A Rush And A Push And The Financings Of The Fortnight Is Ours

Meet us at the St. Francis, and bring your own damn water!

Happy Morgan's Eve, everyone. If you’re like FOTF, you’ve been preparing for the week ahead by breaking your day into 25-minute conversations. If our kids need to talk to us, we tell them to take the stairs to the tenth floor, run down the hall, squeeze past 120 people coming out of the bathroom, steal some bottled water left outside a partnering suite, and find Room 1450. Come in, sit down, just  wait while we finish a few emails on our phones. Yes? You can’t sleep? Not exactly an unmet medical need. We’ve also wondered a few times if a toddler’s point blank sneeze into one’s mouth counts as a new form of immunotherapy.

For those of you with older children, you might be practicing for JPMorgan this week when the conversation inevitably turns to financing. Hit your yard-work milestones to trigger the next allowance tranche. That’s the way it is as long as you live under my term sheet, er, roof. 

Whatever the year, there’s always a sensation of falling out of a holiday tree, or warm cozy bed, directly into the boiling JPMorgan cauldron. This year, organizers gave us a bit of a break, pushing the conference back one week, but the slight lag was immediately filled up by a breakneck filing of IPO documents: Six so far in the new year alone, adding to several that squeezed their paperwork through before the ball dropped on New Year’s Eve. (We have details on one of those filers, Flexion Therapeutics, in our roundup below.) A few of those, plus others still in the IPO queue after filing in the back half of 2013, have significant Phase II or Phase III clinical milestones. Yet others that haven’t declared publicly their IPO intentions also have big milestones upcoming, and we can’t help but think their S-1’s won’t be too far behind if a few companies currently in the queue make their debuts soon.

In the next Start-Up, our colleague Stacy Lawrence previews several private companies with upcoming late-stage clinical data, and one thing’s clear: There’s not a lot of 100% novel technology working up the pipeline. That’s not to say the companies in question aren’t doing important or technically difficult work. But many of the products due for data have an element of de-risking that made for faster development and a more reasonable investment thesis, especially worth noting when the company is making a push in an indication where approval has been an elusive target.

For example, Intarcia Therapeutics is delivering an off-patent diabetes drug, exenatide, via a subcutaneous pump that carries a year’s worth of treatment. Intarcia hasn’t filed an S-1 yet, not publicly anyway, but its deep roster of crossover investors makes one hear a ticking clock -- or is that the beat of the subcutaneous pump?

We can’t help but pump Start-Up's upcoming A-List, the annual roundup of the year’s top Series A financings. The 2013 winners include entrants from the fields of gene therapy, immunotherapy, epigenetics and food allergies, and a few have had very unusual financial backers. Learning who's who will be your reward for surviving next week.

And a year from now, perhaps the 2014 A-Listers will include a biotech that has launched with equity crowdfunding. That would be a first. One crowdfund platform that we’ve reported on before, Poliwogg, will try to make a splash in San Francisco next week, so stay tuned to our colleagues from "The Pink Sheet" and Start-Up for more on that. We regret to inform, however, that splashing is generally frowned upon these days in California. Unlike IPOs, raindrops are in short supply, and 2013 was the driest year on record. So we ask you out-of-towners to think twice before showering while you’re here, and if a stranger on the street looks longingly at your Evian, be kind. We’re parched. Better yet, you can save water by drinking your fill of 2014’s first installment of...

Flexion Therapeutics: As its clinical candidates for treating osteoarthritis inch closer to pivotal studies, Flexion has joined the IPO parade. In case anyone’s knees hurt from all that marching, Flexion’s three compounds are formulated for long-lasting pain relief and injection directly into the knee joint. FX006, Flexion’s lead product for front-line use, is a formulation of a common steroid, triamcinolone, that in 2013 posted solid Phase IIb results, but the company still has work to do: it plans a second Phase IIb trial that is set to begin in the second quarter of 2014, to determine the drug’s optimal dose before Phase III. A second product, FX005, is a sustained-release p38 inhibitor; Flexion is positioning the product for end-stage (pre knee replacement) osteoarthritis pain. The company aims to file an IND for a third product, the TrkA antagonist FX007 for post-op pain, later this year. Both ‘005 and ‘007 were licensed from AstraZeneca PLC, in separate deals. Flexion’s founders, Michael Clayman and Neil Bodick, famously institutionalized “A-Team”-style rapid and inexpensive to-proof-of-concept drug development at Eli Lilly & Co. as creators of that company’s ‘Chorus’ model, and struck out on their own in 2007 to monetize POC assets as a stand-alone biotech. At the time, they anticipated that by licensing in pharma assets they could develop and flip them quickly. But the economics they were offered weren’t going to provide the kind of returns they originally anticipated. The company’s reinvention underscores the difficulty of timing biotech models to pharmaceutical tastes, and – at least during the comparably leaner years of 2011-12 – pointed to industry’s increased avoidance of clinical risk. Flexion’s private backers – Versant (~30%), Sofinnova (~19%), Pfizer (~17%), 5AM (~16%), and Novo AS (~11%) – surely hope that timing public investors’ enthusiasm for biopharma is an easier task. – Chris Morrison

AC Immune: When the big Alzheimer’s Phase III trials featuring anti-amyloid treatments failed in 2012, many eyes in the field turned to AC Immune. With arguably the deepest Alzheimer’s pipeline of any private biotech, the Swiss firm said January 9 it has raised a Series D round of 20 million Swiss francs ($22 million) from existing investors. It also said it has launched a Phase I trial of a vaccine to stimulate a patient’s antibodies against phosphorylated tau, a protein that accumulates in tangled formations within neurons. Tau tangles, along with amyloid plaques, are considered two signposts of Alzheimer’s disease, but much debate remains whether the pathologies are treatable or simply an effect of disease progression. Meanwhile, one of the world’s most closely watched Alzheimer’s trials has just begun dosing patients with AC Immune’s monoclonal antibody crenezumab. The trial is funded by Genentech, the Banner Institute, and the US National Institutes of Health, and it involves people in Colombia with high genetic risk of Alzheimer’s who have yet to show cognitive decline. If successful, it would be one of the first signals that anti-amyloid therapy has a preventative effect if administered before symptomatic onset. Dosing began in December, according to AC Immune. The firm has raised 84 million Swiss francs since its 2003 inception, all from individual investors. – Alex Lash

