Financings of the Fortnight Worries About The Window

"It was wide open a minute ago."

Who’s lining up next? It’s become quite the parlor game, now that the biotech IPO window has been wide open for months. But all the fun might be on hold as Washington works to sort itself out (or get further entangled) and Wall Street starts to worry over the potential economic instability. What if the days of the shutdown turn into weeks? What once seemed laughable has already come to pass, as the Ted Cruz Republicans are proving their disdain for Obamacare with ever uglier self-inflicted wounds. Hey, don’t take our word for it. Ask Grover.

Already we’re seeing a small but ominous sign: There are no IPOs on the list of current road shows, despite the queue of those – including MacroGenics and Relypsa – that are on file. Perhaps the seven biotech IPOs in the last two weeks -- Acceleron, Five Prime Therapeutics, BIND Therapeutics, Foundation Medicine (see description in our roundup below), Ophthotech, Evoke Pharma, and Fate Therapeutics -- were the SEC equivalent of a rush job to avoid the potential politically-induced volatility.

Once biotech IPOs started to show signs of life last fall and then took off this spring, everyone has wondered what would burst biotech’s bubble. Most assumed it would be bankers pushing out too much crappy paper, but perhaps it will be the idiocy in Washington, particularly if it extends past the debt default deadline of Oct. 17. If Wall Street starts steep selling and recessionary fears turn into reality, biotech IPOs will be a swift casualty of the broader market.

For a few more days, at least, the IPO machinery will grind away. The SEC has enough cash under the mattress to keep the lights on for a few weeks, unlike so many other government agencies. But it will clang to a halt if the shutdown drags on; the folks who deal with registrations and whatnot are not deemed essential staff.

Seems all the headlines (and tweets) are focused on the effect on Twitter’s pending IPO, but arguably no sector has benefited more than health care from the IPO changes this year, as all manner of companies at various stages of development have become public. IPO data house Renaissance Capital says health care companies have launched 42 IPOs and raised $7.6 billion this year, the most of any sector. They’ve also scored the highest aggregate returns year-to-date, 64%. (By comparison, our technology compatriots in their hoodies have had 30 IPOs, raising $3.3 billion and gained 44% on average.)

It’s only fair to mention that the health-care numbers include the likes of giant CRO Quintiles Transnational ($947 million raised) and Pfizer’s animal health group Zoetis ($2.2 billion raised), but the argument still holds: A prolonged and wholly unnecessary drought would hurt biotech disproportionately. It’s like the party you’ve been planning with your neighbors has finally started swinging, but the creepy guy with the fake tan across the street who smokes too much calls the cops. Not because the party was too loud, but because he thinks your house’s architecture is ugly. Ruining his property values, or something.

Let’s ignore for a moment the bucket of cold tea, er, water tossed in biotech’s direction, and get on with our parlor game, made all the more intriguing by the JOBS Act rules that allow companies to file in stealth and remain so for weeks on end.

We already mentioned MacroGenics and Relypsa, which filed publicly this week to raise up to $126.5 million. Among companies that haven’t declared – at least publicly -- Moderna Therapeutics would make a fine candidate, says our friend Luke Timmerman of Xconomy. (Moderna CEO Stephane Bancel wouldn’t take the bait and said he prefers to proceed with caution. For more on Moderna’s new Department of Defense grant, see our roundup below.)

OK, who else? Our colleagues at START-UP wrote this summer about Forma Therapeutics’ decision to re-structure itself to make spinouts of single assets easier; CEO Steve Tregay was quick to say that, if need be, the company could convert back to a more traditional corporation and go the IPO route.

“At the time in 2009 when we started talking about [becoming a holding company], it wasn’t obvious you’d see a robust IPO market,” said Tregay. “We knew we wanted to provide liquidity to our shareholders, and we wanted to commoditize assets. Can we convince Wall Street to believe in sustainable R&D companies? We think so. But our first objective was and is to create a sustainable research engine, and to do that we needed to do things differently than the old ‘R-then-D’ model.”

You can’t talk about IPOs without mentioning Third Rock Ventures, which has pushed three portfolio companies public this year. Might we see more before the New Year? If FOTF had to bet (all proceeds going to charity, of course), we’d put a few chits down on Blueprint Medicines, Constellation Pharmaceuticals, and Sage Therapeutics, which just saw interim CEO and Third Rock partner Kevin Starr hand the reins to the former head of Shire’s regenerative medicine group, Jeff Jonas.

