Deals Of The Week Watches Crowdfunders Multiply Like Rabbits

That giant sucking sound you hear is investors pulling their money out of early-stage drug and device research. As we’ve chronicled here and in our other publications, big pharma has valiantly stepped in to fill the breach, whether through corporate venture or academic tie-ups, but that won’t be enough to budge the gathering volume of biomedical discoveries stalled between lab and clinic.

Some investors, thinking the JOBS Act and its provisions governing general solicitation will usher in a sea change in how biomedical ideas get funded, have pointed to crowdfunding as a solution. We’ve written about a number of these entities, including MedStartr Inc., Poliwogg LLC, and most recently, HealthiosXchange.

On May 17, VentureHealth LLC threw its hat into the ring. VentureHealth is the creation of Mir Imran, who founded and manages its sibling companies InCube Ventures LLC and InCube Labs LLC, an incubator and collaborative research lab that spins out one or two companies each year. InCube Ventures typically invests in start-ups out of InCube Labs as well as in external companies. Mir himself holds more than 200 issued patents, is the inventor of numerous devices, and has founded more than 20 medical device companies, 15 of which have had successful exits via trade sale or IPO.

There is some debate about whether crowdfunding threatens VC by accessing a new and better idea flow and a broader base of investors. Greg Simon, CEO of Poliwogg, sees it as potentially disrupting the traditional investment supply chain, knocking out investment banks and venture, along with their bloated fees.

Simon told us that venture would probably not be interested in crowdfunding because the numbers are too small and, besides, venture’s business model is based on investing other people’s money.

Mir and his colleagues at InCube think otherwise. VentureHealth embodies the idea that the best of venture can be blended with the best of crowdfunding, to the benefit of venture investors, citizen LPs, entrepreneurs, and biomedical technology.

The potential of linking venture to crowdfunding was unwittingly demonstrated by an early pioneer. MedStartr, a crowdfunder of low-tech health and wellness products to non-accredited investors, operates on what amounts to a donation model. Investors see no return except for the warm glow that comes with contributing to a good cause. But an interesting thing about its crowdfunding model is that venture, angel, and other kinds of investors are on the sidelines watching. And every so often, when they see a good idea, they swoop in and fund it. MedStartr, sadly, is unable to participate in those exits.

But VentureHealth is.

For starters, VentureHealth takes a carried interest fee on what it earns in a sale or other liquidity event, much like a VC would. Mir’s partner, Andrew Farquharson, claims that this model aligns the interests of VentureHealth with its investors. Unlike some other crowdfunding portals, VentureHealth has no plan to become a registered broker-dealer.

VentureHealth’s plan is to only go out to accredited investors. In fact, it will be quite selective in the investors it brings in – physicians, researchers, individuals who understand the technology being offered and the market it’s targeting. As long as they meet those criteria, they can be experienced accredited investors or novice accredited investors who meet the minimum financial requirements set by the SEC but have traditionally been excluded from investing in private companies. Mir told us that VentureHealth is not interested in going out to non-accredited investors. It can raise all the money it needs from its accredited base, with additional support from InCube Ventures and, where warranted, from other venture co-investors.

It’s refreshing to find a crowdfunder who rejects the populist cant that many of its peers go in for. That’s not to say that VentureHealth isn’t opening up ground floor investment opportunities for investors who would otherwise be excluded. But it’s not exactly democratizing the process for all comers.

VentureHealth will focus on devices, drugs, diagnostics, and mobile health. In many cases, says Mir, InCube Ventures will co-invest alongside VentureHealth. The crowdfunding entity will likely have broader a remit for the deals it pursues than its venture sibling, but where they intersect, there will be co-investment. Venture health will be able to draw on the traditional venture strengths of screening deals, doing the diligence, managing companies, and providing follow-on funding.

The two exits listed on VentureHealth’s website illustrate the flexibility and potential of the venture/crowdfunding model especially when managed by industry insiders with extensive relationships and know-how.

Nfocus Neuromedical Inc. is a developer of a neurovascular device with an initial indication in brain aneurysms. The company was founded by Mir and co-inventor Martin Dieck. It was acquired in February by Covidien PLC in a structured acquisition for $51 million upfront and a $21 million earn-out payment. VentureHealth raised $1.49 million. Oxford Bioscience, DFJ e-Planet Ventures and others participated in financing rounds.

In the other exit, BodyMedia Inc., a developer and marketer of wearable body monitors that communicate with mobile devices, was acquired by Jawbone for $100 million in May 2013. VentureHealth raised $469,000. InCube Ventures, Comcast Ventures, and others participated in financing rounds.