Receptos: Seven months after completing its IPO, Receptos turned back to public shareholders to raise more money, grossing $102 million in a follow-on public offering on January 8. The biotech sold 3.3 million shares for $30.75, a 120% increase from its $14-per-share IPO price. Days before the offer closed, Receptos started enrolling patients in the Phase III portion of its RADIANCE trial of lead candidate RPC1063 for relapsing multiple sclerosis. RPC1063 is being tested in a separate Phase II trial in ulcerative colitis, and Receptos plans to release top-line data on both indications in mid-2014. Recently the USPTO issued composition-of-matter patents on RPC1063, giving the compound patent coverage until at least May 2029. Receptos is busy with others in the pipeline too: it’s designing a Phase II study of RPC4046 in active eosiniphilic esophagitis. AbbVie partnered the anti-interleukin-13 antibody with Receptos in May. Once the study results are published, AbbVie has an option to enter into a worldwide co-development deal with Receptos, which would retain co-promotion rights and split US profits. In addition, this year Receptos expects to select a lead agent from its glucagon-like peptide-1 receptor small-molecule positive allosteric modulator program and start IND-enabling studies in Type II diabetes. -- Amanda Micklus

Blueprint Medicines: The Cambridge, Mass. biotech said January 7 it had secured a $25 million Series B round as it pushes its selective kinase inhibitors, aimed at specific mutations mapped through its platform, toward the clinic. It says its lead compounds should enter the clinic in 2015. They are an inhibitor of the mutation that drives both systemic mastocystosis, an overproduction of mast cells in various organs and tissues, and a subset of gastrointestinal stromal tumors; and an inhibitor of a mutation that leads to a specific type of hepatocellular carcinoma. The firm was initially funded by Third Rock Ventures and Fidelity Biosciences, but neither of those deep-pocketed groups has taken the lead for the B round. Instead, Swiss oncology investment specialists Nextech Invest led the round, with crossover investors Biotech Value Fund and Casdin Capital, Third Rock, and Fidelity, and other undisclosed investors joining in. The crossovers could be a sign that Blueprint is gathering itself for a run at the public markets this year. The firm has been led since last spring by an interim CEO, Third Rock partner Alexis Borisy, who took over for co-founder Chris Varma without an announcement. – A.L.

Best of the Rest (Highlights of Other Activity This Fortnight): Alexar Therapeutics, the latest biotech to come out of asset-based financing entity NeXeption, closed on a $21.5 million Series A round led by New Science Ventures and Third Point Ventures to support work on a topical liver X receptor agonist for inflammatory cutaneous disorders…Auspex, which has a S-1 on file to go public, raised more venture dollars: the orphan disease-focused biotech received $20 million in Series E financing and $15 million in a venture loan...Neuralstem will advance cell therapeutics and small molecules, including lead spinal cord stem cell-derived NSI566 for ALS, thanks to a $20 million registered direct offering…after postponing its IPO in November, GlycoMimetics revived the offering and set terms at 5.75 million shares for $8…and GW Pharmaceuticals, maker of cannabinoid prescription drug Sativex, raised $88 million in a FOPO. -- AM

Stampeding wildebeests (heading to the Celgene presentation?) courtesy of t3rmin4t0r under Creative Commons license.

Financings Of The Fortnight Does Bollywood On A Budget

With IPOs still the twitter, er, talk of the town, the relative lack thereof the past couple weeks in our little corner of the world was noticeable. So forgive us if we were distracted from our IPO perusings by a particular firm that emerged from the roadshow scrum: top Indian film producer Eros International. Your FOTF correspondent has a soft spot for Indian cinema, having visited a couple local movie houses for the full Bollywood experience on a monthlong trip to India in late 2004. (We’ve ever since lobbied for chaat vendors to roam the aisles, sport stadium style, in American movie theaters.)

Eros went public this week, but only after taking a small haircut, so we figure a more budget-conscious approach to Bollywood spectacle is a better way to go.

FOTF is all about self-improvement, if you hadn’t noticed. We always make the healthy lifestyle choices: organic sustainable olives in the martini, strengthening those abs and buns to a bhangra beat, and regular salon visits.

Haircuts have been in the news for biotech, too, after a summer of letting it all hang out. Considered the highest profile of the current road-show warriors, Relypsa finally priced late last night after a couple of downgrades – or, if you prefer, a haircut a la Sweeney Todd. (For more, see our roundup below.) Antibody firm Xencor has amended terms, too, looking to raise $75 million by doubling its shares offered to 10.7 million and cutting its proposed price range in half. (As of this writing it hasn’t yet priced. 

Others have flat-out tabled their IPO efforts: Both gene therapy firm Celladon and diagnostic firm CardioDx postponed due to market conditions. That makes three four withdrawals or postponements in the past month. [UPDATE - On November 15 Xencor postponed its IPO.]

Companies that have made it out this year are also feeling a pinch. At the end of October, the biotech IPO class of 2013 was the best performing industry sector, up 47% as a group. (High tech, by comparison, was up 41%.) The past two weeks, however, those post-IPO biotech gains have slipped to 27% and now trail several other sectors. Still not too shabby. Who wouldn’t want a portfolio of stocks that are up 27% for the year? But the biotech slump, which actually started at the end of summer, is unmistakable.

Is it just a blip, a bump, or is it a big yellow flag? If we knew the answer, we wouldn’t be journalists, we’d be day traders working from home in our sweatpants, leaving after the final market bell at 1pm (FOTF is a West Coast shop all the way, dude) to do our Bollywood workout.