We could also take a closer look at biotechs that have raised a few rounds, are deep into the clinic, and whose investor roster includes crossover firms or VCs at the end of their fund cycle. Or firms whose executives have notable track records. (The upcoming START-UP takes a look at one such company, Kolltan Pharmaceuticals, whose cofounder Yossi Schlessinger had a hand in kinase inhibitor developers Sugen and Plexxikon, each of which exited quite handsomely.)

The answer to whether these guesses are correct could already be lying on someone’s desk deep in the bowels of the SEC in a pile of confidential filings, just waiting for the POTUS and both houses of Congress to come together, join hands, and realize that it’s a small world after all. Which is just about as likely as the next Pulitzer Prize being awarded to this edition of…

Foundation Medicine: It isn’t quite four years old, but the cancer diagnostics specialist is already public, and in a big way, its share price nearly doubling the first day it traded and holding those gains for a week. The Cambridge, Mass. company priced its offering Sept. 25 above expectations at $18 per share, ultimately grossing $121.9 million. Foundation sold nearly 6.8 million shares, including a greenshoe option for underwriters, raising substantially more than the five million it planned to sell for $14 to $16 apiece. The young company last year began selling its first product, a diagnostics platform that matches individual cancer genomes with a broad database of genomic alterations in order to optimize care. Stakeholders receiving liquidity via the offering included venture firms Third Rock Ventures, Kleiner Perkins Caufield & Byers, and Google Ventures; crossover investors Deerfield Partners, Casdin Capital and Redmile Group; and individuals including Microsoft founder Bill Gates, Russian billionaire Yuri Milner, and Digene CEO Evan Jones. The IPO is the third this year for Third Rock, which is on quite a roll. It’s also a notable exit for Google Ventures, which quietly has built a small but influential health care portfolio, led by partner Krishna Yeshwant (and profiled here). With the company’s market capitalization hovering around $1 billion, the investors who pumped in $89 million in two rounds of funding have earned a hefty return. It’s yet another sign that the public markets are welcoming for life sciences companies with a strong story to tell – even young ones. – Paul Bonanos

Arvinas: Many drugs work by blocking or inhibiting proteins and the reactions they cause in the human body, but only about 25% of the roughly 20,000 proteins in the body can be inhibited with molecular therapy. New company Arvinas is pursuing the opportunities presented by a different approach to disease-causing proteins – degradation – and will get its work underway with a $15 million Series A announced Sept. 26. Canaan Partners and 5AM Ventures led the A round, with participation from Elm Street Ventures and Connecticut Innovations, a state-funded venture firm with a goal to keep innovation by Connecticut researchers within the state. Along with the Connecticut Department of Community and Economic Development, Connecticut Innovations is supplying to the New Haven biotech  an additional $3.5 million in non-equity funding, some of which is tied to hiring milestones. The state also took a $1 million equity stake in Arvinas through Connecticut Innovations’ investment in the A round. The company’s work stems from research at Yale University by Craig Crews, a professor of chemistry and pharmacology, focused on inducing a cell’s own protein-degradation capability to bind to specific protein and mark it for degradation, which would remove it from the system entirely. He previously founded the biotech Proteolix, which also focused on protein degradation and was bought out in 2009 by Onyx Pharmaceuticals, bringing that company the multiple myeloma candidate Kyprolis (carfilzomib). – Joseph Haas

Moderna Therapeutics: The Flagship Ventures company said October 2 it had received a grant worth up to $25 million from the US government’s legendary Defense Advanced Research Projects Agency (or DARPA) – birthplace of the Internet -- to develop treatments for infectious disease and bioengineered attacks. The Cambridge, Mass. biotech is working on a new drug modality, in which modified messenger RNA (mRNA) are injected into a patient to spur endogenous production of therapeutic proteins. Shortly after emerging from stealth, Moderna’s platform received validation – and a boatload of cash – from AstraZeneca. But the firm has yet to prove in clinic that its mRNA analogs can evade the immune system, which is primed to recognize RNA as a viral invader, and trigger a patient’s ability to make proteins in the right quantities to fight pathogens. Moderna has raised $40 million from its Series A from Flagship Ventures and individuals, including its own CEO Stephane Bancel, after a long evolution from a Harvard University researcher’s idea to more efficiently create induced pluripotent stem cells. The AZ deal brought $240 million in upfront fees, plus potential milestones and royalties, for the rights to as many as 40 compounds across several therapeutic areas. The DARPA grant runs for five years and focuses on the production of therapeutic antibodies. Moderna’s appeal to public health officials in a pandemic or emergency situation is to simplify the distribution of treatments. Its mRNA-based injectable agent would need to be produced, shipped and stored, but potentially with less complication and cost of other types of stockpiled or rapid-response agents. – Alex Lash

