Deals Of The Week Catches Up with SR One

SR One's Jens Eckstein, via

Amid the exhaustive meet-and-greet opportunities available at the 2013 JP Morgan conference, which took place in San Francisco earlier this week, we met with Jens Eckstein, who joined SR One as its latest president slightly more than a year ago. SR One, as most IV Blog readers know, is the corporate venture arm of GlaxoSmithKline, and one of the oldest corporate venture funds in the industry. In an era in which such funds are assuming an ever-more important role in early-stage funding of innovative biotech companies, SROne’s priorities and strategic direction should be of great interest.

GSK has set broad parameters for SR One, with few restrictions; the firm invests with an eye on "the future of pharma in general," not GSK, Eckstein says. GSK has never bought an SR One investment, and the firm steps aside if it sells one of its portfolio companies. He adds that the fund's priority is early-stage innovation, with innovation defined broadly as “anything that changes the way medicine is done today.” That said, as SR One’s interests move "earlier and earlier” up the value chain, the evergreen funding provided by the corporate parent eliminates funding cycles and gives the venture firm a huge advantage over independent competitors.

To illustrate the range of SR One’s interests, Eckstein pointed out that moneys dispersed last year ranged from $20,000 to $10 million. Some of the smaller investments were made to support due diligence because “one theme in the VC world now is to kill early,” he added, even before officially forming companies. "We put the money to work even before we start companies, which is very different than in the past," he says. So, the firm is working with a contract research organization that determines the reproducibility of scientific data supporting potential technological investments.

It also is experimenting with ways to incentivize management to kill struggling projects quickly, something that is not easy to do in a world in which stopping work on a project can put management out of work, a theme that other investors echoed. “If you have a good relationship with a management team and talk with them,” you can do it, he said. And if management is straight about bad news, he will look to them for the next project.

SR One is moving into healthcare information technology, and Eckstein expects it to do its first IT deal this year. Figuring out the financial and business models for healthcare IT has been a struggle for traditional life sciences venture investors, but Eckstein says SR One has built capabilities to do that. That said, the IT mindset differs from straightforward life sciences because the key hurdles in IT are not technological, but are business model related. With IT, Eckstein explains, you can prototype projects quickly and your projects can have an impact quickly. And no one's talking about consumer apps here, but about using IT to "understand the patient as a whole and the way we triage patients through the hospital system." He adds, "I have fairly specific ideas of what I am looking for and we are getting there."

Eckstein wouldn't divulge specifics on the fund's performance, but he pointed out that historical analysis shows it is in the top 25% of venture capitalists and is "not a cost center to GSK."

Time will tell how SR One will do under Eckstein's watch, but for starters, here's a way to start the scorecard: The firm has done eight financings since he joined (of which six are publically announced), including the following: River Vision, which joins the ranks of orphan drug start ups with a $17 million Series A round announced in December; RaNa Therapeutics; Auxogyn Inc., a video technology that helps to assess the viability of early embryos; IlluminOss Medical Inc., a developer of minimally invasive technology for treating bone fractures (SR One was a first time investor in a $28 million C round that closed in September);  and PsiOxus Therapeutics, which SR One joined as part of a Series B syndicate that raised $22 million. Canadian firm Thrasos Therapeutics also joined the portfolio, as GSK invested in a Series C round supporting an acute kidney injury therapy entering Phase II clinical trials.

While Eckstein and others were creating buzz at JPM, of course, real world deals were taking place, and for more on that, let's turn to...

Shire/arGEN-X/Ethris: This was a busy week for Shire, in which the Ireland-headquartered group announced it is buying Boston-based Lotus Tissue Repair, as well as expanding its early-stage rare disease collaborations with arGEN-X BV of the Netherlands and young German biotech Ethris. On Jan. 7, arGEN-X and Shire said their initial alliance, formed in March 2012 to create novel human antibody therapeutics to fight rare and unmet diseases, was so successful that they’re expanding it to explore “a new and exciting therapeutic opportunity.”  The duo did not identify that disease area or give financial details. Under their arrangement arGEN-X will remain responsible for all antibody discovery and certain preclinical activities, while Shire will conduct all relevant preclinical work, as well as clinical and commercial development of therapeutic antibody products. arGEN-X receives research funding and success-based payments, as well as milestones and royalties on products developed under the collaboration.