But here’s something to chew on. All those biotechs that went public this spring and summer? From right about now through December or so, their lock-ups are about to end. And a whole bunch of VCs who feel the hot breath of limited partners on their necks (yuck) will be looking to cash out. It won’t happen all at once, of course. Many venture investors can afford to cool their heels, as our colleague Stacy Lawrence reported in June.

But many can’t. And what might that do to stock prices? In an upcoming feature in Start-Up, Stacy dives into three recent biotech IPOs as well as the recent market dynamics. Two biotechs from the class of 2012 IPOs, Intercept Pharmaceuticals and Chimerix, recently saw their VCs sell directly into the public market, with mixed effects on the company’s shares. Will other VCs looking to sell to the public be staring down the barrel of a buyer’s market in the coming months? OrbiMed Advisors’ co-head of global equity Jonathan Silverstein doesn’t think so. “We’ve been approached on a number of IPOs by public investors who say they only have a 2% position and they want 5%. We are not necessarily interested in selling, but it’s nice to hear now.” OrbiMed's LPs don't seem too worried. That Silverstein quote comes from a recent story in “The Pink Sheet” DAILY about the firm’s new $735 million venture fund.

In the next START-UP, we break down the recent IPOs and acquisitions in OrbiMed’s portfolio to see what helped them sell that new fund. Until then, break it down old school style. Time for the Electric Slide.

At least it’s better than doing the Biotech Slump. If you prefer the Harlem Shake, well, there’s not much we can do for you. Get it out of your system, then crunk on over to the latest edition of…

Relypsa: The polymeric therapeutic specialists priced their initial public offering late Thursday, November 14, selling 6.85 million shares at $11 each for net proceeds of $67.4 million. It’s quite a comedown from the firm’s initial plans, which aimed for a top goal of $138 million back in October. The ambitious target was driven in large part by the amount of cash venture backers have sunk into the company:  more than $180 million over three financing rounds, according to Strategic Transactions. The firm spun out of Amgen in 2007 after that company bought Relypsa’s predecessor Ilypsa for its phosphate binder to treat hyperphosphatemia. That drug stalled soon after, but Relypsa carried on with former Ilypsa employees. 5AM Ventures and New Leaf Venture Partners led the $33 million Series A and were joined by the Sprout Group, Delphi Ventures, CMEA Ventures, and Mediphase Venture Partners. OrbiMed Advisors, which came in to lead the massive $70 million Series B round, is the largest shareholder going into the IPO, with a 44% stake. 5AM is next with 22%. Existing investors – including a limited partner of the venture investors – have said they could buy as much as $20 million worth of the IPO shares, according to the company’s final registration statement. Underwriters led by Morgan Stanley, BofA Merrill Lynch and Cowen have the option to sell 1.03 million additional shares. – A.L.

Synta Pharmaceuticals: The small molecule oncology developer raised $52 million in a sale of 14 million shares of common stock at $3.75 each as it moves toward a pivotal trial for its lead program, ganetespib in non-small cell lung cancer. It’s the second time around for the Massachusetts firm, whose first lead drug, elescomol, failed in Phase III trials for stage IV metastatic melanoma. The company learned in 2009 that more people died on an elesclomol/chemotherapy combination than on chemo alone. It went into restructuring mode and emerged with ganetespib, a heat shock protein 90 (hsp90) inhibitor. Its most advanced hsp90 competitor, retaspimycin from Infinity Pharmaceuticals, has been terminated, which leaves ganetespib breathing room but also raises questions whether the entire class is compromised. Synta told analysts earlier this month about adjustments to its Phase III trial, dubbed GALAXY-2, that will shift the patient enrollment away from Eastern Europe and boost the study population. The disclosures didn’t stop the slide in Synta’s share price, which has fallen nearly 50% since late October. The firm is also working on a small molecule drug conjugation platform to link an hsp90 inhibitor to a toxic payload. Underwriters led by Jefferies have the option to buy up to 2.1 million more shares. – A.L.

ArGEN-X: The Belgian antibody company has raised 5 million Euros ($6.8 million) to extend its Series B round to $44 million. The new infusion of cash comes from Flemish regional investment firm PMV. The cash will go toward ArGEN-X’s preclinical compound ARGX-113, being developed to treat autoimmune disease. The compound is an antibody fragment that aims to clear autoantibodies – the antibodies produced by a patient’s own immune system that go haywire and cause autoimmune disorders. The company’s technology used to create ARGX-113 is dubbed “ABDEG,” or antibodies that enhance IgG degradation. The firm also has two antibodies in the clinic, an anti-CD70 agent and an anti-cMET agent, both in Phase Ib. Both were discovered using a different platform, SIMPLE, based on the immune system of llamas.  The first tranche of ArGEN-X’s B round was co-led by OrbiMed Advisors and Seventure Partners and included existing investors Forbion Capital Partners, Credit Agricole Private Equity, LSP, BioGeneration Ventures, the Erasmus Biomedical Fund, Thuja Capital and VIB. Its Series A round brought in $19 million over two tranches. – A.L. 