Frazier Healthcare: The veteran venture firm said September 30 it has closed its seventh fund with $377 million committed, topping its $300 million target. Its previous fund was a $600 million vehicle that closed in 2007, and in the intervening years the firm has indicated it will shift some focus toward growth stage companies, although the area is not new to Frazier. There are currently nine companies in its growth portfolio, ranging from makers of health care product packaging and orthotics to dialysis services to outpatient facilities for bariatric surgery patients. To that end, for FH VII it has promoted two members who have worked on the firm’s growth buyout investments. Brian Morfitt is now a general partner, and Ben Magnano is now a partner. That said, Frazier continues to make early stage bets, too. It most recently co-led a $16 million Series A financing for Atterocor, which is developing a small molecule treatment for the adrenal cancer adrenocortical carcinoma and expects to enter the clinic this year. (Look for more on Atterocor in the upcoming issue of START-UP.) Frazier recently participated in the IPOs for Portola Pharmaceuticals, in which it had a 5.6% pre-IPO stake, and Chimerix, with a stake under 5%. It also saw acquisitions for its portfolio companies Trident Health and Incline Therapeutics. -- A.L.

All The Rest: JJDC joined as a new investor in a €31M Series B extension for Merus...Array BioPharma partner Loxo Oncology snagged a $33M Series A...To advance trabodenoson through Phase II for glaucoma, Inotek Pharmaceuticals raised $21M in equity and $7M in debt…Protagonist Therapeutics added $4M onto the $14M in Series B funds grossed this past June…NovaDigm completed a $14M Series B round to support its Phase II vaccine for chronic yeast infections...Lilly Asia Ventures provided a $10M Series C to Tianjin CanSino Biotech…Zindol raised $10M to advance its CINV candidate…Relmada Therapeutics closed on an oversubscribed $8M Series A round that began in July 2012…Opsona Therapeutics added €3M from Omnes Capital onto its €33M Series C announced in April 2013…InterWest Partners led a $1.5M seed investment in Integrated Molecular….Aequus Pharmaceuticals completed a $Cdn1.2M Series A to support work on a transdermal reformulation of the anti-psychotic aripiprazole…advancing research on PDE4 inhibitors for neurological diseases, Tetra Discovery Partners closed on a $1M seed round…BVM Capital seeded K94 Discoveries with $300k…ImmunAid is in the process of raising a Series B financing…the following biotechs completed FOPOs: Synageva BioPharma (rare diseases) $155.7M…Novavax (vaccines and vaccine adjuvants for infectious diseases) $100M…Fibrocell (autologous cell therapy) $45.1M…TherapeuticsMD (generic and OTC women's health products) $33M… KaloBios (antibodies) $30M…Idera Pharmaceuticals (TLR antagonists in autoimmune and inflammatory diseases) $27.7M…StemCells (cell-based therapeutics and tools) $16.2M…and Kythera is proposing an $85M secondary offering…the following completed PIPEs: MorphoSys (antibody libraries) $84.4M…Navidea Biopharmaceuticals (Crede CG III invested) $30M…Ampio Pharmaceuticals (inflammation) $25.3M…Celsus Therapeutics (multi-functional anti-inflammatory candidates) $12.5M…and La Jolla Pharmaceutical (to achieve development milestones for GCS100 and LJPC-501) $10M…Ophthotech, Bind Therapeutics, Evoke Pharma, Enzymotec, and Fate Therapeutics each priced their IPOs…MacroGenics set IPO terms…Relypsa filed to go public…Cleveland BioLabs received a $10M senior secured term loan from Hercules Technology Growth Capital…Pivotal Therapeutics raised $Cdn7M in a combination equity/debt financing…Business Development Bank of Canada's BDC Venture Capital arm raised a $135M fund for health care investments…Gates Foundation and JPMorgan Chase teamed up for a new fund to finance late-stage health technologies…and orphan drug accelerator Cydan added $10M to the $16M raised in April 2013. -- Amanda Micklus

There's A Financings of the Fortnight In Every Crowd

"Psst, wanna buy some biotech?"

It’s already helped rock singers and indie film makers and arapaima trackers. But can crowdfunding help fill the life sciences venture gap?

The JOBS Act of 2012, signed into law by President Obama in April, aims to let small private companies raise money and go public more easily. Part of the law deals with the brave new world of equity crowdfunding, or selling private shares to the grass roots. Many of the details have yet to emerge from the Securities and Exchange Commission, which is charged with writing the new rules, including those that regulate crowdfunding. That means US entrepreneurs eager to use the model for the time being have to give something other than equity as remuneration for their backers’ cash. On the science-focused site PetriDish.org, you can search for projects based on the awards they’re using as compensation. (Get back to us when someone offers hats.)

