Financings of the Fortnight Is Putin' Rusnano In The Spotlight

Rarely has a sovereign fund been as high-profile in the life sciences as Rusnano, which is investing $10 billion of Russian government money in companies from a variety of industries, including life sciences/biomedicine.

In a country that’s had a painful relationship with capitalism since the Soviet state collapsed, it’s no surprise the idea of a giant state-backed fund making bets on private companies has drawn skepticism – including from then-Russian president Medvedev four years ago.

Now, six years after Russia's Vladimir Putin authorized the group, it’s undergoing a shakeup and a corruption audit, apparently with Putin’s blessing. (A related project, Skolkovo – an attempt to build a Silicon-Valley-like cluster near Moscow – has also been dogged by similar investigations, allegations of corruption, and political pressure.)

Seeing how about 20% of Rusnano’s investments have landed in the life sciences so far, what happens next should be of keen interest to many in our corner of the world. That’s why we’re pointing out our colleague Stacy Lawrence’s one-on-one interview with Rusnano chairman Anatoly Chubais in the current issue of “The Pink Sheet.”

Chubais was a key figure in the post-Soviet privatizations that concentrated wealth in the hands of so-called oligarchs, and he has run Rusnano since 2008. He survived the recent shakeup, during which several directors left the fund.

Despite the turmoil, Chubais says he’s pressing ahead with more privatization plans, transforming Rusnano from a vast sovereign fund to a private management firm that runs several funds. Here’s how he described it in “The Pink Sheet”: 

“We decided to transform Rusnano into a private equity fund, which means that we will be a separate management company from Rusnano and we will transform it into a GP, which will attract investors and create a family of private equity and venture funds. And the GP itself will be privatized stage by stage… it should start next year and maybe finish between 2016 and 2017.”

Anatoly Chubais (right) is listening. (Courtesy Michael Popov.)

That's still rather murky, so we won't be surprised if plans shift in the next couple years according to the political winds within Russia. Rusnano has set off alarms – at least within certain factions of the Russian government – by posting much larger than expected losses within its portfolio. It’s unclear how much of them are associated with its life science deals, which have included big names in the US. Among its direct investments are BIND Therapeutics and Selecta Therapeutics, both built around technology from the lab of Bob Langer, a Massachusetts Institute of Technology professor and the ne plus ultra of the American ideal that combines academic and capitalist freedom. It doesn’t get more apple pie, biotechnologically speaking, than a Langer spin-out.

Going into BIND’s initial public offering in September, Rusnano owned 11.5% of the company and according to documents bought more than 200,000 shares at the IPO price, leaving it with a 9.3% stake in the company currently worth $22.3 million.

Through subsidiary RMI Investments, Rusnano also has moved heavily into Regado Biosciences, first by leading its Series E round in late 2012, then buying more shares at IPO, which took place only because Regado accepted a drastic haircut. At the end of August, RMI owned nearly 26% of Regado. The cardiovascular treatment developer debuted in late August at $4 a share and closed October 16 at $5.71.

On top of its direct investments, Rusnano has committed $200 million to Burrill & Co.’s fourth general venture fund, which began investing in late 2011. Topping that, it has earmarked $330 million to invest side by side with Domain Associates, the US venture fund, in a deal that also aims to build Russian manufacturing capacity for the products that emerged from the firms’ jointly-funded portfolio companies.

It’s a significant source of capital for hungry biotechs, but there are strings attached. Non-Russian firms that take Rusnano money must establish a footprint in Russia, part of the firm’s remit to build a domestic pharmaceutical industry through the Pharma 2020 initiative, which, as our IN VIVO colleagues explain here, is as much a proclamation as it is a specific roadmap.

Here’s how Chubais describes the tightened scrutiny of his operation: 

“We had a very, very deep check from the special state auditors and there was not a single corruption allegation, which is positive. We have about 100 portfolio companies and for some of them, they have some grounds for further investigation for their efficiency of using money from Rusnano. That’s an investigation which is going on now and we don’t know if it’s a ‘yes’ or ‘no.’”