Karyopharm Therapeutics: In the fortnight’s only other IPO, Karyopharm netted $101 million by selling 6.8 million shares at $16 a piece. Despite all the talk of haircuts and postponements elsewhere, the offer priced at the top end of its proposed range. The IPO cash matches what Karyopharm raised in two private rounds from institutional investors (Delphi Ventures) and wealthy individuals. Before IPO, Karyopharm was 46% 61% owned by Chione and Plio, two investment vehicles that share the same address on the island of Cyprus and are linked to Slava Smolokowski, a Polish energy baron who has also put his considerable fortune into Broadway. (His big hit was as a producer was Fela!, a hugely acclaimed Broadway show about the legendary Nigerian musician and political activist. According to Playbill, Smolokowski was educated as a musician and played in a rock band for some time.) The firm says it has discovered and developed small molecules to inhibit the nuclear export protein XPO1, which cancer cells amplify to promote the transmission of tumor suppression proteins from the nucleus to the cytoplasm. Getting those suppression proteins out of the nucleus gives a tumor cell a better chance to survive. By inhibiting XO1, Karyopharm believes it can trap the suppression proteins in the nucleus and let them do their job – trigger apoptosis. Karyopharm’s technology was brought out of Epix Pharmaceuticals, which was liquidated in the late ‘00s. Epix CEO Michael Kauffman and SVP of drug development Sharon Shacham are behind Karyopharm, and they licensed key IP from Epix. The company says half the IPO proceeds will help pay for Phase II/III trials for selinexor, its lead candidate, which Karyopharm says in its filing documents has already administered to more than 170 patients in three Phase I trials for various malignancies. Phase II/III could start in two cancer indications in the first half of 2014. – A.L.

Best of the Rest (Highlights of Other Financing Activity This Fortnight): Liquidia Technologies spun out ophthalmic-focused start-up Envisia Therapeutics, which received $25M in Series A financing and will use Liquidia’s PRINT technology to develop a new glaucoma treatment…less than a year after reverse merging to go public, Ocera Therapeutics completed a $28M PIPE to fund studies of its oral and IV hepatic encephalopathy candidate OCR002…to fund commercialization of Esbriet in Europe and various other development and regulatory activities surrounding the IPF drug, InterMune raised $84M in a FOPO…After reporting growth in the Q3 2013 net product sales for its sold marketed myelofibrosis product Jakafi, Incyte sold two $350M series of convertible senior notes…TVM Capital officially announced (as Start-Up reported in September) that it is no longer investing in IT,  but instead focusing on life sciences and health care. -- Amanda Micklus

Financings Of the Fortnight Sees Drug Companies Making It Rain

When the Nasdaq’s biotech index topped 1,600 late last week, many people noted it was an all-time high, even higher than the 2000 bubble. (Not adjusting for inflation, however.)

It has stayed above 1,600 all week, and no surprise, the money-chasers have followed. As of this writing, two biotechs have gone public the past few days, and the waiting room is starting to fill up. Companies recently joining the queue include Omthera Pharmaceuticals, Chimerix, and GW Pharmaceuticals. 

Meanwhile, a new study shows that seven of the top 50 cash-rich US corporations are drug companies: Pfizer, Amgen, Johnson & Johnson, Merck, Abbott Laboratories, Eli Lilly and Bristol-Myers Squibb. (Abbott has since split into device and drug companies, but the drug spin-out AbbVie has enough cash to qualify for the list.)

Much of that cash is held overseas, and it’ll likely stay there. Cash earned abroad and brought back to the US carries a 35% tax rate. Drug firms and other corporate lobbyists convinced the US government to grant a tax holiday – a temporary 5% rate -- in the mid-2000s in large part on the grounds that all that cash coming home would create jobs. The Congress said – nudge, nudge, wink, wink – well, sure, who doesn’t love jobs? Instead, we saw massive cuts in the drug business. The legislation was called the “American Jobs Creation Act,” a title so patently false it still serves as a convenient reminder to arch an eyebrow or three whenever the drug industry launches cries of duress. With apologies to Mark Twain, the demise of Big Pharma is always greatly exaggerated, often by the industry itself.

Even if much of the cash underscored in the Moody’s report is “locked” overseas, cash is plentiful at home, too, for certain sectors of the life sciences world. Debt is dirt cheap, and the stock market is booming. When a Big Pharma decides to divest a non-core asset, rewards await. Bristol-Myers Squibb did just fine spinning out its Mead Johnson nutritionals group in early 2009 and divesting its 83% stake before the end of that year. Earlier this year Pfizer floated its animal health division as the public company Zoetis but retained an iron grip on ownership and board control; its stake has gone up 29% in less than two months.

Farther down the food chain, public investors were choosy about which biotechs got through the IPO looking glass in 2012, but those that squeezed through have fared extremely well. At the closing bell March 20, the class of 2012 (biopharma and diagnostics companies, IPOs on US exchanges only) is up 57% as a portfolio, 13 companies in all. Only three are in the red; one, coincidentally, is Verastem, a cancer stem-cell company brought to you by some the same people who cofounded OvaScience, which just raised $35 million in a private placement after going public last year via a different route than Verastem (see more below). 

Below the IPO threshold, amongst the private biotechs, it’s hard to argue that there’s plenty of cash from the traditional source of early-stage venture capital. But then something like Savara Pharmaceuticals comes along; as we note below in our roundup, the Austin, Texas company working on powdered drug delivery has now raised $19 million, mainly from angels, through its Series B round. We did a double-take, too, when we saw that number. When angel networks can pony up those kinds of sums, are reports that bemoan the funding struggles of early-stage biotech greatly exaggerated?

And while you’re mulling that over, answer this, too: Was the coldest winter you ever spent really a summer in San Francisco? Mark Twain was always good for an aphorism, but when it came to the biotech money scene, he could never match…

Savara Pharmaceuticals: The Austin, Texas developer said March 20 it has landed a $7.4 million second tranche of its Series B round, bringing the total to $16 million. New investors include Tech Coast Angels and North Texas Angel Network, and Central Texas Angel Network is a returning investor. The B round began with angels, too: The Keiretsu Forum, the largest angel “community” in the world, led the first tranche of $3.2 million in the round with participation from 117 investors. To add to the juiced-up B round, the firm also has brought in non-dilutive funding – a three-year, $4 million grant from NIH’s National Heart, Lung and Blood Institute. Initially founded in 2007 on a plan to build an out-licensing business centered on the NanoCluster dry powder aerosol delivery platform in-licensed from the University of Kansas, Savara changed directions along the way to focus on developing its own drug-delivery solutions for pulmonary conditions. It raised a $1.4 million Series A mainly from angels in 2009. The new cash will help fund a Phase II trial for AeroVanc, Savara’s dry-powder inhalation formulation of vancomycin intended to treat MRSA (methicillin-resistant Staphylococcus aureus)  infections in cystic fibrosis patients. AeroVanc, which includes a capsule inhalation device in-licensed by Savara, has been granted orphan drug designation by FDA, meaning it will have seven years of market exclusivity if approved. – Joseph Haas 

