Financings of the Fortnight Says If It Floats Like A Duck...

The biotech IPO trickle continues, with Supernus Pharmaceuticals debuting its shares May 1 and raising $50 million for its drug reformulation programs. It was a third less than the company had hoped for when it freshened up its nearly forgotten S-1 and decided last month to make a lunge for the window. It’s the seventh biopharma to debut this year – five in the US, two in France (France? Mais oui) – and folks are wondering if the opening will expand.

We would never suggest that one deal, especially one as delayed and discounted, should stand for larger trends without putting it in context. Supernus raised $49 million from private investors (with well over $100 million more raised through non-dilutive royalty deals) and a $50 million IPO. Its immediate post-IPO valuation of $120 million translates into a 1.4x step-up, about in line with the typical biopharma IPO in the post-crash era – starting in 2009, that is.

In the same time period, we found pre-IPO terms for 44 US and foreign biopharmas that eventually went public. They wanted on average to sell shares at $14.50 each (we’ve used the midpoint of initial proposed price ranges, and we’ve converted foreign currencies to dollars). Their actual average IPO price: $11.69, or a 20% discount. (Supernus: A 62% discount, from $13 to $5.)

We found the proposed number of shares to sell for 39 companies. On average they wanted to sell 6.7 million. They actually sold an average of 8.2 million, or 22% more shares than first expected. (Supernus: twice as many shares sold than expected, from 5 million to 10 million.)

In other words, with a big haircut and dilution, Supernus is a lot like its post-recession peers, but more so. There’s another resemblance: It had to sell a good chunk of its IPO shares to existing shareholders. Lead VCs New Enterprise Associates, Abingworth, and OrbiMed Advisors ponied up $33 million – a whopping two thirds of the issue. (With insiders like that, who needs outsiders?) We noted it a couple months ago: insider participation isn’t necessarily a bad omen for post-IPO stock performance. And VCs taking companies public these days know the extra outlay is likely, even necessary to get the deal done.  As Clovis Oncology CEO Pat Mahaffy, who has now taken three biotechs public, said at a conference this week of Clovis’s late 2011 successful IPO, “It would have been hard to pull off without insider participation.” It’s now the new normal, says Mahaffy.

As of this writing Supernus is up $1.06 a few days past its debut, a 21% bump. Its backers, new and old, can only hope that over time it continues to resemble its 2012 peers in post-IPO performance. As a class, they’re up 15% post-IPO (as of the April 30 closing bell), and the class of 2011 is slightly better than that at 19%. For a lot more on IPO performance since 2009, look for START-UP Magazine’s next Valuation Watch. For the choicest biotech financing morsels, stick with…

Argos Therapeutics: Once a candidate for an IPO, Argos has turned to insiders for a $25 million Series D round to support Phase III trials on its treatment for metastatic renal cell carcinoma. It’s been an up-and-down year for Argos, which readied its story for retail investors last July but cancelled the offering in March, and instead returned to existing shareholders for cash. Like publicly traded Dendreon, Argos has a personalized cancer treatment in which tumor cells are modified and infused back into the patient to provoke a tumor-specific immune response. But Argos’ timing could hardly have been worse: Days after filing its prospectus, Dendreon shares lost almost two thirds of their value as questions about uptake, reimbursement and demand arose about Provenge (sipuleucel-T). With just $2 million in the bank at year’s end, Argos held hope for a $66 million listing until late winter before scuttling the offering eight weeks ago. “Public investors would like to put companies in boxes,” Argos CEO Jeff Abbey told our Pink Sheet colleagues. “It makes it hard to differentiate ourselves, although our technology is totally different.” Forbion Capital led the new round, and insiders TVM Capital, Lumira Capital, Intersouth Partners, Caisse de depot et placement du Quebec, Morningside Group and Aurora Funds contributed the balance, bringing Argos’ total funding to $114 million since 1997. With $75 million budgeted to spend through 2015, Argos will need more capital from a partnership, private round or IPO during the interim. -- Paul Bonanos