You can scrutinize the entire Chubais interview and pelmeni more stories about the nascent Russian biomedical initiatives in our sister publications. Or, if you just want to keep it on the blog, that's your pirogitive, go ahead and stuff yourself full of…

SAGE Therapeutics: The Cambridge, Mass. CNS startup has raised a $20 million Series B, with ARCH Venture Partners, joining original backer Third Rock Ventures to help move into the clinic the first compound of what the company hopes will be an epilepsy franchise. The new money and the clinical transition comes in the first few months of the tenure of new CEO Jeff Jonas, who previously ran Shire’s regenerative medicine group. SAGE’s platform is dubbed PANAM, for “positive and negative allosteric modulation.” Its compounds are designed to dial up or dial down activity around receptors such as gamma-aminobutyric acid, or GABA, and N-methyl-D-aspartate, or NDMA, without acting directly upon the ligand binding sites of the receptors themselves. The Series B round is nearly half the amount SAGE raised in its $38 million Series A, which was disclosed two years ago and came mainly from Third Rock. (ARCH, it turns out, also topped off the Series A last month with nearly $3 million, but Jonas declined to say why ARCH’s cash was allocated in that fashion.) ARCH Managing Director Robert Nelsen joined SAGE’s board. Jonas said the company will soon file an IND for SGE-547 to treat status epilepticus, a type of seizure that lasts several minutes and can be life-threatening. With an eye toward building a franchise, SAGE will investigate the role of GABA in other epilepsies, and could add indications to ‘547 or develop other seizure drugs that act around the receptor. ARCH and Third Rock know each well. The syndicate partners previously co-invested in a pair of this year’s high-profile IPO companies: cancer metabolism company Agios Pharmaceuticals Inc. and gene therapy developer bluebird bio Inc. With its new fund, SAGE is “comfortable well into next year,” Jonas told “The Pink Sheet” DAILY, and more private funding might not be necessary. – Paul Bonanos

Macrogenics: The antibody developer raised $92 million by selling 5.75 million shares at $16 each in its October 9 IPO. In baseball terms, it hit the triple crown despite a choppy broader market. It upsized its deal; priced at the top of its range; and traded up 56% in the first day. MacroGenics has two candidates in the clinic, with another two expected to advance into clinical testing in 2014. The most advanced is margetuximab, a monoclonal antibody that targets HER2-expressing tumors, which is in Phase IIa testing. It’s intended to be a bio-better of Herceptin (trastuzumab) that not only will be more effective killing tumor cells expressing a lower level of HER2, but also enhance the immune system’s ability to kill cancer cells. Prior to the IPO, Macrogenics raised an astonishing $547 million, including $342 million from partners Gilead Sciences, Pfizer, and Boehringer Ingelheim, among others; $151 million in equity; and $54 million in government grants and contracts. These deals could keep it from leaning too heavily on shareholders; it stands to receive more than $100 million in milestone and other partnership payments by the end of 2015. Venture investors include TPG (11.6% pre-IPO stake), Alta Partners (10.5%), InterWest Partners (10%) and MPM Capital (9.4%). This is MPM’s fifth biotech IPO this year, placing it among the most active in 2013. Only ARCH Ventures, Flagship Ventures and crossover investor Fidelity have been behind as many biotech IPOs this year. – Stacy Lawrence

G1 Therapeutics: North Carolina biotech veteran Christy Shaffer, who left Inspire Pharmaceuticals shortly before Merck purchased it in 2011, has returned with the start-up G1 Therapeutics. The Chapel Hill-based company on October 16 announced a $12.5 million Series A financing that will enable it to bring its lead chemo-protectant candidate into Phase I in 2014. G1’s technology focuses on inhibition of cyclin-dependent kinase (CDK) 4 and 6 to shield cancer patients’ bone marrow from the myelosuppressive effects of chemotherapy. Early on, G1 is planning two development courses for its lead candidate: as an intravenous infusion in small cell lung cancer patients, and as an oral version to protect against radiological-induced myelosuppression, a condition that could result from a nuclear weapon strike. Shaffer joined North Carolina-based Hatteras Venture Partners in 2011 to head up its Hatteras Discovery initiative focused on incubating start-ups derived from academic research. Hatteras Discovery seeded G1 with $600,000 in 2012 and now has invested in the A round, led by MedImmune Ventures, with participation from Mountain Group Capital. With the seed funding and NIH grants, G1 selected a lead candidate, and it hopes to file the IND by summer 2014 and begin Phase I by the end of the year, Shaffer said. With potential to protect all four lineages of blood cells, G1 hopes the candidate will earn first-in-class status. – Joseph Haas