The same day saw privately-held Ethris GmbH of Germany and Shire announce an R&D alliance to develop and market RNA-based therapeutics based on protein replacement. Ribonucleic acids that encode for such proteins are attracting much R&D attention, but so far RNA’s inherent instability and immunogenicity have been significant hurdles. Shire and Ethris hope to clear that obstacle by using the latter’s technology which creates so-called stable and non-immunogenic messenger RNA molecules for use in protein replacement therapies to treat monogenic genetic diseases.. Privately-held Ethris is financed by QureInvest II, a life sciences investment fund managed by HS LifeSciences, Düsseldorf Germany.--Sten Stovall

Shire/ Lotus Tissue Repair: Shire continued its strategy of engaging in bolt-on acquisitions that can expand its growing Human Genetic Therapies business – a group that has been thriving since its inception in 2005. Its latest addition is the ultra-rare disease-focused biotech Lotus Tissue Repair. The specialty pharma announced Jan. 8 that it is taking over the small Cambridge, Mass.-based biotech for an undisclosed upfront payment and the promise of future milestones. Lotus investor Third Rock Ventures declined to reveal the multiple it got back on their investment. The draw of the small company is its late preclinical stage treatment for dystrophic epidermolysis bullosa, a severe genetic disorder that causes fragile skin and blistering particularly in the mouth, esophagus, and lower GI tract. DEB is a more serious form of epidermolysis bullosa and affects about 300,000 people worldwide. The lead product candidate is an intravenous protein-replacement therapy that is meant to replace the missing or defective human collagen type VII in DEB patients. Lotus was founded in 2011 and conducted a $26 million Series A through its sole investor, Third Rock. The tiny company is manned solely by CEO Mark de Souza. De Souza, James Fordyce and Third Rock partner Philip Reilly co-founded the company along with the University of Southern California professors who invented the technology, Mei Chen and David Woodley. Chen and Woodley acted as scientific advisors to the company. De Souza is expected to join the HGT staff located in Lexington, Mass.--Lisa Lamotta

Evotec/Yale: Evotec AG, the German R&D services and product company, and Yale University announced on January 9th a strategic partnership, which will integrate basic science undertaken at Yale with Evotec’s drug discovery platform. Yale and Evotec will jointly assess novel research technologies, including assays, screens, and models, as well as exploratory drug targets and compounds. No financial terms were disclosed. The intention is to advance candidates in as efficient and accelerated a manner as possible to a stage where they can be commercialized. Cord Dohrmann, CSO of Evotec, said in the release that the partners will focus “all efforts on bringing individual projects to highest industrial standards in preparation for development and commercialization partnerships with pharma companies.”

The German mid-cap has ventured before into academic waters, collaborating with Harvard University in March 2011 to develop new diabetes therapies targeting beta cell regeneration. In July 2012, Janssen Pharmaceuticals Inc. licensed exclusive rights to the small molecules and biologicals that resulted from that collaboration. Evotec also expanded the Harvard alliance in January 2012 to include Brigham and Women's Hospital and to refocus it on discovering and developing new biomarkers and treatments in the field of kidney disease. The Yale deal is more wide-ranging over several therapeutic areas, including central nervous system diseases (CNS), metabolic disease, immunological disease, and cancer. It also harnesses Evotec’s arsenal of discovery and preclinical capabilities, including assay development and screening, structural biology, medicinal chemistry, and in silico and zebra fish modeling. --Michael Goodman

Amgen/Bind Biosciences: The first major partner for nanomedicines company Bind Biosciences is Amgen, with the two companies announcing a licensing deal Jan. 8. The partnership will be the first to study a nanomedicine technology combined with a targeted drug, rather than with a cytotoxic agent, according to the companies. Amgen gains the exclusive right to develop and commercialize a kinase inhibitor nanomedicine for a range of solid tumors, using a novel Accurin from Bind’s nanotechnology platform and its own undisclosed proprietary kinase inhibitor. Both companies will work on the preclinical development of the compound, and Amgen will have responsibility for all future development and commercialization. Bind could receive upfront and development milestone payments totaling $46.5 million, and could receive an additional $134 million in regulatory and sales milestones for the first therapeutic indication. The deal also includes tiered royalties on potential sales of the drug. Bind is eligible to receive additional milestones if Amgen pursues other indications beyond the initial one. “This takes the technology to the next level,” said Bind CEO Scott Minick. The company is continuing to develop its own clinical-stage nanomedicine, BIND-014, combining one of its propriety Accurins with the cytotoxic agent docetaxel, independently. Phase II studies are expected to start in early 2013, following positive Phase I data.--Jessica Merrill