Another example a bit closer to our hearts – or more accurately, our guts – are two citizen-science projects on the crowdfunding site IndieGoGo that ask the unwashed masses to submit body swab  samples and help build massive microbiome databases. (The more unwashed the masses, the better!) Both of the projects, American Gut and uBiome, have a sliding donation scale, but for less than $100, contributors will receive a kit to swab their various regions and, er, effluences, and submit them for analysis. Once processed the personal microbial profiles are made available back to the contributors. (Hey, a hat would be nice, too.) We’ve reported on the caution VCs have shown so far toward the wealth of microbiome data emerging from this new field, so we’re eager to see if projects like these, if and once they meet their crowdfunding goals, draw interest from more traditional investors. 

Despite the temporary regulatory limbo, plans are afoot in the US to create crowdfunding platforms that let start-ups sell equity. (We’ll dig into one of those plans in the next Capital Matters column of START-UP.) Elsewhere, the model is already underway. As we noted in this column in October, the French crowdfunding site Wiseed.com shepherded grassroots investors to what it says is the first-ever equity crowdfunding exit – through a biotech firm, no less. French antibiotic developer Antabio raised €300,000 from 207 crowdfunders in late 2010. The firm pulled in a Series B round from an angel investor a year later, and in mid-2012, the same angel offered to buy out the crowdfunders’ shares. It’s not clear what kind of return they received. An Antabio spokeswoman told the IN VIVO Blog in October it was a 2x return, but Wiseed’s own material calls it a 44% return. And the co-editor of this site says he invested €1400 and received €2434, a 73% return. (When we get clarification, we'll pass it along.)

Back in Washington, the SEC recently held a small-business meeting and took public comment on what its JOBS-related rules should look like. Some of the key crowdfunding questions remain up in the air, such as: Should equity crowdfunding services be regulated lightly, like the arts-donation site Kickstarter, or treated like broker-dealers? With serious questions like that still unresolved, we probably won't know anytime soon whether crowdfunding can become a real piece of the life science funding puzzle. But you can still find all the other puzzle pieces every two weeks by opening the rectangular cardboard box marked…

BioTime: The San Francisco Bay Area stem cell company said November 15 it has secured $10 million from an unnamed private investor to help pay for its proposed acquisition of assets from stem-cell pioneer Geron. Those assets have been in limbo for a year after Geron said abruptly in November 2011 it would end its stem-cell R&D to focus on small molecule cancer treatments. Geron’s spinal-cord injury treatment, derived from embryonic stem cells, was the first of its kind to enter the clinic, the most advanced example of cutting-edge stem-cell technology that has, to date, been slow to attract backers beyond California’s publicly funded regenerative medicine agency. Led by a Geron cofounder and its former CEO, BioTime in October made a public offer for Geron’s stem-cell assets. On November 15, concurrent with the financing announcement, BioTime published a non-binding letter of intent with Geron. If consummated under the terms outlined in the letter, the deal would create a new company to house the Geron assets, with Geron shareholders receiving more than 21% of the common stock and warrants to buy 8 million common shares of BioTime itself. The unnamed financier would put $5 million into the new company in exchange for 7% of the common stock and three-year warrants for roughly 350,000 shares at an exercise price of $5 per share. In addition, BioTime would contribute to the new company $5 million in cash, $30 million in BioTime common shares, warrants, and other rights. The anonymous investor’s other $5 million would go to the parent BioTime to buy 1.35 million common shares at about $3.70 per share, plus three-year warrants to purchase 650,000 shares with an exercise price of $5 per share. – Alex Lash

Lanthio Pharma: New European biotech start-ups have been few and far between this year. Tapping an unusual syndicate, however, the new Dutch firm Lanthio said November 27 it has raised a €4.8 million Series A round to push a lead compound from its peptide discovery platform into clinical trials, likely to treat lung fibrosis. The round was led by seed investor BioGeneration Ventures, which specializes in Dutch start-ups. But the surprising part of the funding news is that 20-year-old German antibody firm (and first-time investor) MorphoSys also took part. It will take a minority stake in Lanthio, and it will also become an R&D partner, receiving what the companies called “preferred rights to exclusively license” Lanthio’s technology for drug discovery. No financial details were disclosed. Spun out of the University of Groningen in 2011, Lanthio’s platform produces peptides that are stable in circulation and act as receptor agonists – relatively rare, as most peptide technologies find it easier to produce receptor antagonists. Other investors included INKEF Capital and Hanzepoort. INKEF Capital is an investment vehicle for the largest pension fund in the Netherlands, Stichting Pensioenfonds ABP. The round remains open for one more investor, Lanthio CEO Bart Wuurman told our colleagues at “The Pink Sheet” DAILY this week. "The number of European life science VCs with money to invest in new companies can be counted on one, maybe two, hands, as they appear to be keeping back financing for their existing investments," Wuurman said. – John Davis

