Financings of the Fortnight Follows The IPO Froth

We're big fans of Fortune columnist Dan Primack (not pictured here). But we couldn't help notice this line in his Thursday morning "Term Sheet" newsletter: "Small company IPOs are just fine."

It's an elision we often see from our brothers and sisters in the press. "IPOs" is a kind of shorthand for "high-tech IPOs that make young nerds rich." Generally Primack is right; there are many small companies with excellent chances of ringing that bell. Very few of them, though, are in the biotech sector, where IPOs are not just fine. Investor appetite for the next Web thingamadoodle is far more whetted than it is for the next cancer-drug developer that's, say, five years and a massive regulatory review away from the ability to sell its product.

It's a big reason we're seeing schisms in hybrid venture firms, with the health-care side shutting down or leaving to join other like-minded investors. For the former, see the Scale Venture Partners story that broke this week (scoop to Primack!); for the latter see our blurb below on the Morgenthaler/Advanced Technology Ventures news or our "Pink Sheet" story here.



We're not surprised the high-tech froth of recent months hasn't bubbled over into the biotech sector, but might we be on the verge of a froth-sharing moment thanks to Groupon? For those of you who've been glued to a lab bench the past couple years, Groupon is the online daily coupon service that, despite getting caught with its hand in the creative-accounting cookie jar, raised $700 million in its Nov. 3 IPO. Other hot tech firms like Zynga (games for Facebook) and Yelp (unfiltered reviews from the unwashed masses) are grabbing hold of its coat tails, but might a few biotechs follow?
 

They should try. As we report in the upcoming issue of START-UP, it behooves biotechs to grab for the IPO brass ring rather than stay private. We analyzed the fundraising of 35 companies that have gone public either in the US or abroad since the start of 2008. Those companies have raised more money (average and median) than comparable companies who remained private, even if total dollars for the pool of public firms is dwarfed by the total amount raised by their private brethren. And this is while most of the IPO class are still trading below their IPO price. We won't give away all the data, but we will note this: 31 of the 35 had at least one asset in Phase II development or later, and several firms had marketed products at the time of the IPO. 

Because of that, it won't be a shock if Clovis Oncology, which threw its hat into the IPO ring June 23, emerges with the roughly $130 million it's seeking to raise next week. It's got a late-stage, reconjugated version of well-validated cancer drug gemcitabine aimed at metastatic pancreatic cancer, with a companion diagnostic that it hopes will help pinpoint the patients whose tumors have a mutation (low hENT1 expression) that confers resistance to standard gemcitabine therapy. Clovis also has seasoned management with an impressive deal-making record, and massive venture backing. (And incidentally Newlink Genetics with a $43 million debut today managed to sneak out ahead of them to raise money to fund late stage clinical development of their pancreatic cancer treatment. More on NewLink below.)

But when a biotech with cutting-edge technology that's at least a year away from putting a drug into the clinic files its paperwork, we take notice. Verastem? Really? Remember just a few months ago when VCs told us as part of our life-science venture survey the only thing they were less eager to fund than stem-cell related companies was RNAi-related companies? 

Granted, Verastem is going after cancer, but to do so it's using technology from the Whitehead Institute to create cancer stem cells, against which they screen small-molecule compounds. Now, Verastem was able to attract venture money -- in fact it raised a Series C just as it filed its S-1 (with a $50m target, current backers have poured in $68 million and include Longwood Founders Fund, MPM Bioventures, CHP, and Bessemer Venture Partners). But it'll require extremely biotech-savvy public investors, who are already more freaked out than the caterer at a Berlusconi Bunga-Bunga party, not to hear "stem cells" and "preclinical" and not say, "Take $100 million more in venture cash and call me in seven years." Perhaps we're overstating the potential for cold feet. It's often too easy to find warning signs in the risk-factor section of a company's S-1, which includes everything but the possibility of flaming asteroids crashing to Earth, but this sentence caught our eye: "Research on CSCs [cancer stem cells] is an emerging field and, consequently, there is ongoing debate regarding the existence of CSCs."


Perhaps the recent deal struck by Celgene -- $45 million for exclusive use of Quanticel Pharmaceuticals' cancer genome analysis technology and options to buy Quanticel outright -- is a validating moment. One of Quanticel's cofounders at Stanford specializes in the isolation and characterization of individual cells, including those that are tumorigenic, or stem-cell-like, within a tumor. Is Celgene's cash commitment a sign that the study of cancer stem cells is about to yield clinical results, and thus, more interest from drug makers willing to pay premiums for the technology?

That's a big question that Verastem's backers hope potential investors might ask, too. Because if the public market buyers don't see the real connection between cutting-edge science and tangible benefits, they'll just move on to the next Groupon.   