Telstar Pharma: Astellas Pharma has gotten into the asset-financing game with Telstar, a virtual company formed around an ulcerative colitis treatment spun out by Astellas. The compound, ASP3291, was actually outlicensed to Drais Pharmaceuticals, a New Jersey firm whose cofounders, Donna Tempel and Robert Desjardins, were US senior management at one of Astellas’ predecessors. Tempel and Desjardins went on to form AkaRx with backing from Astellas Venture Management, an investment that brought one of the most lucrative returns in recent biotech memory. Drais is paying an undisclosed upfront fee and royalties on future sales to Astellas for ASP3291. Astellas’ venture arm has contributed a minor stake, less than 20%, of Telstar’s $14 million initial financing round, and parent company Astellas has various rights to the compound: the right of first refusal for the Japanese market, the right of first exclusive negotiation for any future partnering for the compound, and non-exclusive negotiations for ex-Japan markets. By depositing ASP3291 in a corporate entity separate from Drais, it should prove a cleaner exit – and faster return – if the compound succeeds in an upcoming Phase IIa trial. Telstar’s lead investors, InterWest Partners and Sutter Hill Ventures, are also investors in Drais. Astellas said it was considering a similar deal with Drais for a compound in a different, undisclosed therapeutic area. -- Daniel Poppy

Castlight Health: In its second large venture funding in two years, health care shopping pioneer Castlight Health has raised a $100 million Series D round that it says it will use to grow its commercial team and add features to its product. Announced May 1, the round was led by T. Rowe Price, Redmile Group and two major unnamed mutual funds, as well as prior investors. Founded in 2008 as Ventana Health Services, Castlight is a Web-based service that enables customers’ employees to compare out-of-pocket costs for procedures such as colonoscopies, X-rays and MRIs. In 2010, the company raised a $60 million Series C, led by non-venture backers the Cleveland Clinic and Wellcome Trust, as well as VCs such as Venrock Associates, Oak Investment Partners and Maverick Capital. The D round more than doubles Castlight’s total cash raised to $181 million. Last year, Castlight announced a 250% increase in revenue over 2010. Chief marketing officer Peter Isaacson would not detail the company’s 2011 performance, but noted that its customer base and revenue are growing “very quickly,” with many new clients being Fortune 100-sized firms. With so many companies still offering employees health care coverage, one of Castlight’s biggest challenges is determining which potential customers to target, he added. -- Joseph Haas

Transcept Pharmaceuticals: Five months after the eye-opening FDA approval of its sleep aid Intermezzo (a reformulated zolpidem, a.k.a. generic Ambien) Transcept has sold 9 million shares at $4.50 a piece in a public offering to raise $37.6 million net of expenses, not including a possible overallotment sale. Many observers had written off Transcept after the FDA gave the company a second thumbs-down in mid-2011, nearly three years after the firm originally submitted its NDA to the feds for Intermezzo, which is designed to help people fall back asleep after waking in the middle of the night. Transcept is relying on sales by US marketing partner Purdue Pharma to bring in revenue, and the marketer launched the drug last month. Transcept has earned a $10 million fee from Purdue and can draw an additional $80 million, plus royalties. The company, which went public in early 2009 through a reverse merger with Novacea, will use the new proceeds to help develop TO-2061, a low-dose version of ondansetron for obsessive-compulsive disorder. The compound has been used for twenty years to combat the nausea and vomiting caused by chemotherapy, radiation and surgery. The 4.5 million shares offered increase the outstanding share pool by 32%, with 675,000 reserved for the underwriter over-allotment. -- Alex Lash

Photo courtesy of flickrer jamiejohndavies.

Financings of the Fortnight Pursues The Case of The Confounding Qs and Zeds

If we were playing Scrabble, FOTF would throw down a couple double-word scores (with double-letter scores of course embedded), whup your sorry butt, take a long contented sip of hot cocoa, and call it a night. But it's never that easy, is it?

The news of the past fortnight is more question mark than answer, leaving us to purse our lips and puff distractedly on our Meerschaum calabash. The two Zeds stand for Zealand Pharma and Zogenix, two of the three firms that took advantage of the open IPO window -- such as it is -- to debut their stocks.

With a few economic indicators perking up stateside, we thought investors might start to receive new issues with a warm handshake, especially from firms with Phase III drugs or marketed products (a bar Zealand and Zogenix clear).

