Financings of the Fortnight Isn’t Convinced You Have Nice Assets

Skeptical kitten wants to see what comes out the other side.

Single-asset companies. Asset-centric funds. Project-based financing. Call it what you will, but with the biopharma news flow these days, you’d think the entire industry was restructuring itself to find, develop and sell single products. You’d think FIPCO dreams were exhibiting some serious unmet medical need.

Building the next Genentech, Amgen or Biogen Idec might not be a popular goal among biotech investors, but as START-UP's third annual life science VC survey is about to reveal, a sizable and growing minority of those investors aren’t interested in the asset-centric model. As the graphic below shows, the skeptics’ numbers (presented as a percentage of total biopharma-investor survey takers) keep inching up year by year.

Well then. Respondents left a lot of comments, too. Here are a few:

“Selectively appealing. Need[s] more human capital.”

“A fad.”

“This strategy requires additional caution.”

And this stem-winder:

“Not a sustainable model for more than a few specialized outfits; the asset scope is limited to anything between optimized leads up to Phase II POC - this is where, in most indications, Pharma can play as well. Again, it requires a specialized group that can identify ideas earlier [and] better than pharma groups and can execute better [and] faster. VC partnerships are in many cases not the right resource for this. [I] still believe this movement is primarily driven by a need to show LPs a new model now that returns on the old model have shown to be 'not so good.’”

Now that’s something to chew on. Because it’s becoming apparent that it’s exactly that combination – VC partnerships with Pharma – driving the model. Avalon Ventures will share the risk for some of its latest fund with GlaxoSmithKline, which is tapping Avalon to scout for assets in the San Diego area and holding options to buy those assets when they reach the cusp of IND-enabling studies. Index Ventures has raised its first life-science-only fund, with an asset-centric bent, with GSK and Johnson & Johnson as limited partners. (Neither will hold options, they say.)

And we’re now seeing the first products emerging from a new fund raised by TVM Capital, which hadn’t raised a fund since 2005. The new $150 million fund is also life sciences only – after 30 years, TVM will no longer actively invest in information technology – and could top out at $200 million by year’s end. Two thirds of it is dedicated not to building companies but to developing pharmaceutical compounds through proof of concept. And some of those assets will be tied to a buyer with an option at Phase II proof of concept. That buyer is Eli Lilly, which is seeing progress three years after announcing its intent to fund three VCs to run a “mirror” portfolio of single-asset companies, but not before some ups and downs.

TVM’s new fund is part of what Lilly used to call the mirror portfolio, now renamed the rather stodgy Capital Funds Portfolio. It’s one of two VCs involved – the other is HealthCare Ventures, which has formed five single asset companies (or, in Lilly-speak, project focused companies, or PFCs).

So there are various riffs on the basic asset-centric tune, but the only constant is the outcome: there isn’t any. That is to say, none of the larger-scale efforts we’ve seen so far have produced exits. Perhaps one or two now and again – such as Index Ventures’ sale of PanGenetics BV to Abbott Laboratories in 2009 -- but we're still waiting to see it pay off as a broader strategy.

We asked our survey takers a few other questions about asset financing: Are there plenty of good assets available to license? Is there enough development expertise to hire? Are LPs and Big Pharma interested in funding the model? Those answers should prove interesting – and they’ll be available in the upcoming issue of START-UP, as will a lot more detail about the TVM-Lilly tie-up. But until then, perhaps this investor comment is the best way to sum up asset financing, in all its various flavors: “They all need to show they work. Call me in a few years.”

That’s no skeptic talking. That’s Hubert Birner, the general partner at TVM leading the life science team, when START-UP asked him which model so far is working. With several efforts well under way, it shouldn’t take more than a few years to judge the early returns.