TD1 Innovations: The Juvenile Diabetes Research Foundation said October 15 it has pledged to put up to $5 million into a new company, TD1 Innovations, which will scout new pharmaceutical, device and diagnostic technologies related to type-1 diabetes, the autoimmune version of the disease. If JDRF and its partner in the effort, PureTech Ventures, find compelling technologies, they’ll spin them out into new companies and provide seed funding, with hopes of advancing them far enough to find outside investors or industry partners on the other side of the so-called valley of death. It’s the first project under PureTech’s “Valley of Life” initiative, which aims to give nonprofits a legal structure to make philanthropic investments in for-profit companies without violating the tax code. With venture capitalists and pharma companies reticent to fund early stage biomedical innovation, disease foundations, patient advocacies and other nonprofits have looked to push treatments into clinical trials. To trigger JDRF’s full $5 million investment in TD1 Innovations, PureTech must raise matching funds, but the partners hope the fundraising goes well beyond that, up to $30 million, which they estimate would allow them to spin out roughly 10 new companies. Others have tried so-called “venture philanthropy” – including the Bill and Melinda Gates Foundation) – but this appears to be the first time a nonprofit will have a hand, and a financial stake, in building new companies from scratch. -- Alex Lash


All the Rest: Astellas not only contributed to Mitokyne’s Series A, which brought in $45mm, but also signed a concurrent drug discovery alliance and has an option to acquire the company...a $46mm Series D by immatics biotechnologies GmbH will fund Phase III of IMA901 for renal cancer…Seragon Pharmaceuticals revealed that the value of its Series A, which closed in August, was $30mm..genome and exome sequencing company Personalis completed a $22mm Series B…Aslan Pharma’s $22mm Series B will support Phase IIb trials for gastric cancer candidate ASLAN001…Versartis’ $20mm Series D round will go towards Phase III of VRS317 for pediatric growth hormone deficiency…French vaccines developer Theravectys raised $20mm...Curemark (enzyme replacement candidate for autism) brought in $18.5mm in what looks to be its Series C round…PharmaLink raised $15mm in a Series C round…a Series A round by PharmAkea Therapeutics brought in $10mm concurrent with an alliance with Celgene, which took a stake and has an option to acquire the start-up…Molecular Templates (antibody-drug conjugates for cancer) completed an $8.5mm Series C…AxioMx fetched $2mm in a Series B round…Mid Atlantic Bio Angels invested $400k in Immunomic Therapeutics...Arrowhead Research netted $60mm through the private sale of common and preferred shares…Cytos Biotech hopes to raise CHF17.6mm ($19.5mm) in a rights offering of up to 6.3mm shares...in a private placement to institutional investors, Pharming brought in $16.3mm…Rexahn raised $5.3mm in a registered direct offering…VG Life Sciences concluded a $2.2mm private placement...multiple players completed follow-on public offerings: Portola Pharmaceuticals (hematological and inflammatory disorders) $151mm...$113mm for dermatology-focused Kythera; generic drug maker Lannett netted $71.9mm; Prothena (antibody therapeutics) $71.6mm; Dyax (phage display technology) $56.4mm; cell therapy developer NeoStem $33mm; CytRx (cancer therapeutics) $24.3mm; Cel-Sci (immunotherapeutics)  $16.4mm; Tekmira (RNAi therapeutics) $30mm; and Advaxis (cancer and infectious immunotherapies) $23mm...Aerie Pharmaceuticals set terms for its initial public offering hoping to sell 5.25mm shares between $12-14…Ruthigen set IPO terms too: 1.5mm shares at $12-14...several other biotechs filed for IPOs: GlycoMimetics (lead compound for sickle cell disease); Karyopharm (cancer and inflammation); Trevena (GPCR compounds); Xencor (MAbs);  Celladon (calcium dysregulation); Vital Therapies (liver disease); and Egalet (abuse-deterring pain drugs)…BioMarin priced five-year 0.75% senior subordinated convertible notes ($340mm) and 1.50% seven-year 1.50% senior subordinated convertible notes ($340mm)…European Investment Bank provided Norgine with an $81.2mm loan to help with product acquisitions. -- Maureen Riordan

Putin art photo courtesy of flickr member volna80.

Red Rover, Red Rover, Let Financings of the Fortnight Cross Over

The Pacific Ocean has the Marianas Trench, the deepest place on Earth, more than six miles down. But Financings of the Fortnight has Crossover Canyon. And this fortnight, it went from zero to 210 million.

