Financings of the Fortnight, You're Now Cleared For Landing

 

As we write this, at least five biotechs are in registration for initial public offerings. Circling the runway, if you will. Could even be more, what with the allowances for hush-hush registration afforded by this year’s JOBS Act. One has just touched down – the first biotech issue in more than two months -- but only after making major concessions to the public markets. (See Regulus Therapeutics in our roundup below.)

There’s been buzz that 2012 could be the best year for biotech IPOs since 2007, the year before all things financial went to heck in a mortgage-backed handbasket. “Best since 2007” is a rather backhanded compliment, but we understand the feeling that there’s a little more sun shining. As our Pink Sheet brethren reported this week, for example, antibiotic developer Paratek Pharmaceuticals has picked itself off the mat to file for an IPO. In its filing the firm cites more confidence in the revamped FDA guidelines for antibiotic approvals – specifically in skin and skin-tissue infection, which Paratek’s lead candidate, once partnered with Novartis, aims to treat.

But there should be no illusion that landing an IPO will mean a short taxi to the gate and a swift, sprightly exit past the smiling cabin crew. In other words, there’s an oversized suitcase just waiting to tumble out of the overhead bin: IPOs aren’t boosting company valuations. This has been true for years, hence the motto “The IPO is just another round of financing.” But one would think that the rise in other indicators, such as slightly better post-IPO performance, less drastic “haircuts” (the difference between the proposed IPO terms and the eventual ones), and a broader pool of IPO buyers, would put some wind under the step-up wings. (OK, that metaphor is officially grounded.)

As our new colleague Stacy Lawrence reported last week, the step-ups from final venture round to IPO have remained tepid. In fact, according to research from law firm Fenwick & West, the real action recently has taken place earlier in the funding cycle: step-ups at Series B in the second quarter of 2012 averaged 63%, and at Series C, 26%. The jump in valuation at Series D was 9%, and at Series E or higher, it was -9%. Those early boosts in valuation, however, at least are helping the entire group trend in the right direction. In a four-quarter moving average, life sciences venture rounds had a 21% step-up. That’s up from 0% in the first quarter of 2010. Flatter than a flounder on a Nebraska two-lane blacktop, as Dan Rather might have said.

In other IPO news, the upcoming issue of Start-Up breaks down six years of biotech exits, both M&A and IPO, and looks at the companies with corporate venture backers. As we found more than a year ago, private biotechs with corporate VCs on board are acquired at higher returns than those without CVC backing.

Does the CVC magic rub off on IPOs, too? Tune into the new issue to find out. Also in the new Start-Up, we profile a biotech that could be first to market with a disease-modifying drug for an autism disorder; we delve into the unusual business model of a company fully owned by non-profit foundations but looking to attract venture backers; and we examine the strategies of companies working on psoriasis that patients hope will soon make the leap to orally administered treatments.

In Start-Up's annual VC survey, by the way, we asked participants if the aforementioned JOBS Act has had any of its intended effect on the IPO process:

It might be too soon to tell where the IPO market is going, but we, dear readers, are approaching our final destination. Please return your seat back to the upright position, lock your tray tables, and put your  electronic devices away -- except, of course, the one you're using to read the latest edition of....

Regulus Therapeutics: If haircuts have been less drastic this year, you wouldn’t know it from the Regulus IPO. The microRNA developer birthed by Alnylam Pharmaceuticals and Isis Pharmaceuticals made its public debut October 4, the first biotech IPO since July, selling 11.25 million shares at $4 a pop. It was a drastic shift from selling 4.55 million shares in the $10 to $12 range it hoped to hit. The cash raised by Regulus is roughly the same as it had first targeted, $45 million instead of $50 million, but the rest of the metrics were ugly. Seeing how the firm was owned by other drug companies, however, the immediate financial impact might not be as urgent as it would be for traditional venture backers. Before the IPO, Alnylam and Isis held 45% and 44% of Regulus, respectively, and Sanofi (9%) owned most of the rest. There were all sorts of side deals with the IPO, too. Regulus partner AstraZeneca agreed to buy $25 million in common stock at the IPO price, which gives AZ 6.25 million shares – practically an equal post-IPO share to Alnylam and Isis, according to the most recent regulatory filing. Other corporate owners are likely to buy in at the IPO, too: the filing indicates Sanofi, Isis and GlaxoSmithKline, which like AZ and Sanofi also is a development partner, have said they’re interested. Filings in coming days should reveal the extent of their purchases. Underwriters have 30 days to buy up to 1,687,500 extra shares. On its first day of trading Regulus closed at $4.20 a share, up 5%. – Alex Lash