BioMarin/Zacharon: Orphan drug developer BioMarin expanded its portfolio of drugs for rare diseases with the acquisition of glycobiology company Zacharon Pharmaceuticals, the firm announced Jan. 7. San Diego-based Zacharon is focused on developing small molecules targeting pathways of glycan and glycolipid metabolism and has two drug discovery projects focused on inhibition of heparin sulfate synthesis for the rare lysosomal storage diseases Mucopolysaccharidosis Type III and other MPS disorders. BioMarin knows the field well; it already has two drugs, Naglazyme and Aldurazyme, on the market for MPS VI and MPS I, respectively, and is planning to file a new drug, known as GALNS, with FDA this year for MPS IVA. The addition of Zacharon could help BioMarin bring an oral MPS treatment to market. BioMarin paid $10 million upfront for 100% of Zacharon’s share capital and may make additional milestone payments. Zacharon raised $3.5 million in a Series A financing in 2008; the company partnered with Pfizer on rare disease drug development in 2011 in a deal valued up to $210 million.--J.M.

Daiichi Sankyo/Amplimmune: Amplimmune signed its second business development agreement on Jan. 8, agreeing to an option deal including R&D funding and other possible earn-outs with Japan’s Daiichi Sankyo for Phase I-ready AMP-110. Amplimmune, which out-licensed AMP-224, a fusion protein blocking interaction between the PD-1 and B7-H1 proteins to GlaxoSmithKline in 2010, to intends to start clinical development of ‘110 in an undisclosed autoimmune indication within the next six months. A large-molecule fusion of the extracellular domain of B7-H4 protein, ‘110 is designed to mimic the activity of naturally occurring B7-H4 protein in inhibiting T-cell pathways that can contribute to autoimmune disease. While the partners will not announce the first indication before launching the initial Phase I study, a description on Amplimmune’s website notes that ‘110 suppressed the progression of collagen-induced rheumatoid arthritis in mice. Amplimmune will develop ‘110 through Phase IIa, with Daiichi having the option to acquire the program at any point during that period. The Japanese firm will pay Amplimmune more than $50 million to cover past and upcoming R&D costs for ‘110, as well as an undisclosed upfront fee. Amplimmune also can earn undisclosed performance-based milestones. If Daiichi licenses ‘110, however, there will be no further earn-outs for Amplimmune, such as royalties on product sales.—Joseph Haas

Gilead/MacroGenics: Privately-held MacroGenics announced a licensing agreement Jan. 7 under which it will co-develop and commercialize Dual-Affinity Re-Targeting (DART) therapeutics for four unspecific targets with Gilead Sciences. Gilead gets exclusive worldwide rights for the three of the programs, with MacroGenics to receive up to $30 million in license fees and up to $85 million in preclinical milestones. For the fourth, undisclosed program, MacroGenics will retain commercial rights outside of the U.S., Europe, Australia and New Zealand. MacroGenics’ proprietary DART technology platform discovers bi-specific antibodies in which a single recombinant molecule is able to target two different antigens. Gilead will fully fund all R&D activities surrounding the projects. MacroGenics also can earn up to $1 billion in clinical, regulatory and commercialization milestones if all four programs succeed, plus tiered royalties, up to low double-digits. The deal is MacroGenics’ fourth around its DART platform in the past two years, following agreements with Pfizer, Boehringer Ingelheim and Servier.—JAH

Ultragenyx Pharmaceutical/Baylor Research Institute: The Novato, Calif.-based biotech Ultragenyx Pharmaceutical announced Jan. 10 that it has in-licensed a third compound from the Baylor Research Institute in Dallas. The deal gives Ultragenyx the North American rights to triheptanoin (UX007), a synthetic triglyceride of C7 fatty acids that is meant to treat defects in mitochondrial metabolism of long-chain fatty acids; the biotech also has an exclusive option to rest-of-world rights. UX007 is expected to treat the family of fatty-acid oxidation disorders (FAOD) that affect schildren and can result in muscle weakness, fatigue, low blood sugar, cardiomyopathy and a greatly shortened life-span. Terms of the deal were not disclosed. UX007 will fit squarely within the company’s pipeline, which includes UX001, a replacement therapy meant to treat hereditary inclusion body myopathy (HIBM), which is a rare muscle-wasting disease. Ultragenyx conducted a Phase I trial of 26 patients and currently is conducting a Phase II trial that has 45 patients. Data are expected in 2013. Its other program is UX003, an enzyme replacement therapy to treat mucopolysaccharidosis type 7 (MPS7), the rarest of the MPS disorders. The company expects to begin a Phase I/II trial in mid-2013 and to generate interim data from that trial before the end of the year.--LL

