Once You Start Up Financings of the Fortnight, It'll Never Stop

Your faithful FOTF correspondent is in San Diego this week for the CalBIO conference, specifically to wax journalistic on a panel trying to look into the future – 2030! -- and opine sagely upon what we see. Some call this prediction; others call this pulling objects out of one’s nether regions, which thankfully doesn't require the Jagger-like calisthenics seen at the start of this week's video flashback.

What we can predict with near certainty is that the upcoming issue of Start-Up, arriving soon in print or electronic edition according to your subscription preference, will be full of timely topics. We’ll go inside Third Rock Ventures, which has raised more than $1 billion since 2007 to invest solely in early stage biotech. And not just invest; Third Rock creates many of its own companies, then puts its own partners into temporary executive roles in those companies once they launch.

Is it working? Hard to say yes, definitively, until they start truly reaping what they’ve sown. (Only two exits so far.) But Third Rock has a 28% stake in one of the companies in the IPO queue, bluebird bio, and a 24% stake in Agios Pharmaceuticals, which filed its S-1 a few days ago. More might be coming this year. LPs have enthusiastically bought into the Third Rock promise, that's for sure. But that’s not to say the group hasn’t hit snags or that there aren't adjustments to make. (You'll have to read Start-Up to find out what those are.)

Third Rock’s not the only VC growing their own. Flagship Ventures has been at it twice as long, in fact, and about five years ago – right around the time Third Rock rolled into town – it decided to put a brand on its in-house start-up brewery: VentureLabs. They’ve been busy lately, with big – dare we say “Third Rock-like”? – Series A rounds to launch two high-concept start-ups, Moderna Therapeutics and Syros Pharmaceuticals. The new Start-Up will also look at the early days of Moderna, and how the Flagship/VentureLabs folks helped push what was at first an advancement in the induced pluripotency of stem cells toward a new therapeutic modality that, despite many question marks, almost immediately attracted a major Pharma partnership and nearly a quarter of a billion dollars guaranteed.

If bluebird or Agios goes public, it will be Third Rock’s first IPO, but Flagship’s been around the block many times. In the current window, it’s already notched two IPOs since the start of 2012 – Receptos and Tetraphase Pharmaceuticals – and it owns 16% of Agios. Others have ushered even more biotechs public in the same time frame: As we note in the next Start-Up, New Enterprise Associates and funds associated with Fidelity top the charts with five IPOs apiece.

But as our colleague Stacy Lawrence reports, there’s been no rush to exit: Among all major shareholders (those with 5% stakes or higher)  that went through IPOs in 2012, less than one third have reduced their holdings. Thirty of 43 have held tight or increased their shares, often in the IPO as part of an agreement to get the deal done.

Just published in "The Pink Sheet" DAILY, Stacy also talks to several VCs about what seems to be a reinvigorated IPO appetite for early-stage biotechs – a good sign indeed for the likes of Third Rock and Flagship. And what of the growing number of early-stage biotechs with corporate investors providing the backbone of support? Once quite rare, we’re now seeing new companies out of the gate mainly backed by corporates, such as Protagonist Therapeutics, whose JJDC-led Series B we describe below. Another, ArmaGen Technologies, caught our attention when it made Start-Up’s 2012 A-List for its intriguing receptor-mediated technology that draws therapeutics through the blood brain barrier, and for its unusual Series A syndicate: Four corporate investors splitting evenly a $17 million round. Our colleague Paul Bonanos was even more curious, and in the story he’s penned for -- you guessed it -- the new Start-Up, he noted this telling quote from one of ArmaGen’s backers: “When you take away the worry about losing your money, great opportunities arise.”

In essence, at least a couple of ArmaGen’s investors consider exposure to the company’s technology just as important, if not more, than their financial return. Outlooks like that among corporate investors should make for very interesting strategy discussions when it comes time to ready a company for sale or for a public debut. Then again, not all corporate VCs embrace strategic return more than financial return. (For a rather brusque counterpoint, see this story about Novartis Venture Funds and chief Reinhard Ambros' decision to drop its strategy-oriented option fund: "Strategic means you pay money for something intangible, and you waste money.")

If we don’t get to the blurbs soon, this column will go past the point of no return. So let’s sum up: If you like the topics of conversation here at FOTF, you should love Start-Up, perhaps even enough to subscribe. That ends our shameless plug; now back to our shameless prose, often referred to as...

Avaxia Biologics: The therapeutic antibody firm topped off its Series B round with an undisclosed amount of cash from the venture arm of AbbVie, bringing the round to $11.4 million. It’s a fascinating case for several reasons. First, Avaxia’s lead product, an oral TNF inhibitor currently in a Phase Ib study in irritable bowel syndrome patients, goes after the same target as AbbVie’s superblockbuster Humira (adilimumab). That might lead one to believe AbbVie wants a closer look at what could make a potential replacement for Humira. But that outcome would be a rare occurrence, indeed. According to our Strategic Transactions data, from 2006 to 2011 only two private companies backed by corporate venture funds were eventually bought by the funds’ parents: Avid Radiopharmaceuticals (bought by Eli Lilly) and Avidia (Amgen). AbbVie does not gain any rights to Avaxia’s lead, AVX-470, or other products, but it does take a board seat. Another reason this is one to watch is Avaxia’s antibodies. They’re not monoclonal, like Humira and so many other key biotech products. They’re polyclonal, essentially a gemisch of antibodies strained from cow’s milk, and therefore quite capable of surviving a trip into the gut. Avaxia comes along just as a few companies, led by Symphogen, are dipping a toe into the possibility of antibody combinations. But those combinations are made from monoclonals, not polyclonals. Other than serum products, it’s hard to find precedent to what Avaxia is aiming for. Just as notable is how far Avaxia has gotten with its platform, funded to this point by angel investors. Its A and B rounds, totaling nearly $10 million before the AbbVie add-on, were led by angel groups. – Lisa LaMotta and Alex Lash