The zero was the number of dollars Radius Health raised trying to go public, and 210 million was the blockbuster financing for Intarcia Therapeutics. How fortuitous. As we noted in our previous column, our colleague Stacy Lawrence is working on a Start-Up feature about the return of crossover investors to biotech, and as if to punctuate her weeks of reporting that you’ll be able to enjoy just after Thanksgiving, Intarcia announced Nov. 15 a $210 million Series C, one of the industry's biggest rounds of private financing in memory, and it did so mainly by tapping crossover investors: the hedge fund Baupost Group, the diversified fund Farallon Capital Management, the multinational giant Fidelity Investments, and two other unnamed institutional investors. Existing venture backers New Enterprise Associates, New Leaf Venture Partners and Venrock also joined. The funding consists of $160 million in equity and $50 million in debt, and it’s all in one shot, Intarcia CEO Kurt Graves told our "Pink Sheet" DAILY colleagues. In other words, they don’t need no stinkin’ tranches.

The money will help push Intarcia’s lead product ITCA-650 in a set of Phase III trials. Intarcia has developed a formulation of the diabetes drug exenatide that can be implanted under the skin up to a year in a matchstick-sized delivery device. Exenatide, an analog of glucagon-like peptide-1, is marketed by Bristol-Myers Squibb and partner AstraZeneca as both Byetta and Bydureon, in twice-daily and once-weekly formulations respectively. The partners paid $7 billion to acquire Amylin, which previously owned the drugs, in June.

Meanwhile, Intarcia was once a whisker away from partnering ITCA-650 but backed off to keep full control. That helps explain the enthusiasm of the crossover investors, who have piled into to some of the year’s largest venture rounds, though none of course as large as the Intarcia deal. Crossovers want to take companies public; M&A is not their preferred exit. In fact, one factor in their resurgence is frustration as they’ve watched strategic buyers pick off the best biotechs before they, the public investors, can get a piece of the action. It’s worth mentioning that these days, those buyouts often happen in wildly favorable circumstances for the buyers – in structured deals with earnouts that only pay shareholders if the acquired company’s products hit milestones, as we explained in the March issue of Start-Up.

So when you see hedge and mutual funds featured in a biotech venture round, it’s a good bet that company will do its damndest to go public. With all that cash riding into Phase III, and a product that could address one of the world’s most burdensome diseases, don’t expect Intarcia and its new shareholders to jump quickly into a buyer’s arms.

The crossover road can be rough, too. Radius Health, with crossovers BB Biotech AG and Brookside Capital in the mix, raised $91 million in 2011 – also with a debt component – merged with a public shell, and pointed itself toward the public markets through a process known as Form 10, which lets a company list over the counter without the hullaballoo of a big IPO. It then opted to try for a big IPO, after all, and filed an S-1 in February. Those dreams were put on hold this week; the company said it would withdraw its S-1 because of general market conditions, and the stock is still not trading anywhere, even on the low-profile, low-volume exchanges.

Somewhere in between Intarcia’s $210 million and Radius’s zero is Ziarco, a new company that said Nov. 5 it received the first $6 million tranche of a potential $27 million Series A round. Consider it a small bite of Pfizer’s old Sandwich. Ziarco licensed four drug candidates that were developed at Pfizer’s now-shuttered Sandwich, UK labs, and part of the venture cash comes from Pfizer’s venture arm. But the lead financier is a very unlikely source: the hedge fund Biotechnology Value Fund, which typically invests in small- and micro-cap biotechs like this one. The crossover move is its first in five years, and it doesn’t seem inclined to make a habit of it. BVF partner Mark Lampert called the Ziarco deal opportunistic. Ziarco has four anti-inflammatory and anti-allergy drugs, on which Pfizer spent more than $100 million on R&D, said BVF’s Lampert. The most advanced is a histamine H4 receptor antagonist that has completed Phase I. CEO Mike Yeadon, who was VP and CSO of the allergy and respiration research team in Sandwich, told our “Pink Sheet” DAILY colleagues it could be a once daily low dose oral treatment for asthma, allergic rhinitis, pain, and inflammatory skin conditions. Pfizer Ventures’ stake is undisclosed, and it will receive milestone payments and royalties as the drugs progress.

Speaking of progress, we're almost to the blurbs. A quick programming note: This week we've added a new twist to FOTF. After the four blurbs, you'll find a lightning-round paragraph that takes you through the rest of the fortnight's financings. We hope you find it useful. Now on the count of three, let's all get a running start and jump headlong into...