OvaScience: The infertility treatment company announced March 13 a private placement of its over-the-counter shares that raised $35 million. The firm, which went public in 2012 without an initial public offering, sold 3.9 million shares at $9 each to Adage Capital Management, Deerfield Management Company, EcoR1 Capital Fund, Jennison Associates and other institutional investors. Leerink Swann served as placement agent. We highlighted OvaScience in a column last year
for a few reasons: It has high-profile founders, it went public via an odd route that has gained some attention recently, and among its dozens and dozens of individual investors were several standout names. Also, it gave us the chance to crack a few egg puns. OvaScience is one of several companies recently to attract to their private fundraising crossover investors who normally stay in the public realm. (OvaScience had hedge fund RA Capital in its Series B round in early 2012.) The firm's lead product AUGMENT is a process to revitalize a woman’s mitochondria in her eggs, improve their viability, and boost the chances of success during in-vitro fertilization. -- Alex Lash

Tetraphase Pharmaceuticals: The antibiotic maker became the fifth health care company and the third biopharma (for humans, that is) to go public in 2013. It raised $75 million on March 20 by selling 10.7 million shares at $7 each, which missed the revised target range of $8 - $10. Tetraphase first filed in February and is the first biotech to jump to the public markets since the national biotech indices hit record highs in March. If it hadn’t gone public, Tetraphase likely would have raised another round of venture funding, a choice another antibiotic developer Rib-X Pharmaceuticals made in 2012. With $80 million raised in three previous rounds, Tetraphase needs cash to begin Phase III studies of its lead candidate eravacycline – a synthetic next-generation tetracycline – for multi-drug resistant Gram negative infections including intra-abdominal infections. It should benefit from a more favorable regulatory climate, including new draft guidance from FDA that allows sponsors to run two Phase III studies in different patient populations, one in patients with intra-abdominal infections and the other in patients with complicated urinary tract infections. Previously sponsors would have been required to conduct two Phase III studies, enrolling 500 to 600 patients each, in intra-abdominal infections. The new guidance gives sponsors an opportunity to go after two indications at the same time, and the different patient populations could make the trials faster to enroll. – Jessica Merrill and Alex Lash

Pharmacyclics: The small-molecule oncology company said March 8 it raised $207 million in a secondary share offering. Like Tetraphase, the Sunnyvale, Calif.-based Pharmacyclics is striking quickly in the wake of good regulatory news. In February, the FDA granted its ibrutinib, partnered with Johnson & Johnson, breakthrough status in two blood cancers. Pharmacyclics sold 2.2 million shares, about 3% of outstanding shares, at $94.20 each, capping for now a remarkable run that saw the firm’s share price nearly quadruple in 12 months. It closed March 8, 2012 at $25.40. Most of that rise came before the FDA’s breakthrough designation for ibrutinib, the first for an oncology drug. FDA’s Office of New Drugs Director John Jenkins has described as reserved for drugs with early results that are “so impressive, so unexpected and ha[ve] such a dramatic impact on the treatment of patients with that disease” that the sponsors and drug regulators should do all they can to move it forward. One of the few clear criteria for breakthrough status is that there is early clinical evidence of substantial improvement over existing therapy. FDA granted breakthrough designation to ibrutinib for two B-cell malignancies: relapsed/refractory mantle cell lymphoma (MCL), for which there are an estimated 5,000 new cases in the U.S. per year, and Waldenstrom’s macroglobulinemia (WM), an even rarer disease with about 1,500 cases in the U.S. per year. Ibrutinib is a Bruton’s tyrosine kinase inhibitor. J&J’s Janssen Biotech licensed rights to the drug in December 2011 in a deal that included a $150 million upfront payment, the largest paid for a single asset that year. Vertex Pharmaceuticals' Kalydeco (ivacaftor) was the first drug to receive breakthrough designation. - Alex Lash and Emily Hayes

All The Rest: With participation from Celgene and Novo AS, PTC Therapeutics (small-molecule therapies) snagged $60 million in its Series G round, the largest venture financing of the fortnight… Research-focused Nabsys brought in $20mm through a Series D financing… UK regenerative medicine company Progenitor Labs received $5.8 million in seed funding from SR One’s UK Fund… KannaLife Sciences, a start-up developing phyto-medical pharmacological products derived from botanical sources rolled up $1.5 million in a Series A investment from Medical Marijuana and CannaVest…To commercialize its biopharmaceutical affinity purification technology, Avitide completed a $1.4 million Series A round led by Borealis Ventures, and joined by SV Life Sciences, Polaris Venture Partners, OrbiMed Advisors, and Angeli Parvi… In a private placement by public Australian stem cell developer Mesoblast, the company issued new shares priced at AU$6.30, for $174.6mm in proceeds to fund a clinical trial program… Public Evolva Holding SA (small molecules), through a rights offering and subsequent private placement, took in $33 million... In a PIPE of 113mm common shares @ $0.145 to lead investors Opko Health and Frost Gamma Investments Trust, RXi Pharmaceuticals (RNAi therapies) grossed $16.4 million… Renal-focused Rockwell Medical plans to sell 4.3 million shares at $3 in a registered direct offering for net proceeds of about $12 million… Public Canadian spec pharma Cynapsus (CNS drug delivery) completed a 13. 1 million unit placement, taking in $5.6 million…The $3.1 million in proceeds from Stem Cell Therapeutics’ PIPE will allow the company to conclude its acquisition of Trillium Therapeutics (announced in February) and also triggers a condition of a December 2012 deal that enables SCT to exercise its option for an exclusive license to University Health Network/MaRS Innovation's tigecycline, an FDA-approved antibiotic capable of selectively targeting leukemia cells… Hyperion Therapeutics (urea cycle disorders) netted $65.4 million in a FOPO of 3.3 million shares @ $20.75 – including the overallotment…Women’s health care-focused TherapeuticsMD reaped $50 million through a public offering of 29 million common shares at $1.70… Inovio Pharma (cancer and infectious disease therapeutics) netted $14.2 million through the follow-on public offering of 27.4 million units, priced at $0.55 each…Oculus Innovative Sciences (dermatology and wound care) netted $3.2 million in a public offering of 8.6 million shares, including the overallotment, priced at $0.40…Infectious disease-focused Enanta Pharmaceuticals priced its IPO of 4 million shares at $14, the low end of its $14-16 range… Israeli biotech Alocobra set terms for its Nasdaq IPO at $10-12 for 1.4mm shares… Animal health company Aranata Therapeutics also announced plans to go public…Chinese drug distributor Sinopharm Group plans to issue $640mm worth of five-year corporate bonds on the Shanghai Stock Exchange. -- Maureen Riordan