Aragon Pharmaceuticals: When prostate cancer drug developer Aragon announced a $42 million Series C round in March, CEO Rich Heyman told "The Pink Sheet" DAILY that another private round was unlikely, but still on the table. Its new $50 million Series D round, then, represents somewhat of a course change for a company that was mulling a partnership before year’s end, and even acknowledged exploring a public offering late last year. Three days before revealing the D round, Aragon presented strong Phase II data for top candidate ARN-509. Unorthodox investor venBio led the round, and prior investors Topspin Fund, Aisling Capital, OrbiMed Advisors and The Column Group also joined. Validation for ARN-509 came with the August approval of another compound in the androgen receptor antagonist class, Medivation and Astellas’ Xtandi (enzalutamide), but that also could crowd the market as both drugs seek to compete with J&J’s Zytiga (abiraterone). Moreover, Aragon faces a breach-of-contract lawsuit from Medivation, which alleges that Aragon’s scientific co-founders, once researchers at the University of California, Los Angeles, hid ARN-509’s existence when Medivation licensed a series of similar compounds, including Xtandi, from the university. Aragon has filed a counterclaim; the original suit could reach trial early next year. – Paul Bonanos

Antabio: The French antibiotic discovery startup said October 1 it completed the first-ever crowdfunding round for a biotech. It’s a difficult claim to verify, but if not exactly true, it’s certainly one of the few not just to have tapped anonymous, Internet-based donors – akin to the grassroots Internet fundraising that President Obama famously put to use in 2008 – but to have cashed them out in the black. Again, a hard claim to verify, but an Antabio spokeswoman told The In Vivo Blog in an e-mail that every one of the more than 200 crowd funders got a 2x return on investment. The total amount the company raised from them was €300,000. The crowd funders exited when a former Swiss biopharma executive, Christophe Richard, and other angels made personal investments in the company earlier this year. The firm is aiming to have its first candidate in the clinic by 2016. One area of focus is on treatments for bacteria that have developed resistance against carbapenems, the antibiotic class traditionally deployed against Gram-negative bacteria such as Escherichia coli, Pseudomonas aeruginosa and Salmonella. – A.L.

Asceneuron: The Swiss firm spun out this week from Merck KgAA’s Merck Serono unit with the group’s preclinical Alzheimer’s assets that target tau, one of the two major misfolding proteins associated with Alzheimer’s disease. Research into drugs that attack the tau-associated pathologies of Alzheimer’s disease have had a resurgence of late, in part because longstanding approaches to attacking beta amyloid, the other misfolding protein of AD, have failed in late-stage drug trials. Merck Serono, through its venture arm, will invest  €5 million in Asceneuron. Its staff will consist of eight current Merck Serono employees to move the preclinical assets into the clinic up to Phase I, at which point the firm says it will look to out-license or partner the three programs. It’s the third firm to emerge from the closure of the unit’s Geneva headquarters, announced in January, tempered by a €30 million fund to back spin-outs like Asceneuron. Merck KgAA bought the family-owned Serono for roughly $13 billion in 2006. -- A.L.

Photo courtesy of honorary FOTF co-pilot alantankenghoe via a Creative Commons license.

No Room for RNAi in Roche's Operational Excellence Plans

Tucked inside Roche's months-awaited announcement today containing details on its restructuring program (and the loss of 4,800 jobs, mostly in the US and mostly in pharma) is a nugget that will make RNAi-watchers gulp. Three years on from its landmark deal with Alnylam in the field of RNA interference, Roche is shutting down all of the discovery for which it paid so dearly.