Certainly the two companies' debuts weren't as bad as the raspberries the Irish government's getting for punting citizens' benefits in order to bail out bankers. Still there's no denying Copenhagen-based Zealand's CEO David Solomon had to put his best face on getting half of what he hoped for, telling Our UK Correspondent that, hey, at least we got out despite Dublin burning!

Back here in the US, where officials newly elected or otherwise are trying to make grown-up noises about debt reduction, Zogenix and fellow escape artist Anacor Pharmaceuticals also misgauged investor sentiment. Each took about a 70% discount in opening share price based on initially stated goals. They made up the gap somewhat by selling more shares, but that's cold comfort to investors who saw the delta between their buy prices and potential sale prices sink like a broken boat into Mississippi mud.

More mysteries: Stealthy as Quintiles Transnational tried to be -- on the QT, dare we say? -- it couldn’t hide the fact that its former investment unit NovaQuest has become an independent, standalone organization. In a Form D filed with the SEC the day before Thanksgiving, NovaQuest revealed that it had raised the first $117 million of a planned $500 million investment fund. A Quintiles spokesman confirmed that the new NovaQuest Capital Management will function as a separate company, which will operate NovaQuest Healthcare Investment Fund LP. Quintiles will be a minority investor in the fund among six total investors, but the giant CRO will not manage its investments. Rather, several former Quintiles executives, including John Bradley, Fred Cohen and Ronald Wooten, are now listed as directors of the new fund. NovaQuest’s principals couldn’t be reached for comment, but IN VIVO Blog did learn that Wooten played guard for the New England Patriots in the 1980s.

A Quintiles’ spokesperson told us its Capital Solutions division will continue to make investments on the company’s behalf. But the carve-out of NovaQuest suggests that Quintiles’ innovative investment model – offering contract research, clinical trials and other services alongside cash in exchange for equity or other future payments – hasn’t prospered since NovaQuest was launched in 2006. The company lost big on its investment in Eli Lilly & Co.’s Alzheimer’s disease treatment semagacestat, which failed in Phase III in August. Nor has NovaQuest yet produced a notable exit or successful drug, albeit in a relatively short existence. It’s unknown whether future NovaQuest investments will be tied to Quintiles’ services, nor whether the firm will continue to invest in tandem with TPG-Axon Capital, its partner in the semagacestat arrangement and other deals.* Tangential thought: We'd rather be a Q than a Z.

There's one more letter of mystery in today's edition: A. We're gearing up for our annual A-List feature, in which we highlight the year's most significant, creative Series A fundings and sort out the underlying trends. The mystery: Who will make the list? We have some good ideas, but we'd love to hear yours, as well. You can mail a - dot - lash at elsevier - dot com, or you can tweet me @InVivoBlogAlex. One word of warning: fundings in which the amount of cash remain a secret won't be considered. So much for Collegium Pharmaceutical's spin-out of its derm assets with the backing of Essex Woodlands. We've already got enough mysteries on our hands.

Time to set aside idle palaver, Watson! The game's afoot, and it's called...

Zealand Pharma: Zealand's IPO on the Copenhagen stock exchange, announced earlier in November, was going to be the gauge of European investor appetite for biotech. When it priced shares Nov. 23, it seems investors weren't so hungry. Despite Zealand's late-stage GLP-1 asset partnered with Sanofi-Aventis and a pipeline significantly more mature than when the company first tried to float back in 2005, the Danish biotech managed only to raise €50 million, listing at DKK 86 per share, at the very low end of its projected range. Nonetheless, CEO David Solomon told IN VIVO Blog "we're satisfied" given the economic climate at the time, with Ireland on the brink of its bailout and considerable global uncertainty. "Other deals [in the US] re-priced or aborted, but we got out," he said. Yes, but Zealand effectively re-priced, too. The company adjusted expectations downwards November 18 following its investor road-show. "We decided to listen to investors," says Solomon, and the price range was reduced from DKK 86-120 to a more telling DKK 86-90. Zealand's new investors are mostly European (and mostly Nordic) institutionals. Since shares listed they have hovered well below list price, but it's early days, and volumes are low. The IPO coordinators haven't yet taken up their over-allotment option. Solomon promised a "wealth of news flow" which might put some fire into the stock. No Christmas cheer, then, yet for major shareholder Sunstone Capital – nor for other biotech IPO hopefuls. -- Melanie Senior