Big thanks to Stacy Lawrence for help with this fortnight's column. 

2011 Exit/Financing of the Year Nominee: Ascletis

It's time for the IN VIVO Blog's Fourth Annual Deal of the Year! competition. This year we're once again presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (a half dozen in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

Emerging biotech Ascletis Inc. is embarked on a truly ambitious attempt to create a trans-global pharma company and, in doing so, has raised one of the largest Series A rounds ever in biopharma -- $50 million in the first tranche, with another $50 million guaranteed to follow when the company hits certain milestones. Based on those achievements alone, Ascletis surely qualifies as a top-gun deal-maker of 2011.

The money speaks for itself—only 10% of 2011’s year-to-date Series As raised more than $40 million—and of those, only one other, Hua Medicine, also a Chinese biopharma, raised $50 million.

Asceltis’ round was the largest by far but the company is distinct in other ways that enable it to creatively exploit a host of industry-wide trends. Its strategy is to search globally for appropriate clinical-stage in-licensing candidates, which it can develop and eventually commercialize in China. It also plans to discover new drugs internally and bring them through mid-stage trials before seeking global partners for large-stage development and commercialization.

The aim, it says, is creation of a true hybrid model, poised, on the one hand, to capitalize on the innovation and strategic expertise of Western trained executives and scientists and, on the other hand, China’s capital efficiencies and opportunities for accelerated research. To drive its point, Ascletis recently broke ground on a new China headquarters and R&D center in the Zhenjiang Province in China and is planning a U.S. headquarters in Research Triangle Park, NC.

With la creme de la creme Western-trained management talent moving to China, more opportunities for savvy in-licensing deals exist there. The therapeutic areas of interest are oncology and infectious diseases, reflecting the expertise of its co-founders and scientific advisors, Jinzi Wu, a former VP, global HIV drug discovery at GlaxoSmithKline, Xiao-fan Wang, a professor of cancer biology at Duke University Medical Center, and Allan Baxter, former global head of medicines development at GSK.

And the financial largesse stems from the generosity of one angel investor, real estate billionaire Jinxing Qi, with additional commitments from unnamed private investors in the U.S. and China and elsewhere. That in itself is a trend, as angel investors, stepping in seem likely to be playing increasing, albeit limited, roles in early-stage biotech financing. And, of course, China itself is a massive commercial opportunity for the right talent, with a CAGR of 17% estimated between 2011 and 2015, according to IMS Health, which predicts China will be the world's second largest pharma market by 2016, up from No. 3 in 2010.

Of course, finding solid development stage assets is a hurdle, even for large, deep-pocketed companies. And the hybrid U.S.-China combined development strategy didn’t pan out for some earlier companies. But Ascletis, by dint of its multi-faceted strategy, highly experienced, globally-oriented management team, and angel-backed financial cushion, is de-risked more than most, even as it positions itself to benefit from one of the industry’s biggest current opportunities. A deal-maker of this caliber surely deserves Deal Of The Year recognition.

Financings of the Fortnight Knocks on a Boutique Door

To the chagrin of many, the biggest banks emerged from the recession not just intact but with engines full throttle and little fear of a yellow flag from regulators. The bulge bracket is a few members smaller, what with the demise of Bear Stearns and Lehman Bros., but no less powerful. But biotech has always leaned on the vitality of smaller banks, the boutiques, to help raise cash and find deal partners. So when FOTF heard that under-the-radar bank GCA Savvian, the product of the 2007 merger of a Japanese M&A advisory firm and a San Francisco boutique, had hired West Coast health care banking veteran Cabot Brown, we decided to check in.

As he takes the helm of the global health care practice at the 225-person firm, Brown says his group will rely on M&A for two thirds of its business. Two thirds will also be US, one third overseas, and half of clients will be on the private side. The split between pharma, device and diagnostics is about 30/30/20, says Brown, with the rest in IT and services. In other words, he'll be spending much of his time trying to find buyers for US venture-funded drug and device companies. There will be financings, too, but probably not IPOs. There was a glimmer of hope at the dawn of the new year, Brown says, but first quarter activity fizzled. A company with a clever approach to a big therapeutic category might get investor attention, but "as a routine course of financing a business and realizing value, no one I know is counting on the IPO market." When companies get out, he says, "it's a matter of luck and circumstance."

Brown says "people are also wising up" to the important threshold of $300 million in market capitalization, below which it's tough for a company to tap into the "virtuous circle" of attention from institutional investors and analysts. Only three venture-backed US drug firms that have gone public since the window re-opened in late 2009 have market caps over $200 million, and only Ironwood Pharmaceuticals is north of $1 billion. Even if IPOs return, Brown isn't sure the boutiques can make a viable business from them, as the bulge bracket banks so thoroughly dominate. "The chance you'll get more than 30% of the economics underwriting a deal is zero," he says, which means helping take companies public is a loss-leader for boutiques, he says.