That deal with Alnylam included $331 million in up-front payments and -- in addition to non-exclusive rights to Alnylam's IP in four therapeutic areas -- bought Alnylam's European research site in Kulmbach, Germany. Roche now says it will shutter Kulmbach and all its other RNAi work:

Following a comprehensive portfolio review, Roche will discontinue certain activities in research and early development. These include RNA interference research in Kulmbach, Germany, and in Nutley, New Jersey, and Madison, Wisconsin, in the US. In addition, plans also include reorganising certain internal functions to free up resources for upcoming phase II studies of new molecular entities. Approximately 600 positions will be affected.

Adding to Roche's woes, the 5% stake it took in Alnylam in 2007 -- at $21.50 per share (a 40% premium at the time) -- was subject to a three-year lockup and is now way under water. If there's RNA interference activity in Roche's future, it's hard to divine where. Roche CEO Severin Schwan was clear on a call this morning with investors: "We plan to exit ... our siRNA efforts," he said. Nobody pressed him further during the Q&A. Case closed.

The news comes on the heels of Novartis' decision in late September to not exercise an option that would have given it Roche-like access to Alnylam's platform for the relatively low sum of $100 million. Novartis remains committed to RNAi drug development, the companies noted at the time, and is pursuing RNAi therapies against what it calls its "full and final" list of 31 targets. But the Novartis news prompted Alnylam's own restructuring. The RNAi pioneer said it was laying off 25-30% of its workforce.

So where do these Swiss stances leave Alnylam -- not to mention other RNAi hopefuls including Roche's other partner Tekmira? Alnylam was ready with a response, expressing disappointment and surprise at Roche's decision. At the very least, these moves suggest that signing new blockbuster deals will be difficult. But it has never been clearer that Alnylam will no longer live or die based on its ability to sign monster non-exclusive platform deals: it's now a drug developer. The real risk is that Roche's decision, and to some extent Novartis', reflect a broader belief in a bleak clinical future for RNAi therapeutics. With human proof-of-concept data not too far away, we won't necessarily have to wait long for a glimpse.

Meanwhile, Alnylam's market cap languishes below $500 million, and the company announced earlier this month that its still-impressive cash pile was $372 million. That's historically low value ascribed to the company's IP, dealmaking potential, future milestones and royalties, and clinical pipeline.

The field of RNAi needs a win, and badly. Merck, the other big pharma to take a big leap into the space with its $1.1 billion acquisition of Sirna back in 2006, says astonishingly little about its therapeutic progress there (and siRNAs are absent from its pipeline chart). Now and then a rumor that someone's going to pony up money to buy the UK's Silence Therapeutics bubbles to the surface, and just as surely recedes again. RXi is committed to delivering for its investors a deal by the end of 2010. Time is running out on that promise. The next generation RNAi play Dicerna has demonstrated that it can pull in investors, but it has yet to enter the clinic with its dicer-substrate molecules.

RNAi may not succeed as a therapeutic modality. More likely, it just needs time to mature, to solve its delivery problems, to gain traction in the clinic. Whether or not any Big Pharma or investors are willing to wait for that remains to be seen.

Crucell: Revving the R&D Engine

You have to feel sorry for biopharma R&D chiefs these days. As cash flow and profit-and-loss sparing efforts become de rigueur, it sure seems like the CFOs are in the drivers' seats with the R&D heads strapped into the passenger seat along for a very bumpy ride.

There's no question folks like Pfizer's wonder twin powers, Martin McKay and Mikael Dolsten, and GSK's Moncef Slaoui are being asked to do more with a shrinking R&D pool. AstraZeneca, too, is rethinking its R&D approach, putting greater emphasis on externalization thanks to a restructuring to create 8 innovative medicine units (or I-Meds, a very Apple-like parlance).