Applied Genetics Technology: As we noted in September’s issue of START-UP, some VCs have taken a shine to gene therapy companies lately. Once considered far too risky for investors, the field has seen an unlikely renaissance recently, thanks to improved clinical data sets, improvements in manufacturing, and even a drug approval that could be a bellwether. On Nov. 19, the latest investment in the sector went to Gainesville, Fla.-based Applied Genetics Technology Corp., which reaped $37.5 million in a new Series B round. Leader Alta Partners was joined by first-time backer and GSK affiliate SR One as well as academic spinout specialist Osage University Partners. Returning investors from AGTC’s $11.8 million Series A round in 2009 included InterWest, Intersouth Partners and MedImmune Ventures. AGTC will use the funds for a Phase II trial on a therapy for alpha-1 antitrypsin deficiency, a protein disorder that leads to loss of lung function and liver damage, as well as early-stage treatments for the rare eye disorders achromatopsia and X-linked rentinoschisis. AGTC uses adeno-associated virus vectors to insert DNA into cells in order to correct genetic disorders. In early November, Belgian gene therapy company uniQure received European approval for Glybera (alipogene tiparvovec) to treat a rare protein deficiency, making it the world’s first gene therapy to gain regulatory approval. – Paul Bonanos

TauRx Pharmaceuticals: Just when you thought late-stage Alzheimer’s trials were done for a while, the Singapore-Scotland hybrid TauRx said November 20 it has received the first tranche of a $112 million equity investment to help push its lead candidate into Phase III. The money comes from a sole investor, Genting Management, a subsidiary of the Malaysian conglomerate Genting Berhad. The full investment is due by year’s end, according to TauRx, and gives Genting a 20% stake in TauRx. It brings the company’s total equity raised to nearly $300 million since its 2002 inception. The company says those Phase III trials have already begun enrolling. They will total more than 1500 patients around the world to confirm disease-modifying effects that a Phase II trial of an earlier version of the drug showed in mild to moderate Alzheimer’s patients, says the company. The firm’s treatment, dubbed LMTX, is aimed at dissolving the tangles of tau protein implicated in the decline of cognitive function of Alzheimer’s. The leading theory of the past decade or so -- that clearing accumulation of beta amyloid, another protein in the brain, would ameliorate the disease -- has encountered major setbacks in recent years, most notably the Phase III trial data released this year for the drugs bapineuzumab and solanezumab. Those disappointments have helped boost a cautious resurgence of work on other pathways such as tau that might lead to an Alzheimer’s treatment. They have also pushed researchers to theorize that beta-amyloid accumulation is a symptom of Alzheimer’s, and once present too late to respond to treatment. – A.L.

The Best of the Rest: To support lead candidate delafloxacin in Phase III for acute bacterial skin and skin structure infections, Rib-X Pharmaceuticals completed the first tranche of a $67.5 million Series 2 preferred share financing… led by Lilly Asia Fund, Chinese mAb developer Innovent Biologics  brought in $25 million in Series B funding… in a Series F to advance EPI743 in Phase IIb for two orphan indications, Edison Pharmaceuticals raised $20 million… French immunotherapeutics company TxCell cleared $15 million in a Series C round… Life Sciences Partners led a $12.8 million late-stage round for blood cancer drug maker Kiadis Pharma… NanoBio’s $11 million Series C will support development of infectious disease candidates and nanoemulsion-based vaccines… With $8 million from Pfizer Venture, Rhythm Pharmaceuticals expanded its June 2012 Series B to $33 million… MabVax Therapeutics raised $5.25 million in a Series B…an at-market RDO of Series A convertible preferred stock brought in $40 million for spec pharma BioDelivery Sciences to support completion of Phase III for chronic pain candidate buprenorphine… In an amended S-1 filing, Audeo Oncology set a range of $14-16 for 3.25 million shares in its planned IPO… A private placement of convertible debentures brought in $12.7 million for OTC-traded cancer therapeutics developer Arno Therapeutics… Concurrent with in-licensing of Genentech’s Phase I IAP inhibitor GDC0917, Curis secured $30 million in debt financing from Pharmakon in exchange for certain future Erivedge royalties. -- Maureen Riordan

Photo courtesy of flickr user James Cridland, whose photo stream is crowded with cool pictures.