The sorry state of institutional venture means more room for corporate VCs. "With one thing I'm working on now, the lead investor is a corporate investor who will invest on same terms as other investors. The corporate VCs sense weakness in the venture community, and the corporate business-development people see venture as a way to demonstrate action" to their higher-ups, says Brown. "It's a lot easier to go to your board and say 'I know I shouldn't buy things, but I need a window on important innovations.' It's allowing activity to continue in a risk-adjusted way."

Even when buying, big firms are generally doing so tactically, not strategically. In other words, without much long-term vision. Marching orders boil down to "we've got a few holes to fill, go fill them, but don't get caught up in filling the pipeline two years out," says Brown. "We say to potential buyers, look at your business two or three years out and think about how this asset fits in, and they say, 'Great analysis, but I don't care.'"

When we discuss the frustration of VCs, such as Avalon's Kevin Kinsella, who accused Big Pharma of "predatory business practices," Brown holds a certain amount of sympathy for the Big Pharma BD people. "The news comes that another 15,000 were just fired, and you're asking me to spend time on a high-risk, very interesting, early-stage therapeutic company that may or may not be useful in our pipeline, which itself may or may not exist in two months. Am I being a jerk if I drag my feet?"

Risk adjustment is everywhere. Another manifestation is earn-out heavy deals, already common in buyouts of private companies and spreading quickly to the public side, as our colleagues have noted frequently. "Earn-outs have always been there, especially for early stage deals, but now the ability for seller to say 'I'm only doing a full acquisition' is gone," says Brown. "This is a market where venture funds are under pressure to get realizations. Financings are dear. People have to be pragmatic."

How much pressure are VCs feeling? "There are a number of firms not raising their next fund, or one a quarter size of the previous fund, or quietly saying no new investments, just focusing on their current portfolio. They're hanging in with the assets they want to support, looking for a good outcome, but they're not going to support companies at the bottom of the portfolio, and it's happening to a much greater extent than I've ever seen," says Brown.

No surprise that emerging markets and product diversification are squarely on Brown's radar. He cites Endo Pharmaceutical Holdings' $2.9 billion buyout of American Medical Systems, a urology device maker, as part of a "bold and distinctive strategy." FOTF asked if taking over a firm with deep Japanese roots in the wake of the earthquake and tsunami has changed his outlook or strategy. He noted that the shock to the country's infrastructure could spur Japanese drug firms, aggressive the past few years with international expansion, to be even more so. Mostly, though, he was struck by his colleagues' demeanor, "the Japanese version of the British 'stiff upper lip,'" he says.

Our show, too, must go on. Or, as they say in Japan, 頑張る("Ganbaru"). Welcome to another edition of...

Ascletis: Lately some well-connected entrepreneurs have avoided taking VC money, opting instead for large angel rounds in which wealthy individual investors stand in for institutional ones. The biggest deal yet of that kind belongs to Ascletis, which raised a $100 million Series A to build a pharma company that will split operations between the U.S. and China. Real estate billionaire Jinxing Qi led the first $50 million tranche alongside other unnamed individuals. Ascletis will aim to develop and commercialize drugs in a two-way pipeline, in-licensing pharmaceuticals to seek approval, manufacturing and commercialization in China while discovering and developing new compounds that can be partnered out for global sales. Although its current eight-person staff is centered in Chapel Hill, N.C., CEO Jinzi Wu anticipates that about 80% of Ascletis’ scientists will eventually be based in Hangzhou, China. Not every U.S.-Chinese hybrid company has taken off -- LEAD Pharmaceuticals, for example, sold for a disappointing $18 million up-front last year -- but Ascletis and its investors are betting that China’s burgeoning life-sciences talent pool and booming middle-class spending power will bring it success. The company hopes to in-license a drug for sale in China, likely for cancer or infectious disease, within five years. -- Paul Bonanos

Blueprint Medicines: While Ascletis preferred hands-off investors, oncology startup Blueprint is working with the most hands-on variety. Third Rock Ventures, known for its intensive guidance of its portfolio, incubated the company and provided all of its $40 million in Series A money. The deal is Third Rock’s largest first-round funding ever and its latest commitment to cancer research, following investments in such companies as Constellation Pharmaceuticals and Agios Pharmaceuticals. Blueprint’s lofty goal is to screen for molecular mutations, genetic translocations or other aberrations that lead to various cancers, then develop drugs such as kinase inhibitors that can be linked to patients with those traits or resistances to existing drugs. Ideally, those drugs would follow in the footsteps of Gleevec (imatinib), which turned chronic myeloid leukemia into a manageable condition. With that in mind, Blueprint has hired Gleevec’s discoverers, Nicholas Lydon and Brian Druker, for its scientific advisory board. Blueprint says it will use proprietary software and both public and private data sets to compare normal and diseased tissue and build its own chemical library in search of drug candidates. It hopes to choose a preclinical candidate before seeking additional funding, which could include a Series B round with new investors. Third Rock made another investment this week as well, leading an $18.3 million Series B for bladder disorder specialist Taris Biomedical alongside existing backers Flagship Ventures, Flybridge Capital Partners and Polaris Venture Partners. -- P.B.