Illumina/Verinata: Genetic analysis specialist Illumina said Jan. 7 that it has acquired privately-held prenatal testing test maker Verinata of San Carlos, Calif. Illumina paid $350 million up-front in the deal, which also includes $100 million in milestone payments that could be fulfilled by 2015. The acquisition brings Verinata’s non-invasive prenatal test, Verifi, which identifies conditions including Down’s syndrome, Edwards syndrome, Patau syndrome, and sex chromosome abnormalities, by analyzing cell-free fetal DNA circulating in the mother’s blood. Verinata launched Verifi in May 2012. Several months prior to the launch, Illumina had established a three-year supplier agreement with Verinata for sequencing instruments and consumables, which also included an unspecified collaboration between the companies toward gaining regulatory approval for the test. The acquisition spells an exit for Verinata’s venture investors, which include Mohr Davidow Ventures, Sutter Hill Ventures, and Alloy Ventures; they most recently supplied $48.5 million in Series C funding in August 2011. Originally named Artemis Health, Verinata licensed key technology for its product from Stanford University in January 2009. Illumina had $1.2 billion in cash, cash equivalents and short-term investments as of Sept. 30, 2012.– Paul Bonanos

SR One Posts Help Wanted Ad, Again

Wanted: Senior investor to oversee strategy for one of the largest -- and certainly the oldest -- biopharma corporate venture groups. Brand management and team building skills a must. May report directly to CEO--or not. (Details TBD.) Persons interested in a long term stint need not apply.

Admittedly, this isn't the kind of ad GlaxoSmithKline would actually publish as it searches -- yet again -- for a new head of its corporate venture group, SR One. But given the rapid turn-over in the top spot, senior investors might want to think twice before throwing their names into the ring for consideration.

It's hard to believe SR One isn't a mess. Just over a year after Russell Greig departed from the corporate venture group, comes the April 4th announcement that his successor, Christoph Westphal, is also jumping ship. Westphal is leaving to devote his energies to his other venture fund, Longwood Founders Fund, which announced an $86.9 million close in December 2010. In a statement, GSK's head of R&D Moncef Slaoui recognized Christoph's contributions, noting "he has brought an entrepreneur’s perspective to our thinking on venture capital investments and deals."

It's been a revolving door for SR One's leadership since 1999, when the group's original founder, Peter Sears departed. (If you are keeping tabs, in addition to Greig and Westphal, Brenda Gavin (now with Quaker Bioventures), Barbara Dalton (now with Pfizer Investment Group), Tamar Howson (currently at JSB-Partners), and Joyce Lonergan, have all held top honors at the firm over the years.)

Not that Westphal's departure is all that surprising. His tenure has been rife with controversy. First there was considerable debate about how the founder and former CEO of Sirtris could realistically wear two venture hats simultaneously, a potential conflict of interest that was explained away by the very different investment theses of the two groups. More problematic, however, have been Westphal's ties to the Healthy Lifespan Institute.

Founded in 2009, the non-profit group's mission is to educate the public about the aging process and research non-pharmaceutical approaches to living longer, healthier lives. But the Institute entered some very murky waters when it subsequently began selling a dietary supplement version of resveratrol, potentially undercutting GlaxoSmithKline, which thanks to its $720 million purchase of Sirtris in 2008 was developing a proprietary form of the compound, SRT501.

That compound has had it's own troubles, with the GSK division halting enrollment of new patients in a Phase II clinical trial testing the substance as potential multiple myeloma treatment (for more see here, here, and here).

The Healthy Lifespan debacle was a distraction SR One didn't need. Recall Wesphal's predecessor Greig was brought on in 2008 to remake SR One, ambitiously retooling the organization with a two-fold mission of making external investments while simultaneously spinning out start-ups founded around wholly owned GSK IP. It's a strategy SR One attempted--and failed to realize--in the past, but with Greig reporting directly to CEO Andrew Witty, industry wags thought a transformation was in the offing.

