Financings of the Fortnight Starts Spring On the Right Foot

Happy spring, everyone, though it’s a bit less delicious when in many parts of the Northern Hemisphere, it’s been spring for weeks, even all winter. I give you Texoma, ladies and gentlemen.

Here at FOTF HQ, we’ve got strawberries peeking forth already (pictured above), which is enough to put a spring in anyone’s step. Closer to this column’s topic at hand, however, a couple other trends cropped up this past fortnight with the unveiling of two new funds: European-denominated cash and non-traditional sources. For the former, any cash that increases the chances of funding in the UK and EU biotech sector is a welcome sight after European VCs set a record fundraising low in 2011. For the latter, the alternative sources are Big Pharma – GlaxoSmithKline and Johnson & Johnson are providing half the capital of a new €150 million Index Ventures fund – and the UK’s largest charity, The Wellcome Trust, which unveiled a £200 million fund to invest in diverse healthcare areas with the temporary name of "Project Sigma," which sounds a bit like something James Bond would be assigned to infiltrate and destroy.

The funds won’t necessarily be confined to Europe, and the Wellcome fund is aiming beyond life sciences, but it’s safe to say -- would you please pay attention, 007 -- that a good deal of the new cash from Index and Project Sigma will flow, much-needed, into the UK and EU biotech sectors.

Note we say “sectors,” not “biotech companies,” because the Index fund will focus on developing assets, not building companies. It won’t let a thousand, let alone a dozen, traditional biotech firms bloom. But that’s not the direction the industry is going, anyway. Slowly but surely, venture-type resources are shaking loose to move products forward without traditional infrastructure and into the hands of pharma buyers that increasingly emphasize late-clinical development and marketing. Letting, instead, a thousand freelance project consultants bloom, we suppose.

Other asset-financing schemes of late include CMEA’s Velocity Pharmaceutical Development and the Atlas Venture Development Corp., which combined have publicly disclosed just one project, and Eli Lilly’s Mirror fund program, originally destined to partner with three venture firms but has made little noise since its inception a couple years ago. So we’re under no illusion that the direction is a permanent one.

Permanence is not a question for the massive Wellcome Trust, and with its new fund it has another investment outlet; it’s already been backing startups for years, such as Kymab, which made our 2010 A-List.

We’re highlighting another trend this fortnight: prostate cancer companies raising cash. The disease has seen a groundswell of treatment options in recent years, including several new drugs such as Dendreon’s Provenge (sipuleucel-T). Two more companies vying to bring drugs to market announced new cash raises to help push late-stage programs forward, although not with equal amounts of momentum, as we describe below (see Medivation and OncoGenex Pharmaceuticals).

And at first blush, three stem-cell companies announcing fundraisings in the same two weeks seemed to be another trend, but upon further review it was coincidence. Still, while two of the events were for peanuts -- $9 million for Athersys and $5 million for International Stem Cell – Aastrom Biosciences ended up with a rather convoluted and unusual situation, which we detail below.

When it comes to cell-based therapy, it's best to keep it simple -- like the vitamin D from the spring sunshine on our skin. We also highly recommend an extended dose of acute brain-cell stimulation, courtesy of....

Aastrom Biosciences: The Ann Arbor, Michigan firm said March 9 it has sold $40 million of convertible preferred stock in a private placement to Eastern Capital. The publicly traded firm, with a stock price that hasn’t cracked $3 since last June, says Eastern’s non-voting shares will convert to voting shares upon shareholder approval, required by Nasdaq because the voting shares will give Eastern more than 19.9% ownership. With accrual of shares over five years thanks to an 11.5% annual dividend (payable in stock, not cash), Eastern will eventually own about 25% of the company. Eastern is the investment arm of food packaging mogul Kenneth Dart, a US billionaire who relocated many years ago to the Cayman Islands (read: renounced US citizenship to dodge taxes). The $40 million -- which at the equivalent of $3.25 a share is an 80% premium to the pre-announcement $1.81 per share price -- is Aastrom’s largest single fund-raise ever, according to a blog post from its CEO Tim Mayleben. It gives the firm cash to push ahead with two late-stage trials, including the Phase III pivotal trial of its Ixmyelocel-T autologous adult stem cell therapy in critical limb ischemia. Mayleben also points out that the funding doesn’t have “dilutive warrants or expensive discounts,” which he describes as “expensive inducements [that] often have long-term negative consequences for existing investors.” What Mayleben didn’t mention, however, were Aastrom’s own outstanding warrants, 15 million of them, that could come due in the next few years. Those warrants are baked into analysts’ models, so Aastrom is happy to highlight the fact that the Eastern private placement doesn’t include warrants. Unless, of course, you figure that Eastern’s $40 million worth of preferred shares will eventually turn into 20 or 21 million common shares. “You could say it’s implied dilution,” Aastrom vice president of finance Brian Gibson told FOTF. “But it’s five years away, and most investors don’t have a five-year horizon.” Eastern negotiated other perks, too: The Aastrom board is waiving the shareholder rights plan – the poison pill – that would otherwise kick in, and Eastern also has participation rights for future fundraisings to prevent its own dilution. -- Alex Lash