Tranzyme: Five months after filing its S-1, GI- and metabolic-focused Tranzyme completed its IPO on April 4, grossing $54 million. The company sold 13.5 million shares at $4, a steep discount to the $11 to $13 price range it had planned, continuing a trend that we've seen since the IPO window re-opened in late 2009: companies squeezing through but only by taking drastic haircuts. In its 13-year history Tranzyme raised more than $73 million privately from backers including HIG Ventures, Thomas, McNerney & Partners, Quaker BioVentures, and BDC Venture Capital, and it has secured a pocketful of partnerships, thanks in large part to the medicinal chemistry technologies gained through its 2003 acquisition of Neokimia. Tranzyme found Big Pharma validation for its MATCH (Macrocyclic Template Chemistry) platform, which enables creation of synthetic libraries of orally administered, drug-like, macrocyclic compounds, in its 2009 drug discovery deal with BMS. And the biotech recently partnered lead candidate ulimorelin (TZP101), an intravenous ghrelin receptor agonist in Phase III for postoperative ileus, with Dutch spec pharma Norgine, which received rights in Europe, Australia, New Zealand, the Middle East, South Africa, and North Africa in exchange for $8 million up front and up to $150 million in total milestones. Tranzyme reported 2010 revenues of $8.5 million and a $7.3 million net loss. Up next, perhaps, is specialty injectables firm Sagent Pharmaceuticals, which on April 6 set a goal of selling 5 million shares at $14 to $16 each. -- Amanda Micklus and Maureen Riordan

Royalty Pharma: We don't often highlight the funder instead of the fundee, but the private-equity fund Royalty Pharma said April 4 it has spent $487 million for the rights to royalty streams of two drugs, Lexiscan (regadenoson) and Cubicin (daptomycin), from the same undisclosed seller. We couldn't sleuth out the anonymous seller by press time, but we did find a whole bunch of intriguing connections. First, the cardiovascular imaging agent Lexiscan originally belonged to Astellas Pharma (then Fujisawa), which licensed North American rights to CV Therapeutics in 2000. CV sold 50% of those royalties, for $185mm, to TPG-Axon Capital in 2008. As you might remember, TPG-Axon ventured into project financing for two Eli Lilly Alzheimer's drugs, one of which, semagacestat, hit a late-stage clinical setback last fall. Gilead Sciences now owns Lexiscan after its $1.3 billion purchase of CV in 2009. The other drug in the Royalty Pharma deal, Cubicin, also has Gilead and Lilly connections. The antibiotic to treat drug-resistant staph infections was originated by Lilly, which licensed rights to Cubist Pharmaceuticals in 1997. In 2001, Gilead licensed exclusive rights to commercialize Cubicin (then known as Cidecin) in 16 European countries, but the deal was terminated a year later. Also worth noting: Royalty and Gilead know each other, having joined up in 2005 to pay $525 million for Emory University's royalty rights to the antiretroviral drug Emtriva (emtricitabine). -- Maureen Riordan

Updated 04/15/2011 (1:30pm). In a previous version of this post, IN VIVO Blog incorrectly identified Third Rock as a backer of Epizyme. We regret the error.

Image courtesy of flickr user B€rn@rd.

Ascletis Takes $100mm To Span The Pacific

For all the new business opportunities China presents in the 21st Century, it's been difficult for start-ups to find a new pharma model that brings together the best aspects of Western expertise and Chinese growth. The latest, best-funded endeavor will come from newly-launched Ascletis Inc., with lofty goals and a massive $100 million Series A round to match its ambitions.

Ascletis hopes to fund a drug pipeline that eventually flows both in and out of China, according to CEO Jinzi Wu. For now, its North Carolina-based management team plans to in-license drugs to be approved and sold in the Chinese market, selectively choosing first-in-class opportunities in that country with a goal of bringing at least one drug to market within three to five years. Meanwhile, over the next two years, it plans to build a Hangzhou-based discovery team of about 100 scientists who will identify drug candidates that can be partnered globally. Ascletis will focus on oncology and infectious disease.

Interestingly, Ascletis has chosen to eschew working with traditional VCs, tapping angels to raise its mammoth first round, which will be delivered in two $50 million tranches. On the hook for a good chunk of the Series A is billionaire Chinese real estate mogul Jinxing Qi, co-founder and lead investor of the start-up. Via his firm Hangzhou Binjiang Investment Holding Co. Ltd., Qi has worked to pull in additional unidentified private backers from China, the U.S., and elsewhere.

Wu describes Qi's financial contribution as a gesture of trust, given the investor's relative lack of expertise in the life sciences, but says the arrangement also affords the start-up a longer growth timeline than it would have with comparatively impatient VCs, who might press for an exit after a few years. (That's an increasingly familiar sentiment as we noted in this recent Start-Up feature.) Ascletis won't rule out working with VCs eventually, but Wu says the company has cash to support five years of activities.

Formed initially in December, the still-tiny Ascletis has an eight-person staff, but could have 50 scientists on board a year from now, Wu says. Alongside Wu, a veteran of GlaxoSmithKline's HIV drug discovery team, are longtime Novartis drug discovery team member Emil Fu and ex-GSK chief scientist Jun Tang. Most of the new hires will be in China, with about 20% of staff remaining in Research Triangle Park, N.C.

Ascletis's emphasis on angels and the significant cash raised make the deal stand-out. But it's desire to be a hybrid East-West play echoes a model that remains attractive to investors wary of a China-only approach. Still despite the interest in the model (especially by VCs based in Europe and the U.S.), there are few successful examples to point to. In late 2007, California-based LEAD Therapeutics Inc. raised $17 million with the goal of using China-based scientists to discover new compounds. Last year, the company was sold to BioMarin for a disappointing $18 million up front, although an earn-out could add as much as $79 million to the deal. Other hybrid companies, none funded at Ascletis's scale, have operations underway as well: ChinaBio Therapeutics is seeking to in-license drugs for development by Chinese scientists, while NovaMed Pharmaceuticals has built sales and marketing infrastructure to bring drugs to China from outside the country.

Ascletis stands to receive the second tranche of its Series A when it needs resources to manufacture and market its first drug. In the meantime, the company if focused on adding staff in the U.S. and China and in-licensing its first compound. According to Wu, Ascletis is already kicking the tires on a Phase IIb drug in an unspecified area; given Wu's stated areas of interest that may mean HIV, tuberculosis or cancer. Whichever compound it licenses, it'll be a test for Ascletis' hybrid model, and a potential bellwether. We'll be watching.

Image from Flickr user Pingouino used under Creative Commons license.