Clovis Oncology: Clovis took advantage of a strong clinical data release with a public offering that brought in $240 million, the third largest secondary offering of the year behind Onyx Pharmaceuticals and Ariad Pharmaceuticals. The firm is the best performer from the biotech IPO class of 2011, with a 445% gain as of June 13, thanks in large part to a mighty ASCO bump – that is, data it presented at the recent American Society of Clinical Oncology conference that took Clovis’ share price from $36.56 to $74.59 in one weekend. The company reported Phase I/II efficacy data for its non-small cell lung cancer drug CO-1686 in patients with the T790M mutation, which confers resistance to current treatments. Clovis has done well with its strategy of in-licensing candidates and companion diagnostics; it brought in CO-1686 from Avila Therapeutics in 2010, then partnered with Roche to develop a test for the T790M mutation a year later.  Clovis’ recent run-up also benefited from positive initial data at ASCO for its drug rucaparib in ovarian cancer. Rucaparib is an oral poly (ADP-ribose) polymerase (PARP) inhibitor that Clovis licensed from Pfizer in 2011, and subsequently partnered with Foundation Medicine to create a companion test to find patients most likely to respond to the compound. -- A.L.

Protagonist Therapeutics: The peptide development firm said June 4 it has raised a $14 million Series B round, led by Johnson & Johnson Development Corp. JJDC joined Series A investors Lilly Ventures and Australian firm Starfish Ventures. Protagonist spun out of the University of Queensland’s Institute of Molecular Biosciences and, while headquartered in the San Francisco suburb of Menlo Park, Calif., it maintains discovery operations in the Queensland capital of Brisbane. It’s the latest example of early-stage biotechs drawing most or all of their venture funding from corporate-affiliated funds, which are helping fill the gap left by traditional venture moving their limited resources toward the later stages. Protagonist says it has developed a platform to identify disulfide rich peptides, a more stable version of a molecule that has limited therapeutic availability. Also called constrained or stapled peptides, the area is looking to Aileron Therapeutics, which recently completed the first clinical trial of a stapled peptide and answered some questions about the compound’s ability to remain stable in vivo and avoid safety concerns. The preclinical Protagonist has signed deals with Zealand Pharma and Ironwood Pharmaceuticals; one of the firm’s pursuits is the development of orally-active therapeutics for inflammatory bowel diseases. -- A.L.

Dermira: The firm developing treatments for acne and other skin disorders said June 11 it has raised a $35 million Series B financing to move into a Phase I/II trial its lead program, lemuteprofin, a photodynamic acne therapy, and two preclinical programs. Dermira’s Series A investors Canaan Partners, New Enterprise Associates and Bay City Capital all re-upped and were joined in the round by Maruho, a 100-year-old Japanese firm that specializes in dermatology and typically keeps a low deal profile. Dermira has now raised more than $70 million in venture funding; its $42 million A round helped it purchase Valocor Therapeutics, at the time the owner of lemuteprofin after its spinout from failed Canadian biotech QLT. -- A.L.

All The Rest: To fund work on Phase II AKB6548 for anemia associated with CKD, Akebia Therapeutics raised $41M in Series C financing…ResearchGate, which is developing a platform to share and search for scientific data online, closed a $35M Series C…Edge Therapeutics collected $18M in Series C funds to support Phase II of EG1962 in preventing delayed cerebral ischemia…Prism Pharma, which has a lead compound for fibrosis, completed a $15M Series C…GSK spin-off Autifony Therapeutics topped up its Series A with an additional £5.5M from Pfizer Venture Investments and International Biotechnology Trust…in addition to adding Janssen as a new partner, Second Genome completed a second tranche on its Series A, which now totals $11.5M…concurrent with a $2.3M grant from the Norwegian Research Council's BIA-Program, Targovax raised $1.4M in equity…Arcturus Therapeutics, focusing on RNAi for rare diseases, closed a $1.3M seed round…Baxter Ventures came in as a new backer for Ocular Therapeutix…ARCA biopharma publicly sold $20M in Series A convertible preferred shares…StemCells received the right to sell Lincoln Park Capital Fund up to $30M in common shares…Oncothyreon raised $10M in an RDO to fund up-front payment in Array BioPharma co-promote…an undisclosed health care fund bought $9.8M in Celsion’s common stock…BioTime grossed $9.1M through a PIPE…epigenetics company Epizyme grossed $77M in its IPO…PeptiDream floated on the Tokyo Stock Exchange, raising $52M…Israeli firm Kamada completed a $52M IPO in the US…Kadimastem, which commercializes pluripotent stem cell-derived products, raised $5.5M in an IPO on TASE…Heat Biologics, PTC Therapeutics, bluebird bio, and Esperion all set terms for their IPOs…stem cell producer Cellular Dynamics International and Agios Pharmaceuticals, which is targeting inborn errors of metabolism, filed for their IPOs…Array BioPharma offered $115M in convertible senior notes…and Anacor Pharmaceuticals received a $45M three-tranche loan facility from Hercules Technology. -- Amanda Micklus