Visterra: If the Cambridge, Mass. biotech has its way, Tamiflu will have competition. Visterra said Nov. 9 it closed a $26 million Series A round with $13 million from the Bill & Melinda Gates Foundation, Omega Funds, and its existing investors. The cash will help Visterra push its monoclonal antibody VIS410 into the clinic for seasonal and pandemic influenza. It’s a therapeutic, much like Tamiflu (oseltamivir), which is famously stockpiled whenever a new flu strain emerges amid whispers of “pandemic.” Visterra also sees it used as a prophylactic for first responders and others at near-term risk of flu infection. The infusion of cash from the Gates Foundation was undisclosed, but it’s significant nonetheless. Visterra is the third biotech in roughly a month, and fourth since March 2011, to sell equity to the Gates Foundation. In our previous edition we discussed the Gates investment in vaccine firm Genocea Biosciences. New head of global health Trevor Mundel said this summer the foundation would be more aggressive with its new investment strategy, and so far he’s right. (The upcoming issue of Start-Up takes a deeper look at the Gates biotech investment initiative.) So far, the foundation is targeting platforms, such as Visterra’s antibody discovery technology, so it can help point applications of the technology in directions beneficial to global human health. For example, roughly half of Gates’s Visterra investment is earmarked for a program in infectious disease (but not the flu). The other lead investor in the $13 million tranche, Omega Funds, usually buys shares of venture firms no longer able to hold positions in portfolio companies. But the Visterra investment is primary, not secondary, said Visterra CEO Steve Brugger. – Alex Lash

Abbvie: With a split from its parent company Abbott Laboratories imminent, the pharmaceutical unit AbbVie issued $14.7 billion in debt securities that will help it pay back cash to Abbott, as well as fund dividend payments to future shareholders. The debt issuance -- which included three-year fixed-rate, three-year floating-rate, five-year, six-year, 10-year and 30-year notes – was the largest dollar-denominated offering by a company in more than three years, and a sign that throughout market turmoil, health care reform, and other disturbances, Big Pharma has no problem convincing bond buyers of its seaworthiness. However, AbbVie did receive a slightly lower rating, Baa1, from Moody’s because of its untested independence and its overreliance on sales of rheumatoid arthritis drug Humira (adalimumab). Before AbbVie, the largest dollar-denominated debt offering was from Roche in February 2009 to help pay for its acquisition of Genentech. The company issued $13.5 billion in long-term debt, as well as $3 billion in commercial paper, a form of short-term debt. That same year Pfizer issued $13.5 billion in debt in conjunction with its acquisition of Wyeth. Amgen has also issued more than $10 billion in debt over several years to fund share repurchases. AbbVie issued $3.5 billion of 1.20% senior notes due 2015, $4 billion of 1.75% senior notes due 2017, $1 billion of 2.00% senior notes due 2018, $3.1 billion of 2.90% senior notes due 2022, $2.6 billion of 4.40% senior notes due 2042, and $500 million of floating rate senior notes due 2015. – Lisa LaMotta

Pearl Therapeutics: The Redwood City, Calif. company said Nov. 13 it has closed a $65 million Series D round to help move its combination chronic obstructive pulmonary disease drug, PT003, into Phase III testing by mid-2013. With four years of Phase II testing under its belt, Pearl Therapeutics wants to move into two pivotal trials and, it hopes, attract a partner for PT003. The Series D included the company’s four existing investors: 5AM Ventures, Clarus Ventures, New Leaf Venture Partners, and round leader Vatera Healthcare Partners. The company has raised a total of $167.5 million since 2007, including its $69 million Series C in 2010, which included the same four investors. Pearl expects to file for approval of its combo product, as well as each of the components in three separate New Drug Applications, by the first half of 2015. PT003 is a fixed-dose combination of glycopyrrolate, a long-acting muscarinic antagonist (LAMA), and formoterol, a long-acting beta-2-agonist (LABA). It uses a meter-dose inhaler (MDI) as a delivery device, and since MDI technology is already used with other medications, the company will not have to seek regulatory approval for the device, nor will it have to spend resources educating doctors and patients about the use of the device. – L.L.
 
