Friday, August 23, 2013

Financings of the Fortnight Checks The Corporate Venture Numbers

How important is corporate venture capital right now to the life sciences? That’s one of the key questions in this year’s START-UP Life Science VC survey, the results of which will be published in a few weeks.

When asked about themselves, corporate VCs mainly said they were important (77%), and the rest (23%) minority said they were crucial. Not exactly unexpected.

But traditional life science VCs were right there behind their corporate counterparts. 22% said CVC was crucial and 69% said important. Of the rest, 7% agreed with the statement “It’s of growing importance but will be relegated to the sidelines once traditional VC returns,” and 2% said CVC was insignificant.

That’s even more glowing than what institutional VCs said in the 2012 survey. Here are the institutional VCs' answers in 2012 and 2013:

Click to embiggen.
 Corporate investors’ Q ratings are going up at the same time their wallets are opening. According to the National Venture Capital Association and PricewaterhouseCoopers, 18.3% of biotech deals in 2010 and 2011 combined had CVC participation, accounting for 8.0% of biotech venture dollars. The average investment per round was $4.0 million.

In 2012, the average investment per round jumped 20%, to $5.0 million, and 19.5% of all biotech deals had CVC participation. The share of CVC dollars was 10.9%. Tack on the first half of 2013, and the last 18 months continue along those lines: corporate venture was involved in 19.2% of all biotech venture deals from the start of 2012 through June 2013, and their dollars accounted for 10.1% of all biotech venture. The average amount of participation per round was $4.9 million.

We’re not just tracking the corporate venture story for biopharma. Here’s a story that looks at the growing influence of hospitals and insurers in health care venture; and here’s one that examines the flow of corporate venture to medical device start-ups. Those sectors have also seen an increase in corporate venture dollars, according to the NVCA. (You can download all their corporate venture reports here.)

With all the IPO activity this year, we’ll also be able to update another corporate venture story we track closely: the financial returns of start-ups with corporate investors on board. Look for an update of those numbers this fall or early winter. Last time we checked was October 2012, and we found that biotechs with corporate venture backing averaged a 1.6x step-up at IPO, slightly lower than the 1.8x for those without corporate investors. That’s the opposite of what we uncovered for acquisitions: corporate-backed biotechs fare better when selling, with an average 4.3x step-up, compared with those without (3.5x).

Is this the reality from now on? As one VC said in the survey comments, “It wasn't all that long ago that corporates were the last folks you'd call to raise money, and you'd only do so if you were desperate or if they were willing to pay up."

It's hard to imagine traditional VC roaring back to fill the early stage coffers of platform and early technology companies, a niche the corporates have begun to claim (more on that in the upcoming survey). But overall, let's not forget that even with this apex, CVC participates in one of five biotech venture rounds. There's a long way to go before corporate venture dominates the landscape the way, say, the freely available bi-weekly biotech financing roundup is dominated by...

Retrophin: Martin Shkreli’s fledgling biotech got another injection of capital on August 16 when the company tapped new and existing institutional investors for a $25 million PIPE (private investment in public equity) financing. Retrophin sold approximately 5.6 million shares of common stock and warrants. The company conducted a similar financing in February, issuing 3,333,332 shares of common stock and warrants to purchase an additional 1,530,559 shares of common stock, which resulted in $10 million in proceeds. The new PIPE proceeds will help advance the company’s early-stage pipeline. Proceeds will also help license an autism treatment from an undisclosed major pharmaceutical company. None of the programs in Retrophin’s pipeline have made the advancements the 30-year-old Shkreli has been promising since the company’s inception a few years ago.
A Phase II pivotal study of RE-021, its lead compound, was intended to begin in early 2013 for the treatment of focal segmental glomerulosclerosis but has yet to enroll patients, and timelines continue to be pushed back. The company has yet to conduct any clinical trials in humans for any of its compounds, but has released what it believes to be promising data from studies in mice. Shkreli started the company after leaving his hedge fund MSMB Capital, which he started in 2000. He wasn’t shy about making waves as a hedge-fund manager, such as when he led an activist shareholder battle against AMAG Pharmaceuticals in 2011. Shkreli and his fund pushed for the ousting of the company’s management should the merger with Allos Therapeutics take place; the issue was dropped when the merger failed. – Lisa LaMotta