Tarsa Therapeutics: Tarsa said March 16 it has raised a $28 million Series B round as it heads toward US and European regulatory filings for its oral recombinant calcitonin Ostora by the end of 2012. It would be the first oral formulation on the market of calcitonin, used to treat osteoporosis in post-menopausal women. Tarsa in-licensed rights to the Phase III compound from Unigene Laboratories in 2009. Novartis markets Miacalcin and Upsher-Smith sells Fortical, both nasal-spray formulations. New investor Foresite Capital led the round and was joined by existing A round backers Novo AS, MVM Life Science Partners and Quaker BioVentures. Tarsa raised a $24 million Series A round in 2009, led by MVM. Tarsa is bullish about Ostora’s market potential because Novartis announced earlier this year that as part of a restructuring it was abandoning its own effort to develop an oral version of calcitonin. Recently conducted follow-on market research indicated that Tarsa can hope to pick up about 20% of new and existing post-menopausal osteoporosis patients when Ostora reaches the market, thanks also to diminishing use of bisphosphonate therapies caused by safety concerns, Tarsa CEO David Brand said. Last year, Tarsa announced that Ostora had demonstrated statistically significant superiority and similar safety in a Phase II trial using Fortical as a comparator. -- Joseph Haas

OncoGenex Pharmaceuticals: The 12-year-old Seattle-area firm said March 16 it has raised nearly $50 million in a public stock offering as it revamps its late-stage clinical program for the prostate cancer treatment custirsen, which is partnered with Teva Pharmaceutical Industries. The increasingly crowded prostate cancer field has been shaken up recently by positive data from Johnson & Johnson’s Zytiga (abiraterone) and Medivation’s MDV-3100, prompting Medivation to raise cash through a debt offering (see below). OncoGenex had $65 million in cash and equivalents at the start of the year, which it expected to last only until 2014. Teva is largely responsible for the increased cost of custirsen development and OncoGenex’s $30 million allotment is already set aside. Instead, the new cash will help develop OGX-427 beyond its indications of prostate and bladder cancer, where it’s currently in Phase II testing, CEO Scott Cormack told our Pink Sheet colleagues. Cormack said earlier this month the big shifts in thecustirsen program – cancellation of a trial in second-line castration resistant prostate cancer (CRPC); a new combination trial with Sanofi’s Jevtana (cabazitaxel); and expansion of a currently enrolling trial in a first-line chemotherapy CRPC setting. Custirsen is an antisense agent meant to boost the effects of chemo. Leerink Swann and Stifel Nicolaus Weisel led the offering, with help from Lazard Capital Markets and William Blair & Co. Underwriters have a 30-day option to buy up to 624,750 additional shares. -- Lisa LaMotta

Medivation: The once-high-profile Alzheimer’s company is now a prostate cancer developer, and on the strength of recent data from its new focus the San Francisco biotech raised nearly $260 million in convertible debt in an offering that closed March 19. The firm could join newly approved prostate cancer sponsors J&J, Dendreon and Sanofi, thanks to Phase III data from the AFFIRM trial of MDV3100, its androgen signaling receptor inhibitor, that showed side effect rates tracking those of placebo. MDV3100 also showed an overall survival (OS) benefit of nearly 5 months beyond placebo (18.4 months vs. 13.6 months), and 8.3 months of progression-free survival vs. 3 months for placebo, based on PSA tests. The OS benefit was large enough to spur discontinuation of the trial so all enrollees could go on the drug. It could have other advantages over the recent approvals: unlike Zytiga, it does not have to be administered with prednisone, it’s less complicated to prescribe and administer than Provenge, and it appears much safer than Jevtana. Medivation has partnered MDV3100 worldwide with Astellas Pharma. The notes, due in April 2017, pay 2.625% interest until April 2015, at which point Medivation can redeem them based on certain parameters of its stock price at that time. Citigroup ran the debt sale with help from Credit Suisse Securities Jefferies & Co. William Blair & Co. and Leerink Swann. – Staff reports

Photo "Sympathy for the Strawberry" courtesy of the FOTF Art Collective.