Auspex Pharmaceuticals: Amid all our talk about public investors crossing over into the mezzanine rounds of private companies, we noticed that Auspex is having a different conversation. The San Diego-area company that makes deuterium-modified compounds has raised a $25 million Series D round that it hopes will fund its lead drug, an analogue of tetrabenazine, a treatment for chorea (involuntary spastic movements) associated with Huntington’s disease (HD). The original version, Xenazine, is marketed by Valeant Pharmaceuticals International through Lundbeck in the U.S. for the same indication. New investor Panorama Capital led the Series D round, with participation from existing investors Thomas, McNerney & Partners, CMEA Capital, and Sloan Biotech Fund. Gaurav Aggarwal of Panorama joins the board with the financing. Auspex has raised a total of $60 million since its 2007 inception. “We like the near-term nature of the product and the uniqueness of it,” Aggarwal told our friends at "The Pink Sheet". He was confident that Auspex could go public even if the syndicate can’t sell the company. Another deuterium modification company, Concert Pharmaceuticals, has advanced its lead candidate for diabetic neuropathy nephropathy into Phase II. Deuterium is an isotope of hydrogen, and substituting it for hydrogen bonds makes a molecule more able to withstand enzymatic breakdown and thus stay in the body longer. It also creates new chemical entities, their developers say. The patent office agrees: on Nov. 15 it granted a composition-of-matter patent to Auspex for its deuterium-substitute version of Pfizer’s JAK kinase inhibitor tofacitinib, which the FDA approved on Nov. 6. – A.L. 

The Best of the Rest: Shanghai Jingfeng Pharma’s venture round brought in $30 million led by Vivo Ventures…an OrbiMed-led Series B for Cardioxyl Pharma totaled $28 million…Roche Ventures and MedImmune Ventures participated in Ambit Biosciences’ $25 million Series E supporting quizartinib clinical trials… fellow diagnostics companies Metamark Genetics, Epic Biosciences, and Advanced Cell Diagnostics each raised Series B financings…STAR antibody platform play Alethia Biotherapeutics closed a $4.7 million Series B…Avexxin raised an undisclosed amount in Series B financing for chronic inflammatory disease development…Vivo Ventures and New Leaf Partners joined as new shareholders through MEI Pharma’s $27.5 million PIPE…Tavistock Life Sciences led a $Cdn26.1mm private placement for MethylGene…vaccine adjuvants developer Isconova raised SEK50mm through a rights issue…Idera Pharma completed a $7mm converted preferred stock and warrants sale…small-molecule cancer drug developer Array BioPharma’s FOPO grossed $65.7 million…in the only completed IPO of the fortnight, breast cancer testing company Atossa Genetics raised $6.5mm without taking a haircut…Enanta filed to go public, hoping to advance its anti-infectives…Cardiovascular diagnostics company Singulex postponed its IPO … AstraZeneca completed a $2 billion two-tranche bond issue… insurance provider Aetna raised $2 billion from the sale of senior notes to fund its acquisition of Coventry Health Care.

Photo courtesy of flickr user bumeister1 via a Creative Commons license.

Financings of the Fortnight Goes Around The Middle Man

This fortnight’s theme is DIY. That’s shorthand for “do it yourself,” in case you’re one of those people who has only used a hammer to pry open a beer bottle.

There’s a fancier word for DIY, often heard during the first dot-com boom: Disintermediation. Cutting out the middle man. If you want to get something done, don’t pay someone else to do it. Buy your pet food straight from the source, online! Some of those ideas didn’t go over so well at first, but more than a decade into the Internet age, people and businesses are catching on. (And some businesses have simply figured out how to be better middle men.)

The same might be said about life-science venture capital. VCs are, in effect, middle men and women (middlepeople?), standing between those who manage giant pools of cash and the businesses that need cash to make a go of it. The shakeout has left fewer middlepeople, er, VCs, standing. But there are still giant pools of cash, and people managing them. This past fortnight, we’ve had some indications of them taking matters into their own hands.

First up, an intriguing paper was published October 9 by a tag team from Harvard University and INSEAD, the top French business school, that purports to show LPs might do better investing directly than via an intermediary. “Direct investments generally outperform fund investments,” the authors write.

The study doesn’t specifically address the life sciences, and in fact there’s a caveat that might make it less relevant in our little corner of the world: “We also find that the outperformance is driven by deals where informational problems are not too great, such as more proximate transactions to the investor and later-stage deals, and by an ability to avoid the deleterious effects on returns often seen in periods with large inflows into the private equity market.”

“Informational problems” are a tough nut to crack, for sure, especially with early stage, cutting-edge R&D that’s years away from clinical trials, let alone the commercial markets. That’s why some VCs are going later stage; one such firm, Longitude Capital, made a successful pitch to LPs and has closed a new health-care fund. See our description in the round-up below.