Sophiris Bio: It wasn't pretty, but the Canadian-American biotech raised $65 million in an initial NASDAQ listing after nine years of being public on the Toronto Stock Exchange (TSE). The funding is expected to take it through 2015, including top-line data by the end of 2014 for a Phase III trial of lead candidate PRX302 (topsalysin) that's slated to start this half. PRX302 is a genetically modified protein to treat benign prostatic hyperplasia (BPH), also known as an enlarged prostate. Activated by prostate specific antigen (PSA), PRX302 binds to the GPI-anchored receptors on the cell surface of prostate cells. It induces cell death once activated. This, in turn, can relieve BPH-associated lower urinary tract symptoms such frequent and urgent urination, as well as a higher risk of urinary tract infections, urinary stones and bladder damage. Existing shareholders, including Tavistock with its 30.5% pre-IPO stake, committed to buy about $22.4 million worth in the offering. Other existing investors include Warburg Pincus (27.8%) and BC Advantage (6.6%). To lift its share price ahead of the offering, Sophiris executed a 52-1 reverse stock split on August 9. By August 14, that put its share price on the TSE at US $8.32. The offering priced at US $5 per share and sold 13 million shares on August 15; that's well below the last price on TSE. It had planned to sell only 5 million shares, when its TSE shares were each about US $13. In 2011, Sophiris moved its headquarters to San Diego from Vancouver, BC. – Stacy Lawrence

Regado Biosciences: The IPO window may be wide open for life sciences companies, but that doesn’t mean going public is always easy. Anticoagulant developer Regado scaled down expectations for its August 21 listing, finally pricing at just $4, far below its anticipated $14 to $16 range. The company sold 10.75 million shares in the offering, more than twice its original goal of 5 million, but still raised $43 million rather than the $75 million it hoped to take in. Regado will use the funds for a Phase III study of lead program REG1, a two-component anticoagulant used during heart surgeries. The therapy includes a therapeutic aptamer, pegnivacogin, and a control agent called anivamersin that reverses the aptamer’s effects. Physicians use the combination to balance the risks of ischemic events and excessive bleeding that can occur during percutaneous cardiac interventions. Shareholders in the Basking Ridge, N.J. company include Russian investment firm Rusnano, Fastenal Co. founder Robert Kierlin, Domain Associates, Edmond de Rothschild Investment Partners, Aurora Ventures, Quaker BioVentures and Baxter International Inc. Insiders purchased nearly $31.7 million worth of the shares sold in the offering, well more than 50%. – Paul Bonanos

Tigercat Pharma: The third project in the hands of Velocity Pharmaceutical Development Corp., the CMEA Capital-funded operator of virtual companies, now has a name. Tigercat Pharma was founded last year to study VPD-737, also known as serlopitant, as a treatment for chronic itching, or pruritis. Velocity and partner investor Remeditex Ventures of Dallas have since invested an undisclosed amount in it. A January regulatory filing suggests that Tigercat plans to raise up to $15 million, but at that time it had taken in $500,000 from a single investor. Tigercat licensed serlopitant from Merck & Co. Inc., which previously studied the neurokinin-1 receptor antagonist for overactive bladder. A clinical trial showed that it was no more effective than Pfizer Inc.’s Detrol (tolterodine) in treating the disorder, although it was well-tolerated by patients. Tigercat joins Spitfire Pharma Inc., Corsair Pharma Inc. and an as-yet-unnamed program among Velocity’s projects, funded by Velocity Pharmaceutical Holdings and operated by Velocity Pharmaceutical Development employees. Spitfire has VPD-107 for type 2 diabetes, and Corsair has VPD-380 for a pulmonary indication; neither has been tested in humans. (We’re guessing that the fourth project will also be named for a fighter aircraft, and we’re guessing it won’t be Fokker.) Velocity and Remeditex separately pledged to explore investment opportunities jointly. Regionally-focused Remeditex has confined its investments to Texas and Colorado previously, but expects to broaden its reach with the deal. – P.B.

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