But with Westphal taking over last year, whatever retooling was underway seemed to come to a full stop. Back in October 2010 GSK announced the rare spin-out: After a portfolio cull, the big pharma jettisoned late stage pain and depression assets, working with VCs SV Life Sciences and New Leaf to form Convergence Pharmaceuticals. But SR One didn't play a role in the new co's creation; that honor goes to Simon Tate, previously a VP in GSK's Pain and Epilepsy Discovery Performance Unit (he's now CSO of Convergence), who took the idea for the spin-out, plus a letter of intent from outside VCs, directly to GSK's R&D Executive Committee.

Given spin-outs are notoriously hard to do, it's perhaps not surprising SR One hasn'tblazed a trail in this area. But it's not as if the VC has been on a dealmaking tear since Westphal became its leader. In 2010 SR One staked just three new companies, co-leading or leading the Series B financings of NeuroTherapeutics, Constellation Pharmaceuticals, and Semprus Bioscience Group. According to Elsevier's Strategic Transactions, the group has announced just one deal in 2011, participating in the $35 million Series B of vaccine developer Genocea Biosciences. (It was also a Series A backer.)

If Westphal's departure, which will come some time later this year, isn't surprising, it's probably also no accident. GSK, in the vanguard to improve big pharma R&D productivity via the creation of smaller, more biotech like units, is also remaking its business development team. Come April 18, Ian Tomlinson, currently head of Biopharmaceutical R&D, will take on the additional role as head of world-wide business development. (He'll be replacing long time SVP Ad Rawcliffe -- who also once helmed SR One -- who moves to a new role as head of finance for GSK's North American Pharmaceuticals business.)

It's a fair bet that Tomlinson, who also has entreprenuerial bona fides having co-founded the second-generation antibody play Domantis, may want to weigh in on who captains the SR One ship. With R&D and biz dev rapidly converging, it's natural to think SR One can operate in a strategic role bolstering the activities of the transactions team, making investments in early stage companies not yet ripe for traditional business development deals. Such investments give GSK an early look -- and potentially a deal-making IN (though that's controversial) -- into potentially important cutting edge technologies and/or drug targets.

At this juncture, more questions than answers swirl around the future of SR One. Will the group's modus operandi change yet again? (Maybe the stalwart will embrace the more new fangled option style financings best associated with Novartis' option fund, where in addition to equity there's also the potential for a licensing transaction.) Will it continue to report to Witty or, like most other corporate venture groups, report into either finance or the R&D organization? How should such a group support the external goals of GSK's changing business development team?

Clarity will hopefully come when a new leader is named later this year. Stay tuned.

Image courtesy of flickrer cote used with permission through a creative commons license.

Financings of the Fortnight Looks for Its Shadow

We are always on the lookout for leading indicators, no matter how faint the signal. If you tend an herb garden on your back porch, you might prefer the "green shoots" metaphor. Ever hopeful that the second law of thermodynamics isn't really the guiding principle ruling our lives, we humans also imbue natural events and public rituals with significance. Earthquakes as divine punishment! The groundhog's shadow! That said, we should say right off the bat that Genmark Diagnostics is no Punxsutawney Phil.

Yes, Virginia, there was an IPO last week, and its name was Genmark. But it wasn't the sort that necessarily means a damn thing. An obscure UK diagnostics firm formerly known as Osmetech that creates a US subsidiary, reverse-merges into it to reach US shareholders -- and only pulls in $28 million after shooting for as much as $45 million, for that matter -- is only that. An N of one.

Yet it came at a time when we were already thinking about diagnostics, and funding, and the funding of diagnostics. The low-profile offering, tucked just in front of the long holiday weekend, was also sandwiched between two conferences that opened different windows on the application of genetic information. At a consumer genetics show in Boston this week, funding strategies weren't explicitly on the menu, but as our correspondents noted, it's becoming ever more clear that cost breakthroughs in sequencing will lead to identification of medically significant genetic variations in patients. The question then becomes, what do you do with them?

That was the topic last week at the C21 venture conference in California's Napa Valley, where the diagnostics panel drew an eager crowd looking for ways to put money into -- buzzword alert! -- low-cost innovation. (That is, really cool stuff that doesn't cost a lot to make.)