One type of cash holder making more direct investments are drug companies themselves. Nearly every major firm – which, if nothing else, have plenty of cash to spare – has a venture group. And they’re getting bolder, investing in biotech firms earlier, even helping to shape company formation. That’s what happened twice this past fortnight, as we detail below in our roundup. First Roche, then Celgene, made sure they were present at the creation, or nearly so, of two firms related to the former Amira Pharmaceuticals. We’re seeing it more and more: Big pharmas and biotechs provide crucial early funding, either for equity or as non-dilutive R&D dollars, for an option to buy the company outright if all goes well. The company might be in fact a single asset, more or less, but that’s no coincidence. What passes as a biotech these days is often one product packaged in a way that makes acquisition as hassle-free as possible.

Another big group with plenty of cash is also making direct investments. The Bill and Melinda Gates Foundation’s new head of global health, ex-Novartis head of global development Trevor Mundel, said this summer his group would start taking ownership stakes in biotechs while it continued its bounteous grant-making largesse.

Its highest profile commitment to date was announced October 10, participating in a $30 million Series C round for Genocea Biosciences, a Cambridge, Mass. vaccine developer. Gates led the scientific due diligence, said Genocea CEO Chip Clark, and an affiliate of the Chicago family investment firm Henry Crown and Co. – not a name you see much associated with private biotech funding – led the financing.

It makes sense for The Gates Foundation, which knows vaccines perhaps better than any organization on the planet. Genocea has developed a platform to create vaccines from T-cell immune response, instead of B-cell response. The difference is that there’s genetic diversity of T-cell response in humans that to date has been impossible to capture in a vaccine, which by definition is broadly administered. Genocea’s discovery platform recreates human T-cell responses to pathogens in vitro and finds common targets on pathogens that, with a thousand or more proteins, are hard to investigate with traditional methods. That’s the aim, at least. The amount of the Gates investment is undisclosed, but Genocea CEO Chip Clark told FOTF that roughly half the cash is earmarked for Genocea’s malaria program. The malarial parasite Plasmodium falciparum has a huge proteome, and the Gates money will help Genocea interrogate it more thoroughly. “We think we’ll have one of, if not the most robust malaria antigen discovery efforts,” Clark said.

The financing is tranched but not dependent on hitting milestones in the malaria program to trigger future payments, Clark said. Gates does not have a board seat.

So far, the direct biotech investments from The Gates Foundation have targeted vaccine discovery technologies. In late September the start-up Atreca said the foundation would put in $6 million to push the firm’s antibody survey technology. Last year, the foundation invested $10 million in Liquidia Technologies, a North Carolina developer of particle engineering technology it hopes will improve vaccine delivery and manufacturing.

A Gates representative was not available for comment by press time, but it's worth noting the Big Kahuna himself has been a vocal advocate for a wide array of mechanisms, from a global tax on financial transactions to private investment in public infrastructure, to improve global health and education programs. As he said at the 2011 G-20 meeting in Cannes, France – a speech in which he advocated for a financial-transaction tax to fund anti-poverty programs -- "It’s important to keep experimenting with new business models, because impact investors could eventually bring a great deal of money into development.”

We hope to have more soon for you on the Gates Foundation, and of course whenever anyone experiments with business models, we'll have the breakdown for you in...

PharmAria: The six-month-old start-up announced Oct. 15 that Celgene has provided its seed funding, will help fund its Series A round and has taken an option to buy the company. Celgene’s equity stake in the new company is undisclosed, but the deal structure hews to the big biotech’s philosophy in recent years of finding early science, partnering deeply with the company, and having its own cash riding on the outcome. For example, Celgene and Versant Ventures are the only backers of Quanticel Pharmaceuticals, which we wrote about here. Funny we should mention Versant. PharmAria was started by three former executives of Amira Pharmaceuticals, which Bristol-Myers Squibb bought in 2011 for $325 million. One of Amira’s biggest backers was Versant, and the West Coast venture firm helped turn Amira’s post-acquisition assets and talent into new enterprises with new business models. (See Inception 3, below.) The connections don’t stop there: One of the ex-Amira executives now at PharmAria, Jilly Evans, worked for Celgene as consultant after the Bristol buyout. The start-up, which plans to develop small-molecule therapeutics for cancer and fibrotic diseases, would not discuss the amount of money it is seeking or other terms of the deal. The goal, however, will be to raise enough money for PharmAria to advance its first candidate through Phase I, president John Hutchinson told “The Pink Sheet” DAILY. -- Joseph Haas