Anacor Pharmaceuticals/Zogenix: From A to Z, it was a fortnight of diminished expectations -- yet again -- for biotechs going public. In the case of Anacor and Zogenix, the haircuts were so severe, each in the neighborhood of 70%, you'd be forgiven for checking to make sure their scalps were still attached. Haircuts have been the rule not the exception among life-science IPOs this year, but the Anacor and Zogenix reductions were the unkindest cuts yet, and in fact rivaled only in the past few years by a little cell therapy play called Bioheart. Anacor, with a pipeline of four topical dermatology compounds, netted $55.8 million by selling 12 million shares of common stock Nov. 30 at $5 apiece, a far cry from its initial goal in the $16-$18 range. Meanwhile, San Diego-based Zogenix, which this year launched its first product, a needle-free sumatriptan injection for acute migraine and cluster headaches, sold 14 million shares at $4 per share, raising $56 million. It had hoped to sell 6 million shares in the $12-$14 range. At least Anacor could boast of tacking on some non-dilutive funding, as you'll see in the next item. -- Joseph Haas

NanoBio: Part of the small but energetic Michigan biotech cluster, NanoBio landed a $6 million grant from the Bill & Melinda Gates Foundation to push forward with a nasally-administered vaccine for respiratory syncytial virus (RSV). It's one of a just a few vaccine-related grants to for-profit companies the foundation has made among its dozens in recent years. There are currently no vaccines approved for this indication, but the biotech is likely to face competition in the race to bring one to market. Alnylam has a Phase II candidate that targets the nucleocapsid "N" gene responsible for RSV replication, whereas NanoBio touts its NanoStat platform’s ability to generate robust mucosal, systemic, and cellular Th1 immunity. MedImmune, which made its name with an antibody treatment for RSV as well as the nasal flu spray FluMist, and ViroPharma also have clinical-stage intranasal RSV candidates in the pipeline. (NanoBio wasn’t the only for-profit Gates recipient this fortnight; on the same day, newly public Anacor Pharmaceuticals received more than $2 million to fund a new collaboration with UCSF and the New York Blood Center on river blindness.) The Gates money is a sliver of ten-year-old NanoBio's accumulated $115 million in financing, which includes venture capital, grants, and partnerships such as its 2009 alliance with GSK for a Phase II OTC cold sore treatment. -- Amanda Micklus

Lpath: Also no stranger to nondilutive funding, this San Diego firm eked out nearly $5 million in a private placement of 7 million shares at 70 cents each, it announced Nov. 17. Each investor also receives warrants to buy half again as many shares as they bought in the placement. The warrants have a two-year term and can be cashed immediately for $1.00 per share into restricted shares of Class A common stock. It's not the type of funding we normally highlight, but the San Diego firm, which develops monoclonal antibodies formulated to target bioactive lipids such as sphingosine-1-phosphate, caught our attention in the summer of 2009 when it was the first recipient of a new type of government small-business grant. The National Cancer Institute has a small "Bridge" program to extend its SBIR grants to translational projects to help biotechs get across the valley of death and into the clinic. Sometimes called "SBIR Phase III" awards, the Bridge awards are a little extra cash -- up to $3 million -- for SBIR awardees beyond the traditional Phase I and II grants that will hopefully get them to a milestone or data point that attracts private investment. The recent private placement probably wasn't what Lpath had in mind. Since the Bridge award, Lpath's partnership for its lead product, the anti-cancer Asonep, ended when Merck KGaA declined to opt in at the end of Phase I. Officials said the placement proceeds will help move a different candidate into Phase II trials for wet AMD and let the company continue to explore "strategic opportunities." -- Alex Lash
*Paul Bonanos contributed the Quintiles/NovaQuest reporting.

Photo courtesy of flickr user MarkHillary.

Jazz IPO Fails to Generate Buzz

IN VIVO Blog prefers the strong stuff

Yikes.