Deals of the Week: Not Quite Exits, But OK Given the Circumstances

It’s hardly news that most biotechs can’t buy an investor. So it’s nice to see a few signs of progress.

Take pharma-ignored cell therapy. The stem cell world got a boost as two smart guys from biotech – Paul Grayson from Sanderling and John Mendlein, most recently CEO at biological-platform play Adnexus (sold for $500 million to Bristol-Myers Squibb) -- joined a bunch of scientists at Fate Therapeutics.

Elsewhere in the cell-therapy world: we’ve been wondering (in this post, for example) why big biotech deals so often cause biotech shares to drop. But not at Cell Genesys, whose Takeda deal started the company’s stock up a satisfyingly steep incline, virtually doubling as investors absorbed the news that somebody in Pharma, finally, had seen the value of cell therapy (albeit a pretty pharmaceuticalized version). Now it’s done the smart thing – raising $30 million from shares and warrants in a one-investor PIPE. It probably still feels the financing came at a pretty dilutive rate (something like $330 million pre-money) but hardly the dismal barely-above-cash-value price it was trading at a few months ago.

Now with that ringing endorsement we bring you ...

Intercell/Iomai: And as for exits – or quasi-exits: from the outside, things looked pretty bleak for vaccine-play Iomai, which had less than a year of cash when the Austrian Intercell said on Tuesday that it was buying the patch-tastic drug and vaccine delivery company for $6.60 per share, valuing the company at $189 million. Intercell gets a few mid-to-late-stage patch-vaccine programs from Iomai, including one for travelers’ diarrhea that may enter pivotal trials as soon as the first half of next year, as well as a second deal with Merck & Co. around Iomai’s patch with an undisclosed vaccine. Deal doesn’t do much immediately for the major investors, presumably the VCs like New Enterprise Associates and Essex Woodlands who have been stuck in the stock since taking it public in 2006 at $7/share at about an $85 million pre-money. They’ve got to take Intercell shares for their stake (which are at least far more liquid than Iomai’s were). We noted the predicament of these VCs and others who have found themselves ‘marooned in the public markets’ only last month in START-UP.

Antisoma/Xanthus: Similar issue for backers of Xanthus. Antisoma, the UK cancer-focused biotech, is acquiring the Boston-based start-up for ₤26.8 million in stock. Antisoma seems to have gotten a great deal. On a total of about $90 million invested from its VCs, Xanthus has managed to create a real pipeline, largely through in-licensing. It’s put four drugs into clinicals, with two leading the way: Xanafide is starting a Phase III trial in secondary acute myeloid leukemia under an SPA; and FDA has accepted Xanthus’ filing for oral oral fludarabine, to which its got US rights (the product is marketed in Europe and elsewhere). Most of Xanthus’ pipeline was spun out of Schering AG in a series of deals as that firm was integrating into Bayer, a deal we chronicled here in 2006. (Interestingly, before that, Xanthus had managed to grab another, earlier stage asset (P2045), a peptide coupled to a radioisotope which had originally come from biotech Diatide—which had been run by Xanthus CEO Richard Dean, PhD, and VP of development John Lister-James, PhD.) Xanthus’ backers won’t get free of Xanthus immediately: they’re putting about a third of the $42 million or so in new money Antisoma is raising simultaneously with the deal.

Merck/Ranbaxy: Now for something completely different. On Monday, Merck announced a partnership with Indian drug giant Ranbaxy in the anti-infective space. For an undisclosed up-front fee and milestones potentially totaling more than $100 million, Ranbaxy will search for anti-bacterial and anti-fungal compounds, taking compounds through Phase IIa before handing them back to Merck for additional human studies and commercialization. Merck won’t release details but Mervyn Turner, PhD, SVP for world-wide licensing and external research at Merck assures IN VIVO Blog that the proper incentives to keep both sides motivated have been built in. Still, it’s anybody’s guess what happens if Ranbaxy’s compounds don’t pan out. Does Ranbaxy get them back? Is the company still eligible for monetary compensation? “It’s all covered under the agreement,” says Turner.