Inception 3: PharmAria is not the only new company to rise recently from the Bristol buyout of Amira in 2011. Amira investor Versant Ventures and former Amira CEO Peppi Prasit have formed Inception Sciences, an incubator and drug discovery platform, with the intent of spinning drug candidates out into satellite companies. The candidates could come from Inception’s own “drug hunters,” as they like to call themselves, or from outside sources. The latter has provided Inception with its first public deal. It has created a subunit – called Inception 3 – to discover and develop small-molecule drug candidates for sensorineural hearing loss based on technology licensed from Stanford University. Versant is Inception 3’s sole equity financier for now, and Roche is the development partner. Roche will fund Inception 3’s work with milestone-based R&D payments, and the Swiss firm will hold an option to acquire the program upon filing of the first IND based on the Stanford technology. “The reason we didn’t go for a straightforward collaboration with academia here … is that the fact that it brings in a team of drug-hunters with a great track record of discovering drug candidates for intractable targets and then driving those to the IND stage,” explained Shafique Virani, head of neuroscience partnering at Roche. The various parties are not disclosing any financial details about the collaboration nor providing a timeline for a potential IND filing. However, Clare Ozawa, chief business officer at Inception and a former officer at Versant, said the combined capabilities of Inception and Roche should result in rapid progress toward a clinical candidate. -- J.H.

Longitude Capital: The expansion-stage investor said October 10 it has closed its second health care-only fund, Longitude Venture Partners II L.P., with $385 million in new capital. The fund exceeded Longitude’s $325 million goal, which would have matched the size of its 2008-vintage first fund, and it bumps the Connecticut firm to the top of Start-Up’s gas tank chart, which we most recently published here. Longitude plans to target both biotechs and device companies, with emphasis on mid-to-late-stage opportunities as well as what it calls “special situations”: spin-outs, recapitalizations, investments in public companies and structured transactions. Managing director Juliet Tammenoms Bakker told “The Pink Sheet” DAILY that Longitude received renewed commitments from many limited partners in its first fund, but also retained Probitas Partners as a placement agent for the new vehicle. She declined to discuss exits from the first fund, but said Longitude has received partial liquidity in two companies and full liquidity from another. The firm typically invests between $10 million and $30 million over time in each portfolio company, and expects to make about 20 investments from the new fund; about 30% of the money will be deployed in public companies, Tammenoms Bakker said. Longitude Venture Partners I L.P. invested in public companies such as Amarin Corp., Jazz Pharmaceuticals, Corcept Therapeutics, and Cadence Pharmaceuticals, and private drug developers such as Civitas Therapeutics, Collegium Pharmaceutical, InfaCare Pharmaceutical and Xanodyne Pharmaceuticals. – Paul Bonanos

Kythera Biopharmaceuticals / Intercept Pharmaceuticals: We’re putting these two together because they’re twins, of a sort. They both emerged into the publicly-traded world on the same day, October 11, with initial public offerings that raised $70 million with a $278 million post-money valuation for Kythera, and $75 million with a $225 million valuation for Intercept. It’s an odd occurrence at a time when biotechs aren’t going public much at all; analysts predict the count, now at 11, could hit 15 or 16 by the end of the year. Both also priced at the top of their ranges; no haircuts this fortnight. Kythera, which makes a cosmetic treatment that breaks down the fat in a double chin, sold 4.4 million shares at $16 per share, after aiming for the $14 to $16 range. Intercept sold 5 million shares at $15 per share; its range was $13 to $15 per share. The firm has a compound to treat primary biliary cirrhosis, a condition that can lead to liver failure. It expects Phase III data in 2013 from the drug, which is a bile acid analog it acquired from the University of Perugia in Italy. And that makes for another odd coincidence: Kythera’s treatment, for a vastly different indication, is a formulation of sodium deoxycholate, a component of human bile that breaks down fat. As of this writing, both companies’ investors have no reason to spew bile. Kythera shares closed October 17 at $23.41, up nearly 50% from the IPO. And Intercept closed at $19.78 a share, up nearly a third. There’s a long way to go however until investors, including Versant, ARCH Venture Partners and Prospect Venture Partners (for Kythera) and Italian investment firm Genextra (for Intercept), can reap gains. Even if share prices stay buoyant, investors have a lot to recoup. Both firms raised more than $100 million in private capital before going public. – Lisa LaMotta