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Morgenthaler Ventures/Advanced Technology Ventures: One result of the painful venture shakeout has been consolidation. Limited partners frustrated by weak returns are choosing to allocate funds among specialized firms rather than diversified ones. That’s bad news for hybrid firms that invest in both tech and life sciences, who are increasingly finding the model untenable. Case in point: the venerable Morgenthaler Ventures, whose biotech team split from the firm to join forces with two partners from Advanced Technology Ventures and form a new life sciences-only fund, as yet unnamed. A Morgenthaler spokesperson declined to discuss the situation, but a source close to the firm told "The Pink Sheet" DAILY that the seven-person team had originally aimed to raise a life science-only fund of about $200 million within Morgenthaler, but instead separated from the organization. The group had already allocated its half of the $400 million fund Morgenthaler closed in 2008, while the firm’s tech team continues to invest its share. ATV, meanwhile, had downsized over the past year, retaining only its general partners. ATV and Morgenthaler have invested side-by-side in several companies, including UCSF spinout Calithera Biosciences, catheter technology developer Ardian (acquired by Medtronic for $800 million), and microbial diagnostics startup Second Genome. Of course, not every hybrid firm is in trouble; Avalon Ventures, for one (profiled here), closed an oversubscribed $200 million fund in January. Avalon founder Kevin Kinsella may not appreciate Big Pharma’s negotiating tactics, but he and his LPs will surely enjoy the mammoth return from its previous fund: It holds a 6.1% stake in online game maker Zynga, slated to go public this month at a valuation that could exceed $15 billion. -- Paul Bonanos

AffiRis: The Strungmann brothers, who have invested in a string of German biotech companies since they sold their generics company Hexal to Novartis six years ago, have targeted Austria's AffiRis as their first biotech investment outside Germany. Through their investment vehicle, Santo VC, the Strungmanns have taken a €20 million equity stake in the Vienna vaccines company. At the same time AffiRis' existing investor the MIG Fund, a Munich venture firm, put in €5 million. Santo and MIG have also acquired an option to increase their stake in AffiRis by a further €30 million. The move underlines the support of entrepreneurial families in Europe for the biotech sector, not just during this tough funding period but historically. Firms such as Merck KGaA and Roche were family-run for decades and descendants of the founders still hold substantial stakes. Another German biotech benefactor is software mogul Dietmar Hopp, who has invested more than €300 million in at least 15 firms -- mainly around his home town of Hoffenheim -- in the past decade through his firm dievini Hopp Biotech Holding. AffiRis is collaborating with GlaxoSmithKline on a potential Alzheimer's disease vaccine, one version of which is in Phase II clinical trials. It also received $1.5 million in October from the Michael J. Fox Foundation to support development of a Parkinson's disease vaccine scheduled to enter Phase I clinical trials early in 2012. The new funding plus the option represent a huge step-up for the firm, which previously had raised €11.5 million in a Series A and extension, all from MIG. -- John Davis

Rempex Pharmaceuticals: Rempex gets high marks for fundraising, but low marks for creative naming. A spin-out of assets from the former Mpex Pharmaceuticals -- which makes us sad they didn't try, say, "Mpex 2: Electric Boogaloo" or "Mpexer Than Ever" -- the firm announced November 9 it completed the first closing of a Series B financing that could reach $67.5 million, the seventh-highest Series B figure for a biotech in the last five years according to Elsevier’s Strategic Transactions database. Just ahead of it: a pair of $70 million fundraisings from Amyris Biotechnologies in 2007 and Relypsa last year. (Yes, Relypsa was a follow-on to Ilypsa, so perhaps boring sequel names are the way to go.) New backers Frazier Healthcare Ventures and Vivo Ventures joined existing shareholders SV Life Sciences, OrbiMed Advisors, and Adams Street Partners in Rempex’s round, which brings the total equity in the June 2011 start-up to $76 million. Rempex was established with the infectious disease assets from Mpex, which was acquired this past April by Axcan Pharma (now Aptalis Holdings). Axcan bought Mpex primarily for Aeroquin, an aerosolized form of levofloxacin in Phase III for pulmonary infections in cystic fibrosis. That left several preclinical candidates to be spun off, and now Rempex, led by former Mpex management, is aiming for FDA approval for a gram-negative therapeutic sometime early next year. The spun-out assets also include efflux pump inhibitors partnered with GSK in a 2008 deal that gave the Big Pharma’s infectious disease CEDD an exclusive option to EPIs combined with GSK antibiotics. -- Amanda Micklus