Speaking of early, your columnist needs to get up before the sun, and the night is growing late. So we’ll get our assets in gear and leave you with the rest of the current edition of…

iPierian/True North Therapeutics: Alzheimer’s hopeful iPierian said September 4 it has pulled in a $30 million Series C round, with part of that cash earmarked for a new company to house one of iPierian’s preclinical compounds. Both iPierian and the newco, True North, will move forward as developers of single assets, which puts iPierian’s discovery platform on the backburner. Formed from the 2009 merger of two companies that benefited from California’s public stem-cell initiative, iPierian aimed to use induced pluripotent stem (iPS) cells as the basis for drug discovery. Its current lead candidate, IPN007, has been tested in in vitro combinations of brain cells derived from iPS cells. It targets extracellular tau, a fragmented form of a protein closely associated with Alzheimer’s disease. It’s not yet clear whether iPierian will pursue approval in Alzheimer’s or a related tauopathy such as progressive supranuclear palsy or frontotemporal dementia, but CEO Nancy Stagliano told “The Pink Sheet” the company plans to file an IND in 2014. True North, bankrolled with an undisclosed amount of iPierian’s new venture round, will follow iPierian into the clinic with a compound that targets disorders of the classical complement system, a cascade that functions as part of the innate immune system. SR One, the investment arm of GSK, co-led the round with Kleiner Perkins Caufield & Byers, MPM Capital and all of iPierian’s other existing investors. iPierian’s original investors -- Kleiner Perkins, Highland Capital, MPM and FinTech -- helped establish the company with a $31.5 million Series A round announced in July 2009. Google Ventures led a Series B installment in July 2010, then SROne and Biogen Idec New Ventures topped off the round at $28 million in September 2010. – Paul Bonanos

Evotec: The German drug discovery services company has raised €30 million ($40 million) from the Biotechnology Value Fund and other affiliates of San Francisco investment firm BVF Partners, diversifying its investor base and bringing in extra funds to expand its program of collaborations with academia and biotech companies. BVF bought 11.8 million new shares in Evotec at €2.55 per share, a 3% discount to the closing price August 27, the companies announced August 31. At the same time, BVF bought an option to acquire 11.8 million Evotec shares from TVM Capital at €4 per share over the next 30 months. If exercised, BVF would be the largest single shareholder, with more than an 18% stake in Evotec. The Hamburg-based firm has turned its business around since it restructured in 2009, dropping costly work on its own product pipeline in favour of securing drug discovery alliances and helping pharma and biotech companies to find and optimize new compounds. It has long-term alliances with Bayer, Boehringer Ingelheim, Genentech, Janssen, MedImmune and Ono Pharmaceutical. This year, the company has entered into a collaboration with Harvard University to identify new antibacterials, and with Dana Farber's Belfer Institute for Applied Cancer Science, to explore epigenetic oncology targets. – John Davis

ObsEva: Announced August 29 and detailed in "The Pink Sheet" DAILY, the Swiss start-up has raised a CHF 32 million ($34.9 million) Series A round of funding to develop women’s health drug candidates obtained from Merck Serono. It’s the latest in a series of asset spinouts from Merck Serono, which has cut research staff since Merck KGAA bought Serono in 2006, but its venture group MS Ventures has dedicated funds to help launch those spinouts. (Our IN VIVO colleagues have a detailed look at Merck Serono’s post-merger blues here.) Paris-based Sofinnova Partners led the round, while Sofinnova Ventures of Menlo Park, Calif., and Novo A/S of Denmark participated. MS Ventures took an equity stake as part of the licensing deal that gave ObsEva its first drug candidates. ObsEva CEO, serial entrepreneur and women’s health specialist Ernest Loumaye co-founded the firm roughly two years after selling reproductive medicine company PregLem to Gedeon Richter for CHF 150 million up-front plus milestones. Some clinical work already has been performed on at least one candidate, a Phase II program for pre-term labor that can either reduce or prevent uterine contractions. Both Sofinnova Partners and Sofinnova Ventures, independent firms with an intertwining history, were PregLem stakeholders. PregLem provided an exceptional 5 times return for Sofinnova Ventures, the firm's General Partner Jim Healy said in an interview with our Pink Sheet colleagues. The firm led PregLem's CHF 36 million Series B round in 2007. – P.B.