Jazz Pharmaceuticals IPO price fell from an expected $24-26 to a hoped-for $20-21 to an actual $18 per share, raising only $108 million when it had banked on at least $150 million. This morning the stock traded down in its first session, losing about 5% as of noon ET.

We've addressed the vaguaries of IPO pricing in the past, here and, more recently and more optmistically, here. Jazz would have been one of our bets to succeed in the IPO market where others had failed, given its larger-than-average size and impressive pedigree.

But it wasn't all rosy. The NYT played up the risks associated with Jazz's Xyrem (a.k.a. GHB) in a piece the other day and noted the biotech was running out of dough. $108 million should give the company an extra year or so of cash (it burnt through $82 million last year) but falls plenty short of its backers' hopes. With a market cap shy of $500 million, it's unlikely backers like KKR (which owned nearly half the firm, pre-IPO, after its big participation in Jazz's $250 million Series B) feel they are getting enough bang for their buck, at least for now.

Is it Time to Buy Amgen?

Maybe it’s time to buy Amgen. Yeah, you heard right.

Many of Amgen’s shareholders—including the CFO—have scuttled over the past few months, frightened away by the seemingly endless series of blows to hit the US biotech. That’s why the stock’s at a year-low and down 30% since the start of 2007.

Over the last week, a dozen or so further percentage points were knocked off by May 10th's FDA advisory committee meeting and by the CMS’s proposal on Monday to curb Medicare payments for Aranesp in certain cancer patients.

Can it get any worse? Apparently some of Wall Street’s analysts think so. Several cut their ratings on the stock last week, according to the Wall Street Journal’s Health Blog, including long-time bulls Lazard Capital Markets.

Now, we’re not analysts. (Nor are we shareholders, nor are we share-tipping.) But, let’s face it, analysts have been known to be wrong. Dare we suggest there are whiffs of panic? Perhaps hints of lemming behavior—the slope on this once-loved stock has reversed now for, what, six months, so game’s up?

Now granted, there may be just one or two more potential hitches—the most significant being FDA’s planned fall meeting to discuss the use of EPO drugs in kidney failure. Nephrology makes up a far larger chunk of Amgen’s $6.6 billion EPO sales than oncology, and any ruling here could hit both Epogen and Aranesp.

But Amgen’s already trading at an almost 15% discount to its biopharma peers based on estimated 2007 EPS. And, as they say, in every cloud is a silver lining.

For one thing, any bad for EPO drugs is bad for Amgen’s competitors, too—including Roche's Mircera. Look out on May 20th , the Mircera PDUFA date: a bumpy ride for Roche may help Amgen.

And on a more positive note, Phase III pipeline drug denosumab may be the best in the entire biopharma sector pipeline, if you believe Mark Schoenebaum at Bear Stearns. “It could be a $5 billion drug, Amgen’s biggest ever,” he told IN VIVO last month. The first data is due by year-end. And if you believe Amgen, there’s also a wicked Phase II pipeline tucked away somewhere—if you haven’t heard about it yet, you will soon.

If investors don't start buying Amgen again soon, maybe, just maybe, the stock will hit a low that an acquisition-mad Big Pharma can't resist. The idea is around, if improbable.

But then, Merck & Co. came back, didn’t it?

Aim Low?

Another IPO, another bad haircut.

Yesterday Pharmasset, a virology-focused biotech with several clinical assets and a strategic alliance with Roche, priced five million shares on the Nasdaq at $9 apiece, well below its original $12-14 price range, and one million fewer shares than it had originally hoped to sell.

That the biotech IPO market is pretty miserable and has VCs running toward the steely embrace of Pfizer et al. is hardly news. But what grabs us is how just about every company--and just about every underwriter--manages to be so poor at predicting its value on the open market.

So few biotechs price within their stated IPO ranges that it's practically comical. Even the Pharmassets of the industry (companies that supposedly tick all the boxes for public investors: strategic alliance? check. proof-of-concept data? check.) get a poor reception, and pricing above the range is almost unheard of (the exception to that rule being Affymax, last year).

One factor may be the scarcity of significant biotech IPO investors, and the relative pricing power of the handful of specialists, a phenomenon we're looking at in the next issue of START-UP.