And as our colleague Mark Ratner noted in his recent IN VIVO feature, despite the early days of most genetic research, a trio of well-known VCs -- Kleiner Perkins Caulfield & Byers, Mohr Davidow Ventures, and TPG -- have spread their diagnostic bets further, particularly into cardiology, after hitting the jackpot with breast-cancer test maker Genomic Health. Genmark isn't in their portfolios, but as we've seen on the drug side, any IPO activity after the long dry spell of 2008-2009 is worth scrutiny, not just as an indicator for current portfolio companies but for investors looking to jump in. One of the keys to diagnostics is getting pharma's attention in a variety of ways, such as using tests as a marketing tool when a drug rep is out detailing. We'll let Ratner explain:

The raison d'etre of new molecular tests is to significantly add to the information available to physicians to enable or change critical clinical decision-making. Especially at a time when the pace of new drug introductions is slowing and the opportunities to meet face-to-face with physicians therefore diminishing, as molecular diagnostics moves into new and broad markets like cardiology and metabolic disease, pharma could use this opportunity to its advantage in many settings.

In the case of a specific cardio test called Corus CAD, Ratner writes, "There's sufficient novelty and interest in genetics and genomics associated with coronary disease that [drug reps] could start a dialog with a physician about Corus CAD and at some point change to their drug-oriented message."

Diagnostic brethren such as LabCorp, Roche and Qiagen make splashy acquisitions; pure-play pharmas probably won't, though some are keeping their options open. Other deals will come from industrial giants such as General Electric and Procter & Gamble. But with massive hoards of cash to spend, any sign of pharma opening its coffers for diagnostics deals could mark a big change in the way VCs invest, which despite a few high-profile deals hasn't been that stunning. According to the Elsevier Strategic Transactions database, investment in diagnostics, over $1 billion annually for most of the past decade, is trending lower this year with $273 million through May.

Then again, life-science investing is down across the board this year. Have no fear, there's always plenty of material to bring you...



Tetraphase Pharmaceuticals: The antibiotic developer pulled in a $45 million Series C round to push its lead candidate into Phase II trials later this year, marking another step toward filling what public-health officials say is a ever-growing need: next-generation treatments to fight drug-resistant Gram-negative bacteria, as noted by our colleagues at START-UP. Tetraphase starts with a tetracycline backbone and then modifies the molecule at multiple positions to create an extremely large library. These molecules then can be screened for both their anti-infective properties and their potential to cause off-target toxicities. The lead compound, the intravenous TP-434, will likely focus initially on intra-abdominal infections. The Series C cash will also help push two more compounds -- TP-2758, for complicated urinary tract infections and TP-834, for the treatment of community acquired bacterial pneumonia -into Phase I. Excel Venture Management, a new investor for the biotech, led the round joined by existing backers: CMEA Capital, Fidelity Biosciences, Flagship Ventures, Mediphase Venture Partners and Skyline Ventures. Steve Gullans, managing director of Excel Venture Management, will join Tetraphase's board of directors. -- Carlene Olsen

NormOxys: The developer of small-molecule oxygen-enhancing drugs to treat a variety of diseases announced on May 24 a $17.5 million Series B financing. In addition to existing backer Index Ventures, Care Capital participated in the most recent financing round, with partner Argeris "Jerry" Karabelas joining the start-up's board of directors. It brings the firm's total funding to $30 million. With its novel platform technology and top-notch scientific pedigree, NormOxys has raised a sizeable but not extraordinary amount of additional cash from A-list backers and avoided too much dilution. It can now also aim for a more lucrative big pharma partnership -- whether it's a licensing deal or acquisition -- once the lead molecule, and thus the company's platform, have been derisked. The lead molecule is OXY111a, which the firm calls an "oxyren," for its oxygen-releasing capabilities. It changes the offloading capacity of hemoglobin so that more oxygen can be delivered to tissues where needed. If all goes to plan, it shouldn't result in excess oxygen delivery to normal tissue, which can cause damage because of free radical production. Equally important, say officials, is that the molecule triggering the actual physiological changes is oxygen itself, not the oxyren. Thus, potential off-target side-effects that have scuppered artificial blood substitutes such as Biopure's Hemopure, Northfield Laboratories' PolyHeme, and Baxter Healthcare's HemAssist, should be less problematic. OXY111a is entering Phase I trials with a later goal of testing it against chronic heart failure and an undisclosed cancer indication. -- Ellen Foster Licking