Mir acknowledges that there’s an incestuous element to these early exits in which he wears the hats of company founder, venture co-investor, and crowdfunder. That might change over time. But he underscores another advantage of VentureHealth’s tight association with its VC sibling: “When Incube Ventures makes an investment from our fund, we keep a sizeable amount of dry powder on hand for follow-on rounds.” His point is that most angel investors – Mir says crowdfunding is organized angel investing – can’t look that far into the future and reserve capital for follow on fundings.

VentureHealth’s raises currently range between $500,000 and $1.5 million. Mir expects that number to rise as his accredited investor base gains experience. VentureHealth lists one “active investment” on its site: Channel Medsystems Inc. is developing an office-based, cryoablative technology to treat excessive menstrual bleeding. It raised $9.7 in an April B round led by Boston Scientific, toward which VentureHealth contributed $875,000.--Mike Goodman

While the crowdfunding space gets more crowded, deals and acquisitions this week continued their torrid pace.

Valeant/Bausch & Lomb: M&A-focused Valeant Pharmaceuticals International Inc. announced its biggest acquisition yet on May 27, agreeing to pay $8.7 billion to acquire privately held eye care company Bausch & Lomb Inc.  The transaction will increase Valeant’s eye care portfolio substantially: B&L offers a suite of prescription and over-the-counter drugs, contact lenses and lens-care products, as well as ophthalmologic surgical devices and instruments.

CEO Michael Pearson said the deal would create a global eye care platform within Valeant, retaining the B&L brand name,that will provide pro forma net 2013 revenue of roughly $3.5 billion. Of the $8.7 billion price tag, $4.5 billion will go to B&L’s owners at Warburg Pincus, while the remainder will retire B&L’s outstanding debt. Valeant, which had $414 million cash on hand at the end of the first quarter, said it will finance the transaction mainly through debt, while also raising between $1.5 billion and $2 billion in new equity. The Canadian specialty pharma projects $800 million in cost synergies from the transaction by the end of 2014.

The deal, unanimously agreed upon by both companies’ boards and expected to close during the third quarter, follows Valeant’s recent and apparently unsuccessful courtship of Actavis Inc. Acquiring B&L will enable Valeant to balance its revenue mix from both a geographic and therapeutic perspective. After closing, about 50% of Valeant revenue will stem from the U.S., with Eastern and Central Europe comprising 15%, Western Europe and Japan 13%, and Latin America, Canada, Australia, Southeast Asia and South Africa rounding out sales. In terms of therapeutic areas, dermatology and aesthetics will contribute about 34%, eye health about 32%, neurology and “other” about 12%, and consumer and oral health about 11%.--Joe Haas

GlaxoSmithKline/Okairos: GlaxoSmithKline PLC has done the biggest takeout of a private, clinical-stage European biotech so far this year with the acquisition of Okairos SRL for that company’s Phase I RSV vaccine and T-cell stimulating technology. for the biotech’s VCs nabbed roughly a 10x return on their €23.2 million invested capital.

Vaccines are a core therapeutic area for GSK. With Okairos, it hopes to have the basis of a first-in-class blockbuster. RSV is a common virus that presents with cold-like symptoms. In infants under one year old in the U.S., the disease is the most common cause of bronchitis and pneumonia and can require hospitalization or occasionally be fatal. Okairos’ vaccine provided “complete protection” against RSV in preclinical testing on rats and calves; the biotech started a Phase I trial in 40 healthy volunteers in February. MedImmune Inc.’s Synagis (TK) is a monoclonal antibody used as a preventative in premature and other high risk infants, but there is no RSV vaccine or post-infection therapy on the market.

In addition to RSV, Okairos has four clinical stage vaccine programs for malaria, HIV and hepatitis C (prophylactic and therapeutic). The Okairos platform and much of the management came out of Merck & Co. Inc. Okairos co-founder and CEO Riccardo Cortese was the founder and head of the Istituto di Ricerche di Biologia Molecolare (IRBM) in Rome, which later became a subsidiary of Merck. He departed Merck, taking much of his original IRBM team with him, and in-licensed the technology from the pharma in 2007.--Stacy Lawrence

AstraZeneca/Omthera: In its quest to reshape its cardiovascular pipeline, AstraZeneca PLC bypassed commercial-stage fish oil pill maker Amarin Pharmaceuticals Inc. announcing plans May 28 to acquire Amarin’s rival Omthera Pharmaceuticals Inc. instead. By acquiring Omthera, AstraZeneca accepts more risk, but gains an NDA-ready asset for dyslipidemia for considerably less than it would have cost to acquire Amarin ([A#14130528004]). AstraZeneca will pay Omthera $12.70 per share, or approximately $323 million, an 88% premium over Omthera’s closing price on May 24. The enterprise value of the deal is lower, about $260 million after incorporating Omthera’s cash balances of roughly $63 million, the company said.