To be fair, when a company like Pfizer announces its winnowing its R&D budget from $11 billion to $8 billion, there's still some serious cash going to internal programs. But it's an interesting example of cognitive dissonance when R&D heads admit "yep, we're all about innovation AND we're shrinking R&D."

Thus, it was practically shocking to hear a public mid-sized company--European no less--vocally declaim its intention to plow signficant cash resources back into its R&D efforts on the same day that GSK offered more clarity on coming pink slips.

The company revving it's R&D engine? Dutch vaccine maker Crucell, who reported on its Feb. 9 year-end earnings call cash and short-term liquidities of about €428 million. Given the company's laden coffers (continued strong operating cash flow in CFO-speak), Crucell's CFO Leo Kruimer told investors: "We've made a conscious decision to increase R&D spending and development spending especially by as much as one-third vis-à-vis this year, while we maintain a very healthy operating profit."

Say WHAAAT? You mean there's no dividend? (Maybe that's the reason the stock was off even after the company reported better than expected numbers.)

Crucell, unlike many other biopharmas, has had a very good year. For starters, vaccines are a hot commodity as nearly every big pharma sees the importance of diversifying into this arena. Crucell has leveraged the interest into a number of lucrative partnerships, including a $70 million contract with NIAID/NIH to develop infectious disease vaccines, and the big kahuna, an alliance with Johnson & Johnson in September 2009 that included an 18% equity stake worth $443.5 million for Crucell.

Indeed, it's the partnership with J&J--now undeniably Crucell's big brother--that has removed the quarterly earnings pressure (at least for a little bit), allowing more resources to flow to R&D. Calling the balance sheet "magnificent" Crucell CEO Ronald Brus said, "With the right investments and the right people we should be able to do things quicker...and why we did invest a lot in new leadership in that R&D arena." (For those keeping count, Crucell increased R&D personnel by 120 in '09.)

But it likely won't be just internal R&D that benefits from the cash. Most analysts predict Crucell will bolster capabilities via acquisitions (sound familiar?) as it tries to out-gun competitors such as Panacea Biotech and Shantha Biotechnics.

Brus dodged a direct question on the matter from Needham analyst Alan Carr, averring,"We're not looking for acquisitions to fill our pipeline because I think our pipeline has never been as full as it is today." Instead the focus will be on deals that "could significantly improve revenues and profit of the longer run."

In a follow-up interview with Reuters, Brus clarified Crucell's current thinking. "If we would make an acquisition, it would be of a profitable product or products that are very close to being launched on the market rather than a pipeline product," he said.

Ah.

It will be interesting to keep tabs on Crucell in the coming months, especially if future deals vault the biotech into Big Pharma's realm of must-have acquisition targets. The great irony, of course, being that much of Crucell's new found vigor is a direct result from being left at the M&A altar in early 2009.

Till then, you science types looking for new digs? Try Crucell, who's apparently not afraid to burn some R&D rubber.


(Image courtesy of flickrer shyha used with permission through a creative commons license.)

R&D Cuts: Killing the Sacred Cow

Big Pharma companies have not quite begun butchering the sacred cow of domestic U.S.-based R&D, but they are making the first incisions.

The industry’s annual self-portrait (Profile 2008 just released by the Pharmaceutical Research & Manufacturers of America, see here) contains employment data that show the accelerating cuts in the R&D workforce. Total U.S. employment in the R&D effort by PhRMA members declined by 3,221 positions between 2005 and 2006 (the most recent survey years available). That decline represented a 3.9% drop in total R&D headcount from 83,077 in 2005 to 79,856.

In fact, R&D employment in 2006 was less than in 2004. You have to go back to 2003 to find a year when fewer people were involved in R&D for the big pharmaceutical firms in the U.S.

And the cuts recorded in 2006 do not even pick up major events such as the Pfizer closure of the Parke-Davis research facility in Ann Arbor, Michigan at the end of last year, a move that severed the company’s ties with a number of key members of the discovery team for Lipitor, according to the Wall Street Journal.