Exelixis: The San Francisco Bay Area public biotech is no stranger to all kinds of financing deals, and now it's turned again to debt to help expand the late-stage development of lead candidate XL184. Exelixis said June 3 it has secured loans worth $160 million from two lenders at an aggregate cost of capital under 10%. Part of the cash will pay back a loan from GlaxoSmithKline, a remnant of the firms' broad, six-year license-and-option deal signed in 2002. It will also fund XL184, which should enter Phase III trials for second-line glioblastoma by the end of 2010, with more Phase III trials possibly coming in 2011. XL184 was rejected by GSK before the six-year deal expired in late 2008, but Exelixis pivoted into a lucrative deal with Bristol-Myers Squibb, which pays 65% of XL184 development costs. It is currently in Phase III for medullary thyroid cancer and earlier-stage trials for glioblastoma. Exelixis is tapping Silicon Valley Bank for $80 million with a seven-year term loan at 1% interest. It's also borrowing $80 million from Deerfield Management, a five-year term with a maximum principal of $124 million. Interest is $6 million a year. Exelixis opened a line of credit with Deerfield in 2008 that, at the time, officials said they hoped never to draw down from. But with a 40% cut in staff in March the firm is shifting resources to late-stage development, which is still expensive even with big-pharma partners footing much of the bill. -- A.L.

Constellation Pharmaceuticals: Epigenetics pioneer Constellation added a corporate venture backer, GlaxoSmithKline's venture arm SR One, in a $22 million Series B financing announced June 2. In addition to SR One, previous investors Third Rock Ventures, The Column Group, Venrock Associates, and Altitude Life Science Ventures, which led the company’s $32 million Series A in 2008, all participated in the round. SR One’s cash should help Constellation keep pace with its main competitor, Epizyme, which obtained backing from Amgen Ventures and Astellas Venture Management in its own $40 million Series B last fall. Neither company has reached the clinic. Both are focused primarily on cancer, but Constellation of Cambridge, Mass. hopes to move eventually into diabetes, autoimmune, inflammatory and neurological diseases. Epigenetics focuses on chemical modification to chromatin, the proteins that package DNA, to create therapeutics that influence gene expression. Two classes of such drugs already are on the market: Celgene’s Vidaza and Eisai’s Dacogen, both DNA-methylation molecules approved for myelodysplastic syndromes, and Merck’s Vorinostat, a histone deacetylase (HDAC) inhibitor for T-cell cutaneous lymphoma. At least two other HDAC inhibitors are in late-stage development for oncology indications. -- Joseph Haas

Extra thanks to Mark Ratner for help with this week's post. Photo courtesy of flickr user avmaier.

Christoph Westphal's Two VC Hats

Christoph Westphal is getting a new business card. In an email sent to friends and some well placed bloggers on April 21, Westphal disclosed that his time as CEO at Sirtris Pharmaceuticals has come to an end.

Noting that Sirtris has a "strong team in place under the leadership of George Vlasuk who is now taking on the role of CEO of Sirtris," Westphal confirmed recent speculation: his departure from Sirtris goes hand-in-hand with his decision to jump back into the venture world. In February, SEC filings disclosed that Westphal, alongside Michelle Dipp and Rich Aldrich, was founding the early-stage focused Longwood Founders Fund with about $51 million.

But Westphal dropped another bombshell in his note Wednesday, and it landed in a decidedly off-hand fashion. Via Longwood, he wrote that he aims to "found, build, and run important new medical companies, as we have been doing for the last decade. In addition, I will be overseeing GSK's midstage venture fund, SR1."

Talk about burying the headline.

It's been a revolving door at SR One, with news surfacing in March that Russell Greig was leaving the storied group not even two years after taking the reins. Westphal isn't talking publicly yet. 'Wait until May' was basically the reply this blogger received when she contacted him.

As Steve Dickman of CBT Advisors pointed out April 21 on his subscription-only blog, this isn't the first time Westphal, well known for his indefatigable drive, has held two jobs at once. But it's one thing to wear CEO and VC hats at the same time. It's a different matter to be a financial VC and a corporate VC. There are plenty of synergies, but as Dickman notes there's also the potential for conflict.

Corporate VCs will tell you they are well aligned with their traditional brethren, with financial return the primary driver behind their investments. But corporate funds also bear a critical strategic function: to identify key assets or technologies that lead to tomorrow's innovative products. That mission is only likely to grow in importance with the pullback in the traditional VC community, which is more focused on low-cost innovation that generates returns in three to five years and satisfies antsy LPs.

We're guessing GSK, a backer in Longwood, must be okay with potential conflicts that could arise, including what might happen if Longwood makes a seed investment in start-up X, and SR One wants to back the same company in a later round. Do Westphal's ties to both funds preclude Longwood and SR One from both having board seats? Does SR One get similar equity terms to Longwood? How will this duality play with other traditional or corporate VCs who might be in a syndicate with Westphal/Longwood/SR One?