NewLink Genetics: NewLink debuted on the Nasdaq Friday, Nov. 11 and raised $43 million by selling 6.2 million shares at $7 each. The share price was well below the $10-$12 range it hoped to hit, and shares traded flat in the first half of the day of the firm's debut. Ames, Iowa-based NewLink has a lead immunotherapy drug for pancreatic cancer, and the IPO proceeds will help pay for Phase III trials, with 161 patients already enrolled as of Sept. 1 toward an enrollment goal of 700. The firm has received fast-track and orphan designation for the drug in adjuvant treatment of surgically-resected pancreatic cancer. The immunotherapy, dubbed HyperAcute Pancreas, is allogeneic; it does not depend on the patient's own cells. The most high-profile cancer immunotherapy on the market is Dendreon's Provenge (sipuleucel-T), which modifies a patient's own cells before re-infusing them back into the patient. NewLink is not venture-backed. The only listed institutional 5% stockholder is Stine Seed Farm, also of Iowa. CEO Charles Link owns 17% of the company. -- A.L.
 

Photo courtesy of flickr user jessicafm via the Creative Commons license.

Is Biotech Running GSK?

"Smaller, biotech-like units" have been the name of the game at GlaxoSmithKline ever since the CEDDs (Centers of Excellence for Drug Discovery), round one, were announced post-merger in 2000.

Fast-forward eight years and now it's not just biotech's size that's influencing the pharma giant. These days biotech CEOs are showing GSK pod-chiefs how to run an R&D business--and, since earlier this week, one is running part of GSK himself.

Christoph Westphal, former-CEO of Sirtris, which GSK acquired for $720 million in April (one of our Deals of the Year Nominees), will now head up the externally-focused CEDD (or CEEDD), along with Sirtris' VP Corporate Development Michelle Dipp. While remaining at Sirtris' premises, Westphal will "challenge the norm and stretch us to consider new ways of working" in drug discovery, according to GSK's head of Discovery Patrick Vallance.

The idea is that Westphal’s experience founding, running and investing in biotech will help the CEEDD attract promising assets into GSK’s pipeline via alliances and partnerships.

Westphal’s appointment isn’t the first of incoming CEO Andrew Witty’s attempts to infuse the group with biotech-like management, accountability and creativity. Ian Tomlinson, former CEO of Domantis (which GSK acquired in 2007 to beef up its next-generation biologics capabilities) is a senior R&D exec at the Big Pharma. And earlier this year, Witty invited Actelion CEO Jean-Paul Clozel to talk to GSK CEDD heads about how biotech manages research—and give them a few lessons from one of Europe’s few biotech success stories. (Actelion has since signed a deal with GSK on sleep drug almorexant.)

The moves make sense. GSK’s CEDDs are supposed to be run as more or less autonomous units with their own P&L responsibility, but structure alone doesn’t create a mindset. Thus far the CEDDs haven’t exactly revolutionized Glaxo’s pipeline, even though several other Big Pharma, including Roche and Pfizer are trying similar things. “The challenge is to make the CEDD heads entrepreneurial,” comments one analyst--and to incent them to perform, or else.

Witty’s June announcement of the latest CEDD-like iteration, 50-person-strong Drug Performance Units focused on specific biological pathways and competing internally for resources, sends a clear message: We’re no longer just pretending to be like biotech, cushioned within a comfortable, cash-rich bureaucracy. We are a series of biotechs.

And as is abundantly clear out in the real biotech world, there ain’t many safety nets about.

jacket image by flickr user ckount used under a creative commons license

Deals of the Year Nominee: GSK/Sirtris

Ah, awards season. Why should film critics have all the fun? And voting! It's not just for presidential elections. This year your IN VIVO Blog team is nominating a handful of alliances, acquisitions, financings, regulatory negotiations and legislative compromises in our First Annual DOTY competition. And then you, dear readers, will vote (early and often, we hope) for the winner. Imaginary federal and international biopharmaceutical statutes prohibit us from awarding a monetary prize. But our winners, when they die, on their deathbeds, they will receive total consciousness. So they've got that going for them, which is nice.

Our first nominee for Deal of the Year is GlaxoSmithKline's $720 million cash acquisition of Sirtris Pharmaceuticals.

When we profiled Sirtris CEO Christoph Westphal back in 2006 he laid out the criteria for success:

"There are five things that you try to pull together in a technology-based company," Westphal told START-UP. "A novel, breakthrough scientific idea, and the ability to address a broad, unmet disease area," are the first two. But you'd still be nowhere without three and four: "The ability to be a beachhead in the important new development of products by pulling together the leading scientists in the field, and the ability to finance the business." Fifth? "Understand early on and be comfortable with the fact that you can dominate the IP space."

