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Back when Financings of the Fortnight was a cub reporter on the high-tech beat, there was this new thing called a “Web browser” and a company called “Netscape.” The chief proponent of both was a young unassuming fellow named Marc Andreessen. He was, in the day’s currency, a bit of a rock star. Perhaps you’ve heard of him.
Your correspondent happened to be at a small gathering to hear a panel discussion with Andreessen and others, including Apple Computer’s “evangelist” Guy Kawasaki (yes, tech companies bestowed ridiculous titles upon executives 20 years ago, too, and yes, that is actually his real name). The wiry, California-tanned and caffeinated Kawasaki regaled the audience with his bird/elephant rule for innovation: one must consume information like a bird. Birds eat far more than their body weight, you see, and thus eat constantly. Then, at the other end, you take what you’ve learned and… how should we put this?... spread it around like an elephant. Andreessen, the big-boned, corn-fed Midwesterner, the phenotypic opposite of Kawasaki, followed. He picked up the mic and said, “Hi, I’m Marc. I try my best to eat like a bird, but usually I just shit like an elephant.”
We reconstruct this true tale to illustrate the trickle-down theory, to underline the importance of inputs and outputs, to draw attention to… oh, all right, we just like telling poop jokes.
But we admit trickle-down is fresh on our minds these days, what with the 2013 US venture data fresh in our inbox. Specifically: did the boffo IPO year for biotechs have any effect at the other end of the, uh, elephant? Have VCs begun spreading it around?
According to DJX Venture Source, health care venture investments in 2013 were up from 2012 ($8.2 billion vs. $7.8 billion) but fell well short of 2010 ($8.8 billion). Looking specifically at the biopharma and device sectors, which make up the bulk of healthcare investment, the 2013 numbers are down a tick from 2012 ($6.6 billion vs. $6.7 billion). No IPO effect there.
But much of the IPO activity in 2013 took place from spring through late summer. Perhaps the typical fourth quarter surge of investments was stronger than normal? Not in devices: 4Q was actually below the 1Q and 2Q totals. And in biopharma, the $1.3 billion for 4Q was the best quarter of the year, but a lower total than the 4Q totals of 2011 and 2012. Keep in mind that one-tenth of that quarterly total went to one company, Juno Therapeutics.
The rival MoneyTree report from PricewaterhouseCoopers and the National Venture Capital Association slices numbers in slightly different ways, but presents essentially the same trajectory. It also reports that first-time life science financings (biotech and device) were at near-record lows for the year: 154 deals total, just squeaking past 2012’s nadir of 148 deals.
So there hasn’t been much evidence of trickle-down, to which you might ask: Why should there be? Returns to old funds don’t simply translate into investments from new ones. LPs got to get paid.
And what if the IPO window slides shut, just as a new batch of hopefuls line up? It’s certainly not clear what kind of reception they’ll receive. Public investors fret that among a fresh flood of offerings, the quality will erode. “Biotech tends to fade when there is an over-supply of equity. More and more lower-quality IPOs continue to be thrust on generalists who don’t understand them,” says Andy Smith of biopharma specialist Mann Bioinvest. “To give management and VCs lots of money, that will continue. Do I want to divest another holding to buy into a new company? We are scraping the bottom of the barrel in terms of quality.”
That’s not what Cara Therapeutics, Dicerna Pharmaceuticals, Auspex Pharmaceuticals, Argos Therapeutics and others currently on their roadshows want to hear. But we think the bellwether for the next few months will be rare disease firm Ultragenyx Pharmaceutical. It’s got big clinical milestones coming up this year, and it’s the only one with a bulge bracket bank amongst its underwriters. (Not one, but two: J.P. Morgan and Morgan Stanley.) That’s a signal the big banks see money to be made, not just on the IPO itself but by establishing a relationship with a biotech that will subsequently be able to successfully raise funds on a large scale. (For more on Ultragenyx, see our roundup below.)
If IPOs continue apace, however, we see the VC trends shifting this year. There will be more liquidity, plus the momentum of new funds raised in 2013: OrbiMed Advisors, Third Rock Ventures, 5am Ventures, Atlas Venture, Frazier Healthcare, and others. They’ve got money to spend. In fact, among the unimpressive venture data from 2013, there was at least one sweet spot that, since the recession, has continued to attract more deals and more dollars: Series A financings.