Perhaps more thorny, how does Westphal manage the conflicts that crop up when he chooses to pass on a certain investment? Is he making the decision as a Longwood investor or an SR One investor? Where does the continuum between SR One's investment philosophy end and Longwood's begin?

It's all very nebulous, as is what's happening at SR One (or GSK Ventures for that matter -- remember them?). Dickman and others speculate the move will rejuvenate the storied venture fund. Funny, we thought Greig was brought in for that, and his efforts seemed to be working. SR One was among the most active corporate investors in the last year, investing in seven firms in 2009, including Aileron Therapeutics, Genocea Biosciences, and Alios Biopharma.

Perhaps Westphal will find more creative ways to ink deals, moving GSK firmly into the realm of option-based venturing. Maybe he'll provide yet another bridge between the corporate and traditional VC realms. Or maybe his close ties to GSK show how difficult it is to be a traditional VC today and just how intertwined venture and pharma truly have become.

Image courtesy of flickrer lokidude99 used with permission through a creative commons license.

SR One's Revolving Door

The times are apparently changing--again--for the granddaddy of biopharma corporate venture, GlaxoSmithKline's SR One. Two independent sources confirmed to our sister publication "The Pink Sheet" DAILY that Russell Greig, a 30-year veteran of the drug maker and most recently managing partner and president of SR One, has quietly moved on. Details about both the timing and reason for Greig's departure remain unknown.

It's been a revolving door for SR One's leadership since 1999, when the group's original founder, Peter Sears departed. (If you are keeping tabs, Brenda Gavin (now with Quaker Bioventures), Barbara Dalton (now with Pfizer Investment Group), and Joyce Lonergan have all held top honors at the firm over the years.)

Still the news of the lastest decampment is a surprise, coming barely two years after Greig stepped into the top job and orchestrated an ambitious retooling, launching what seemed at the time to be SR One 2.0. For starters, Greig cleaned house, rebuilding--and bolstering--the investment team to create a 10-person powerhouse that could actively syndicate with traditional and strategic investors alike. In addition, Greig, with the apparent blessing of GSK's CEO Andrew Witty, launched a $500 million venture fund with the two-fold mission of making external investments while simultaneously spinning out start-ups and incubators founded around intellectual property from GSK itself.

Indeed, it's the close ties between Witty and Greig that cause one to wonder at the sudden change in SR One's leadership, especially given the current starring role corporate venture is playing in biopharma financing. (If ever there was a time to be the top dog at one of the preeminent strategic venture groups, now, when traditional VCs are mired in their own financial troubles, is the time.)

The 2008 shake-up, which pulled SR One out of the drug maker’s R&D organization, had Greig reporting directly to Witty, a move that at the time seemed to indicated both greater prominence for the corporate venture group as well as increased latitude regarding investment decisions. In a 2009 interview with START-UP, Greig emphasized “the investment committee is a two-man team: Andrew [Witty] and myself.” In addition, Greig and Witty removed certain investment restrictions that had made it tough to be an equal player in venture syndicates, including stipulations that the group could put no more than $5 million in any single investment round or a total of $50 million into a company during its lifetime. All of which was done to ensure SR One could “participate at the same speed or faster than our [traditional] VC brethren, Greig told START-UP at the time.

And for much of the last year, SR One has certainly be doing that. According to Elsevier's Strategic Transactions database, the group invested in seven privately-held companies last year, including the anti-infective developer Rib-X Pharmaceuticals's $25 million Series D, the novel vaccine play Genocea Biosciences’s $23 million Series A, and cancer/inflammation drug developer Aileron Therapeutics’s $40 million million Series D.

Greig is currently listed as an active board member of both Genocea and Rib-X. It’s not certain at this time who from SR One will replace him on those boards. Whether or not SR One will finally take a larger role in outlicensing home-grown technology is also a mystery.

We are certain that Greig will be missed--even if his departure has no lasting impact on SR One's investment philosophy or ability to do deals. Greig is well regarded in the clubby world of VC for his intellect and his financial acumen. Moreover, SR One, like its strategic counterparts Johnson & Johnson Development Corp., the Roche Venture Fund, the myriad Novartis Venture funds, and Pfizer Investment Group (among others), has played an invaluable role in the past year in financing early stage companies at a time when traditional VCs have been strapped for cash and the IPO market remains moribund.


Image courtesy of flickrerThomas Hawk used with permission via a creative commons license.