For $720 million GSK must have been sold on all five, especially since Sirtris' lead candidate, the Phase II SRT501, a proprietary formulation of resveratrol being tested in diabetes and other diseases, is probably small beer compared to the company's next-generation--but decidedly earlier-stage--sirtuin activators. Sirtris' value lies in the targets it is chasing, and we've never seen such an expensive target-focused deal.

Sirtuins are a seven-member family of proteins long implicated in the aging process. Sirtris has focused in particular on Sirt1, mostly in type 2 diabetes and oncology, but other sirtuins may play roles in other diseases of aging, including neurodegeneration and muscle wasting. Sirt2, for example, has in recent years become a notable potential target for Parkinson’s disease. As we reported back in April, the field had captured the imaginations of pharma execs, and GSK had been in off and on partnering discussions with Sirtris for some time.

As happens in this industry, partnering turned to M&A discussions after Sirtris published a November 2007 paper in Nature showing the chemical structure of one of its next-generation compounds (you can find our blog post around that publication here). The rest is history--and you can read all about it in Mark Ratner's IN VIVO feature on the GSK/Sirtris deal, published in May.

Sirtris' acquisition demonstrates the sometimes astounding value ascribed to target-specific platforms and underscores Big Pharma's interest in accessing en masse technologies and human resources that may allow them to leap forward rapidly.

"It wasn't really our objective to acquire [Sirtris]," Chris Viehbacher, then GSK president, US pharmaceuticals commented at the Morgan Stanley 2008 Global Healthcare Unplugged Conference. "We would have loved to have collaborated but at the end that was the only way we could do it." With a seeming nod to GSK's need to bulk up its R&D pipeline, he later said: "you do have to make sure that in 10, 15 years that you're not in the same boat that we were in when we merged."

photo by invivoblog, yours to use under creative commons

Sirtris Strikes Again

In a short paper to appear in tomorrow’s Nature, scientists at Sirtris Pharmaceuticals describe the in vitro and in vivo data supporting the development of their next-generation activators of Sirt1, one of the members of the sirtuin family of proteins. It’s another opportunity for their persistent PR machine to talk up the company’s founding premise: that activating sirtuins, which appear to play a role in the aging process, may be useful in treating a variety of things, including diabetes.

Unlike its first drug, a formulation of resveratrol (a Sirt1 activator found in red wine, which is now in early-stage trials), Sirtris found the molecules analyzed in the Letter to Nature by specifically screening for activity against Sirt1. “From a pharmacological perspective, we’ve proved the mechanism,” Sirtris CEO Christoph Westphal said yesterday in a phone interview.

The next-generation Sirt1 program, along with its development of other sirtuin activators, puts Sirtris firmly in the lead in sirtuin field. So much so that Lenny Guarente, the scientific founder of rival company Elixir Pharmaceuticals (now in registration for an IPO), whose discovery that the sirtuin-expressing gene sir2 is an important regulator of life span in several species, has jumped from Elixir to the Sirtris Scientific Advisory Board.

For years, Guarente and Sirtris co-founder David Sinclair, a former member of the Guarente lab, were estranged. And while some news outlets cast Guarente’s bolting as validation for Sirtris -- and it IS a good story -- it’s at least as much a reflection of Elixir’s affirmative determination several years ago that sirtuin-related drug development was just too early to support a company, leading to the in-license of an oral diabetes drug from the Japanese pharma Kissei in March 2006 and an early-stage growth hormone stimulator (a ghrelin agonist) from Bristol-Myers, both of which Elixir’s S-1 rank ahead of its sirtuin program.

No doubt Elixir abandoned Guarente a long time before he actually split. And the circumstance could have been predicted as far back as 2004, when Vaughn Kailian, ex of Millennium Pharmaceuticals and Cor Therapeutics, became Elixir’s Chairman. Kailian, a general partner at MPM Capital who focuses on late-stage investments (and also – DISCLOSURE, DISCLOSURE -- is a director of Windhover Information, IN VIVO’s publisher), is well known for advocating the rapid build-up of commercial capabilities. Indeed, during his tenure at Millennium, the competing interests of research and commercialization created a duality of cultures: what IN VIVO described at the time as “The Two Millenniums.”

Sirtris continues to build its sirtuin platform and expects to bring the first next-generation Sirt1 activator into the clinic in the first half of 2008. It's also got the benefit of buzz from frequent scientific publications in the evolving sirtuin field -- including their link to cell survival/protection mechanisms, which we discussed in the Science Matters column in START-UP a few months back -- as well as the elucidation of the roles of other anti-aging genes/proteins.

That said, it'll be interesting to see if the momentum lasts as it approaches the challenges of later-stage clinical trials.