingelheim, Merck Serono, Novartis and Merck & Co. It is also evaluating the attachment of therapeutic payloads to Nanobodies through recent agreements with Spirogen and Algeta. Euronext Brussels-listed Ablynx sold 4.4 million new shares at €7.20 per share, a 6.7% discount to the February 27 closing price. Pre-IPO shareholders and warrant holders also sold 1.9 million shares at the same price, bringing the total amount placed to €45 million. -- John Davis

Spring Bank Pharmaceuticals: Looking to create a new class of drug that potentially could be included in next-generation, all-oral antiviral regimens for chronic hepatitis C, Spring Bank announced a $10.5 million Series A financing on February 28. The funding, from Brock Securities and Gilford Securities, will help advance lead candidate SB 9200 into a Phase I safety and antiviral efficacy trial this quarter and further the Massachusetts biotech’s preclinical pipeline. SB 9200, derived from Spring Bank’s proprietary Small Molecule Nucleic Acid Hybrid technology platform, produces an antiviral effect by activating the host-immune response in HCV-infected cells, the company says. It targets two host cytosolic proteins, RIG-I and NOD2, to set off selective activation of immune response in the presence of viral infection. In preclinical study, the compound has shown synergistic activity with other HCV antivirals and demonstrated a clean safety profile. Spring Bank thinks ‘9200 will prove to pair well with other new direct-acting antivirals for HCV thanks to the potential for pan-genotypic activity and a high barrier to resistance. Previously, Spring Bank raised $600,000 in angel financing in 2009, got a $244,000 grant under the U.S. Qualifying Therapeutic Discovery Project in 2010 and received a $3.9 million grant in 2011 from NIH. The company’s preclinical pipeline includes programs for hepatitis B, respiratory syncytial virus, chronic obstructive pulmonary disease and broad-spectrum antibiotics. -- Joseph Haas

Daiichi Sankyo: The Japanese drug giant with a long history has jumped on a recent bandwagon by forming its own venture group, as our friends at PharmAsia News reported March 4. To date, Daiichi Sankyo has invested as a limited partner in other venture funds as a window into deal flow and to gain preferential co-investment rights. But it has now created its own direct-investment vehicle to be overseen by global R&D chief Glenn Gormley, who is based in New Jersey. It joins Merck Serono, Merck & Co., Shire and other pharma companies with relatively new venture groups. Daiichi Sankyo didn’t disclose how much cash the group will have to invest, but corporations are using even relatively small amounts to invest aggressively, as corporate venture becomes a larger part of the biotech funding landscape. Corporate groups are now frequent investors in early-stage companies, once a no-go zone. In 2012, for example, Novartis’s venture group was just as active in Series A investments as Third Rock Ventures, which is one of the few traditional VCs still gung-ho for company formation. -- Daniel Poppy and Alex Lash

All of the Rest: A Series E financing led by Invesco Perpetual brought Glide Pharma £14M… In a combination Series A/loan, Dezima Pharma raised €14.2M to fund development of a dyslipidemia candidate acquired from Mitsubishi Tanabe… Attempting to overcome mucosal barriers in treating disease, Kala Pharma closed on $11.5M in Series A financing… The Dundee Corp. provided $10.5M in additional funding to TauRx for its Alzheimer’s compound… Blaze Biosciences completed a $8.5M Series A to support work on high-res technology for tumor visualization… The venture arm of leading Korean aesthetic firm AmorePacific led a $7M Series B for Brickell Biotech… With proceeds going towards Alzheimer’s agent ladostigil, Avraham added $5.7M to its Series B, now totaling $8.7M… DecImmune raised $3.2M to help develop an antibody that reduces tissue damage due to heart attack… Botanical products company KannaLife raised $1.5M in Series A funds...using social media and nonprofit advocacy to solicit biomedical research materials, Sanguine Biosciences completed a seed round… Public Swedish autoimmune/cancer company Active Biotech raised SEK270M from Investor AB… Celsion’s zero coupon preferred stock offering grossed $15M… Opko Health led a $16.4M financing for RNA-targeting RXi Pharma...oncology-focused EntreMed privately raised $11M… To fund a clinical de-risking bioequivalence study of its lead Parkinson's candidate, Canadian biotech Cynapsus closed on $Cdn6M from a syndicate including an undisclosed strategic investor… In a follow-on offering, Immunomedics raised $14M… Diabetes-focused DiaMedica announced a public offering of units… Orphan drug company Hyperion is planning to sell 2.6M shares publicly…Merck Serono spun off (and seeded with €2.5M) its latest start-up Calypso Biotech to pursue inflammatory bowel diseases… OrbiMed Advisors is reportedly raising a second pain-Asia health care fund worth $500M. -- Amanda Micklus

Wolf yawn photo courtesy of Flickr user ArranET.