In START-UP’s annual A-List, due out in a few days, we note that Series A deal flow increased for the fourth year in a row, as did the average dollars per round (in which figures were disclosed). Here’s a teaser:
We think the gradual increase, while overall venture numbers have remained unremarkable, is due to the growing emphasis on “long runway” A rounds, often funded by just one or two main groups. (Or in VC shorthand, A is the new A+B.) Plus, many early stage VCs have seed or equivalent programs for weeding out mediocre investments, but they’re not described or disclosed as seed round financings. So: fewer first-time financings, but more enthusiasm for the ones that make it to a true Series A. That’s our theory. What’s yours?
While we’re in tease mode, how about the A-List winners of 2013? In alphabetical order, we present:
For explanations of our choices, and a deeper look under the hood of the overall Series A numbers, you’ll have to read Start-Up’s A-List feature, due out next week. (Ultragenyx, by the way, is an A-List alumnus: Class of 2011.)
You can get a jump start, however, by continuing with us here, because Juno leads off our roundup this week, just on the other side of our little JPEG… But first, thanks to Stacy Lawrence for extra help with this edition. We also want to thank our families, our producers, Giorgio our makeup artist, our chauffeurs, our spa technicians, and last but not least...
Juno Therapeutics: Gobs of money. Stunning patient results. Legal disputes. It’s been a busy couple of months for the new cancer immunotherapy start-up. Most recently, the firm said January 13 it reeled in extra Series A cash to push the round past $145 million, with the booster shot coming from Bezos Expeditions, the personal investment company of Amazon.com chief Jeff Bezos, and Venrock. Juno debuted in December with a $120 million Series A round and exclusive license to three autologous cell therapy programs, two of which reported very promising clinical data in 2013. Its programs come from Memorial Sloan-Kettering Cancer Center, the Fred Hutchinson Cancer Research Center, and Seattle Children’s Research Institute. But it turns out Juno also took license to a slice of chimeric antigen receptor (CAR) technologies from St. Jude Children's Research Hospital, and it has jumped in on St. Jude’s side in a dispute with the University of Pennsylvania, whose CAR T-cell program is licensed to Novartis. According to court documents, Juno signed the license agreement with St. Jude the day it made its public launch, December 3, and agreed to shoulder 80% of the legal fees in the dispute with Penn. (For a much fuller description than we can afford here, read our Pink Sheet colleague Brenda Sandburg’s account here.) The lead scientist behind Penn’s CAR T-cell program is Carl June. Now, of course, “Juno” was the queen of the Roman gods and certainly makes an appropriate name for a big important new company. But seeing how the company knew well before its launch it would be going a few rounds, legally speaking, with Penn – June v. Juno, in a manner of speaking – you have to wonder if the name is also a sly tweak of the nose. – Alex Lash
GlycoMimetics: Two months after postponing its IPO, GlycoMimetics succeeded in going public on January 10th, grossing $64.4 million by selling 8.1 million shares (including the over-allotment) for $8. The biotech ended up offering more than the 5.75 million shares it had planned but at a steep haircut to its $14-16 price range. The IPO is the first in the biotech space in 2014, or second if you count rare disease-focused Retrophin's move to Nasdaq from the OTC exchange. GlycoMimetics develops small molecules that mimic the structure of carbohydrates involved in key biological processes, in particular the complex carbohydrates that attach to the surface of proteins, altering their function and interactions with other molecules. Its first target is selectin, an adhesion protein involved in inflammation in multiple diseases. Lead compound GMI1070 (rivipansel), an E-, P-, and L-selectin antagonist, is in Phase II for painful vaso-occlusive crisis (VOC), a severe complication of sickle cell disease. It has US and EU orphan drug status, and if approved, the company claims it would be the first drug on the market to interrupt the underlying cause of VOC, which is currently treated by just managing the symptoms. Pfizer holds exclusive worldwide rights to GMI1070 under a 2011 deal. GlycoMimetics’ next project is preclinical GMI1271, in combination with chemotherapy for acute myeloid leukemia and other hematological cancers. An IND for the E-selectin inhibitor is planned for Q1 2014. Since the company’s 2003 founding, GlycoMimetics has raised nearly $63 million; its principal shareholders are New Enterprise Associates, Genzyme Ventures, Anthem Capital, Alliance Technology Ventures, and Rosetta Capital. – Amanda Micklus