Acacia Pharma: The repurposing biotech said September 2 it has raised £15 million ($23.5 million) in a Series B round to fund completion of the Phase III development of APD421, its lead product for post-operative nausea and vomiting. Other companies already market the active ingredient in APD421 in a CNS indication. The fundraising, which comes two years after the Cambridge, UK-based virtual company raised $10 million in a Series A in March 2011, adds two new VCs to its investor group, Fidelity Biosciences and Novo A/S, who join Series A contributors Lundbeckfond Ventures and Gilde Healthcare. The funds extend Acacia's cash runway to mid-2015 and are enough to complete Phase II studies of the company's second pipeline product, APD403, for the prevention of chemotherapy induced nausea and vomiting, the company said. Although the company plans to find marketing partners for its products at the end of Phase III, the strength of its financial backing means Acacia could consider commercializing its own products, he said. Acacia CEO Julian Gilbert is no stranger to repurposing medicines, having co-founded Arakis, a UK company with a similar strategy that was sold to Sosei in 2005 for £107 million.  Arakis worked to repurpose the muscarinic antagonist glycopyrronium bromide for chronic obstructive pulmonary disease (COPD), now marketed by licensee Novartis AG as Seebri Breezhaler. - J.D.

All the Rest: CNS-focused Intra-Cellular Therapies took in $60mm (18.9mm common shares and $15.3mm in bridge notes) from institutional investors, then reverse merged with a public shell to gain its listing on the OTC…developing late-stage OTO201 and OTO104 for disorders of the inner and middle ear, Otonomy brought in $45.9 million in Series C financing…Argos Therapeutics raised $42.5mm in a Series E round led by Pharmstandard OJSC, which with other first-time backer Green Cross, will take territorial rights to Argos’ AGS003 late-stage metastatic renal cell carcinoma candidate…Syndax Pharmaceuticals’ $26.6mm Series B round will help advance Phase III Entinostat, an HDAC inhibitor for metastatic breast cancer…Also in Series B rounds, antibiotics developer MicuRx took in $25mm; Arsanis, an anti-infectives developer built around Adimab’s antibody platform, with many of the same backers as Adimab, brought in $20mm; Icon Bioscience, a company with a late-stage cataract surgery candidate, raised $14.9mm; Swiss-based Mind-NRG, focused on neurodegenerative diseases, brought in $8mm; and Rani Therapeutics, developing oral drug delivery formulations for existing large-molecule pharmaceuticals, raised an undisclosed amount…Triton Algae Innovations completed a $5mm Series A to support expansion of its PhycoLogix synthetic biology platform for producing proteins in algae and commercialization of its PhycoShield line of proteins…OTC-traded immunotherapeutics developer Stellar Biotechnologies completed a $12mm placement of 11.4mm units at $1.05…Catalyst Pharmaceutical Partners, which targets rare neuromuscular and neurological diseases, completed a $15.1mm registered direct offering of 8.8mm shares at $1.72…Two biotechs filed for initial public offerings:  lipid-based nutritional ingredients and medical foods maker Enzymotec, the third Israeli company to list on Nasdaq this year; and MacroGenics, a developer of MAb therapeutics for cancer and autoimmune diseases…Three pharmacos set IPO terms: Fate Therapeutics (stem cell-modulating treatments for orphan diseases) is offering 4mm shares at a $14-16 range; Evoke Pharma (GI-focused spec pharma) plans to sell 2.1mm shares between $12-14; and protein and antibody drug developer Five Prime Therapeutics is offering 4mm shares at a range of $12-14…infectious diseases player ContraFect raised $11.8mm in an oversubscribed convertible debt offering – which initially targeted $5 million – to support CF301, its bacteriophage lysin for staphylococcus aureus bacteremia infection…concurrent with its spin-off from Elcelyx Therapeutics, NaZura BioHealth raised $5mm in debt…Oxygen Biotherapeutics completed a $4.9mm debt offering to advance its Phase IIb Oxycyte PFC emulsion for traumatic brain injury…In fund news, former Dendreon CEO Mitch Gold has partnered with investment analyst David Miller to open a new multimillion-dollar hedge fund, Alpine BioVentures, to invest in newer biotech start-ups, particularly those focused on cancer and rare diseases. -- Maureen Riordan

Skeptical kitten photo courtesy of flickrer Jeff Eaton, who also shoots sandwiches.