This most recent deal comes on the heels of two other similarly structured deals Merck has inked in India: a November 2007 agreement with NPIL Research and Development (formerly part of Nicholas Piramal) in the oncology space and a 2006 partnership with Advinus Therapeutics in the metabolic disease arena. For Merck, the deals are all about expanding pipeline and pipeline capacity. Merck doesn’t have to fund much development, so doesn’t take a big P&L hit, but still has the right to step back in if something interesting results. We’re likely to see more such deals in the future. Increasingly Big Pharma is thinking virtual: companies once proud of their FIPCO status are openly discussing their desire to transform themselves into FIPNets (fully integrated pharmaceutical networks). Lilly, in particular, is a big proponent, and we have more on their strategy in a story in the May IN VIVO along with another piece in the same issue on Pfizer’s ideas for externalizing its pipeline.

BMS/KAI: We’ve already noted here the tie-up between Bristol-Myers Squibb and Kai Pharmaceuticals on an acute-care IV-delivery heart attack drug, KAI-9803. KAI had reformulated the compound from the original intra-coronary version it had licensed and gotten back from Sankyo, following that company’s merger with Daiichi, but the deal is also the second in Bristol’s so-called string-of-pearls strategy (after its Adnexus acquisition in 2007). No longer as big a Cahuna in the drug world as it once was, Bristol has been transforming itself into a specialist player, looking to layer in externally sourced next-generation R&D programs. If they’re good, they’ll come at a Big Cahuna cost, however -- pretty much just as Plavix is losing patent protection and with it a huge chunk of Bristol’s current operating cash flow. That’s why the company is trying to raise money now to fund its strategy, selling off Convatec ($4.1 billion) to a couple of private equity groups and IPO’ing Mead Johnson, keeping 10-20% and reaping maybe $900 million - $1.7 billion (with the possibility of selling off more over time).

Spheramine: Conservatism in Cell Therapy for Parkinson's

Last month’s “Science Matters” column in START-UP highlighted some newly reported cell therapy work in Parkinson’s disease, but suggested that there may be fundamental limitations to any therapy strategy based on restoring dopamine—be it through implanting dopamine neurons or via existing drugs. The good news is that cell replacement therapy at least offers a new experimental model for studying Parkinson’s. And unlike the early days of cardiac cell therapy, where early human studies led to an inappropriate rush into large Phase II trials that disappointed and soured the field, for lots of reasons, clinical progress in PD has been gradual.

So what to make of the Bayer-Titan Pharmaceuticals Spheramine program to deliver human retinal pigment epithelial cells locally into the brain? The cells, which produce dopamine (apparently at a fairly constant concentration), live on little microcapsules, stay where they are put, and don’t require use of immunosuppressants to prevent rejection. All good things. And yesterday’s presentation at the American Association of Neurological Surgeons (AANS) Meeting in Chicago of four-year data from a six-patient pilot study showed motor score improvement in patients of 48% at one year and 44% at four years. "Not much in the way of loss there," noted investigator Roy Bakay of Rush University Medical Center, who presented the data.

Because it is delivered locally, Bayer and Titan see Spheramine as an improvement over oral dopamine drugs, which have systemic long-term effects linked to movement disorders. Undoubtedly, the opportunity is part of what attracted Titan’s CEO, Marc Rubin, formerly head of global R&D for Bayer Schering Pharma, who joined Titan last fall.

But many propose that to be effective, cells have to do more than produce or process dopamine: No matter how local or efficient the delivery of dopamine may be, they may also need to integrate into the neural circuitry to be effective. Indeed, the ability to restore the natural biology of a system is one of the rationales – and challenges – of cell replacement therapy.

Because of the cell type, Spheramine can’t do this. So we wonder, from a business perspective, how the added regulatory risk of a cell therapy – and in the case of Parkinson’s trials, the long development time – can be worth the effort when it does not also maximize the benefits of the technology. It’s a lot to go through to prove a decades-old delivery system.

Bayer expects to have data from a 71-patient Phase IIb trial of Spheramine sometime in the third quarter this year. The AANS abstract discussing the Phase IIb trial design noted that 71 patients were randomized and underwent surgery with “tolerable adverse effects.” At least those data should give Bayer and its Berlex subsidiary more leverage in settlement negotiations with the family of a patient from the Phase IIb program, which sued when the patient developed immediate and serious symptoms after receiving a Spheramine implant.