Ultragenyx Pharmaceutical: For its upcoming IPO, Ultragenyx has proposed to sell 4.8 million shares at $14 to $17 per share; that would raise $75 million at the mid-point and value the company at $436 million. It expects to price on or around Jan. 30. The biotech already has a legion of top-flight crossover investors to ease its transition to the public markets, including Adage Capital Partners, Capital Research, Columbia Wanger Asset Management, Jennison Associates, BlackRock and Cowen’s investment arm Ramius. Cowen and Canaccord Genuity join bulge-bracketers J.P. Morgan and Morgan Stanley as underwriters. Existing shareholders paid an average price of $4.68 per share, according to the S-1 filing with the SEC. The biotech’s strategy has been to go after low-hanging fruit in the rare disease space by in-licensing candidates with a clear mechanism in which the patient is missing something that can be restored through treatment, CEO Emil Kakkis said on the road show. It expects clinical data from five programs in the next 18 months, and is one of several biotechs with IPO ambitions that have big clinical milestones this year, as we report in the current START-UP. Ultragenyx anticipates Phase I/II data for KRN23, a monoclonal antibody to treat adults with X-linked hypophosphatemia, and for recombinant human beta-glucuronidase (rhGus), an intravenous enzyme replacement therapy to treat mucopolysaccharidosis 7 patients. In late 2014, it also expects additional Phase II data for an extended-release, oral formulation of sialic acid to treat hereditary inclusion body myopathy. – Stacy Lawrence
Alkermes: The expert on long-acting injectable drugs used the J.P. Morgan stage to announce January 13 a $248 million financing through the sale of 5.9 million shares to Invesco Perpetual Income Fund and Invesco Perpetual High Income Fund at a price of $42.25 a share, a 2% premium. The sale gives Invesco a 4% stake in Alkermes. CEO Richard Pops followed the follow-on news with an announcement January 14 that the company expects to file a long-acting injectable form of the atypical antipsychotic Abilify (aripiprazole) in the second half of 2014, with a potential launch expected in 2015. Abilify is copromoted by Otsuka Pharmaceutical and Bristol-Myers Squibb. The Invesco investment adds to the $395.2 million on Alkermes’ balance sheet as of Sept. 30, 2013, and gives the company more flexibility as it moves into the next phase of its lifecycle as it continues to develop its late-stage neurology pipeline. The sale of a significant slice of outstanding shares hasn’t dampened investor spirits; Alkermes shares closed January 22 at $50.52, up 133% from where they stood a year ago. – Jessica Merrill and Alex Lash
Best of the Rest (Highlights of Other Activity This Fortnight): Two cancer-focused companies completed Series A rounds: Madison Vaccines, a firm with a Phase II prostate cancer vaccine (MVI816), brought in $8 million in an offering led by Venture Investors... University of Basel spin-off Piqur Therapeutics closed an oversubscribed Series A round from existing shareholders and new industry investors concurrent with the start of Phase I European trials for its mTOR inhibitor PQR309... Regenerative medicine company Athersys closed a $20.5 million registered direct offering of common stock and warrants to fund ongoing clinical trials; it has pipeline programs in inflammatory bowel disease, ischemic stroke, myocardial infarction damage, and graft-versus-host disease prevention... Three months after closing its $89.5 million IPO, rare disease therapeutics developer Acceleron Pharma priced a FOPO of 2.4 million shares at $50, grossing $120 million…after postponing its IPO in October 2013, Celladon (calcium dysregulation therapeutics) has revived the offering with a new S-1 filing… RNA start-up Moderna Therapeutics spun out its 15 oncology assets into Onkaido Therapeutics and invested $20 million in the new company, which will be run by run by Stephen Hoge, Moderna’s SVP of corporate development. – Maureen Riordan
Photo from the Gulltaggen award show courtesy of Jarle Naustvik via Creative Commons license.