In addition to the upfront cash from AstraZeneca, Omthera shareholders will receive contingent value rights of up to $4.70 per share, about $120 million, tied to milestones for Omthera’s lead product Epanova. The product, a mixture of polyunsaturated free fatty acids derived from fish oils, namely EHA and DHA, has demonstrated efficacy in Phase III studies for reducing triglyceride levels, as well as non-HDL cholesterol in combination with a statin, in patients with hypertriglyceridemia.

It is an indication for mixed dyslipidemia, a broader patient population, that both AstraZeneca and Amarin hope to pursue, and there, Amarin is ahead. Its product, Vascepa, is already on the market, and the company is awaiting action from FDA on an sNDA for mixed dyslipidemia. But, with a market capitalization of close to $1 billion, Amarin would have been a more expensive takeout.--Jess Merrill
 
ThromboGenics/Eleven Biotherapeutics: Following the recent U.S. and European launches of its first product, the macular adhesion therapy Jetrea (ocriplasmin), Belgian biotech ThromboGenics NV now wants to build on that success by developing a range of ophthalmic products. As part of that strategy, it has licensed technology from U.S. company Eleven Biotherapeutics to design a new protein therapeutic targeted at diabetic eye diseases such as diabetic macular edema.

ThromboGenics has identified a biologic target involved in diabetic eye diseases, and will use Eleven's AMP-Rx protein design technology to create a novel product, the companies announced May 28. Eleven has received an undisclosed upfront payment, and will receive development, regulatory and sales milestones plus royalties on any protein developed using the technology. Eleven argues it has already validated the technology by developing its own lead protein therapeutic, EBI-005. The product is being evaluated in a Phase Ib study for the treatment of dry eye disease.

ThromboGenics is a European biotech success story. In addition to launching Jetrea in the U.S. on its own at the beginning of 2013, it has also received a total of €90 million ($117 million) in milestone payments from ex-U.S. Jetrea licensee Alcon (a division of Novartis AG), after that company gained EU approval and subsequently launched the product in the U.K. and Germany. The biotech expects "significant" royalties from Alcon's net sales of Jetrea.--John Davis

Amgen/Astellas: Amgen Inc. took a second stab at the Japanese market with an alliance and joint venture with Astellas Pharma Inc., five years after selling off its Japanese affiliate and portfolio to Takeda Pharmaceutical Co. Ltd.

The alliance with Astellas, announced May 29, provides Amgen a co-development and co-commercialization partner for five products. The furthest in development are AMG 145, a PCSK9 monoclonal antibody  in global Phase III trials and in Phase II in Japan with a lead indication of hyperlipidemia; and romosozumab, a sclerostin mAb in global Phase III and Phase II/III in Japan for osteoporosis. Anti-HGF mAB rilotumumab is in Phase I in Japan for gastric cancer, and MET inhibitor AMG 337 for gastric cancer and blinatumomab for hematological tumors are still in preclinical.
The alliance for the five products will last through 2032 at the latest. Astellas would pay undisclosed royalties to Amgen for any products that reach market, but the companies will otherwise share development costs and profits 50-50.

Astellas and Amgen also formed a joint venture, Amgen Astellas BioPharma KK, which is structured to allow Amgen to turn the operations into a wholly owned Japanese affiliate as soon as 2020. The JV, 51% owned by Amgen, 49% by Astellas, will open Oct. 1 in Tokyo and will comprise seconded employees from Astellas, transferred employees from Amgen and new hires. However, a source close to Amgen’s previous Japan operations said Amgen may have trouble with recruitment after exiting the country.

At a May 29 press conference in Tokyo, Amgen CEO Robert Bradway said, “This is the alliance we expect to create a platform for Amgen to have its own operations in Japan.”--Dan Poppy

Pfizer CTI/UCSF: Pfizer Inc.’s Centers for Therapeutic Innovation (CTI) has broadened its scope through a deal with the University of California San Francisco that will focus on small molecule research – a first for CTI. Until now, the Pfizer initiative had focused only on biologic projects. Under the new collaboration, CTI will provide UCSF with funding and scientific expertise to support preclinical and clinical development of the compounds. The therapeutic areas and number of compounds included in the collaboration were not disclosed, but UCSF is eligible for milestone payments and royalties should any of the compounds advance through commercialization. CTI is expected to engage some of its other partners in small molecule research.

CTI was set up by Pfizer in late 2010 to allow the Big Pharma to better engage scientists on medical campuses and in research institutions. Pfizer set up hubs in San Francisco, New York, and Boston and has committed hundreds of millions to the projects. CTI is expected to expand to as many as eight cities.
The first initiative under the CTI banner was a collaboration set up between CTI and UCSF in November 2010. At the time, Pfizer committed $85 million of funding over a five-year period.--Lisa Lamotta