The cuts are detailed in literally the last chart in the trade association’s appendix of survey data on the industry. PhRMA continues to tout the size and extent of the industry’s R&D effort ($44.5 billion spent in 2007 by PhRMA members alone, $35.4 billion in the U.S.). The association acknowledges that the rate of growth in expenses in that area is “more modest.”

PhRMA members spent $1.1 billion more on R&D in 2007 than 2006, an increase of 2.5%. That compares to an 8.8% increase in domestic R&D spending between 2005 and 2006. The flattening support for R&D is even more evident in the dollar figures: U.S. R&D expenditures climbed 2.7% in 2007 versus 11.3% in 2006.

That diminishing growth in support clearly leads to personnel cuts. The cuts also presumably reflect transfers of the R&D effort to less expensive offshore sites.

The cuts to the U.S. R&D effort are clearly part of the industry’s overall attempt to adjust cost structures to maturing product lines. The Pharmalot blog recently portrayed the grim trends in pharma employment at 25 firms (see here).

The first incisions into the sacred cow are small but may hurt more than are immediately evident. Two of the hardest hit areas of R&D work have been the “approval” and post-marketing (Phase IV) areas. In 2006, PhRMA members cut over 1,000 positions from the Phase IV work (trimming employment in that effort down to 8,633) and over 800 positions out of the approval groups (to 3,625). Both areas had also been cut sharply in 2005: 674 places removed from approval work and 1,935 places dropped from post-marketing research.

Cuts in those areas can probably most easily be filled by outsource firms, but those are exactly the areas where pharma will need the most skilled employees to deal with the new life-cycle management for products called for by the FDA Amendments Act and to convince an increasingly skeptical FDA to let more products onto the market (see here).

The picture is not pretty. The cow is bleeding and pharma management is getting out bigger knives to fix the situation.

Dicerna Announces Series A, Nastech Announces Spin-Out of MDRNA

As we wrote about two weeks ago here, the new RNAi play Dicerna has closed its Series A, which was led by Oxford Bioscience Partners with participation from Skyline Ventures (which coincidentally concluded its own fundraising recently, which it announced today and VentureBeat reports on here). As anticipated, Dicerna brought in $13 million to advance its dicer-substrate RNAi projects. The full description of the Dicerna deal and its IP and technology is available in this month's Start-Up.

And, as we also pointed out back on Hallowe'en, Dicerna's IP, licensed exclusively from City of Hope, is nevertheless not quite 'exclusive.' Nastech Pharmaceutical coincidentally said yesterday--and elaborated on in a conference call today--that it would be spinning out its own RNA interference assets, also built around a license to that same Rossi/Behlke IP, into a newco called MDRNA Inc.

Nastech chairman/pres/CEO Steven Quay, MD, PhD, said on today's conference call that the current plan was to seek a private investment in MDRNA from institutional investors or VCs, followed by a Nasdaq listing for the firm.

Beyond the company's core IP and ongoing RNAi programs at Nastech that will be transferred to the newco, relatively little is known about MDRNA. Quay offered no details on who will manage the company, who will advise it and who will comprise the board--though "the boards are being built as we speak," he said.

Nastech's hard luck, (most recently) dominated by the decision of partner Procter and Gamble to give up on the companies' nasal-delivery osteoporosis project and documented here by the WSJ's Health Blog, has led to predictable restructuring. That restructuring--also announced last night and discussed today on Nastech's call--either forced the company's hand in disclosure of the spin-out or perhaps more likely led to the decision to offload the assets in the first place, which will save the company $20 million in 2008 and shift approx 40 of its employees (70 positions are targeted in the restructuring).

Musical Chairs at Novartis, Except When the Music Stops, 1250 Fewer Chairs

Novartis posted its third quarter results this morning and missed its profit guidance. Genericization, delays to Galvus, and the withdrawal of Zelnorm all contributed to a 12% decline in earnings. And so out comes the axe. Oddly enough, the press release was titled "Novartis delivers record earnings in first nine months of 2007 thanks to strong operational performance and divestment gains." Is it time to revive IN VIVO Blog's 'press release of the week' feature?

Novartis is cutting 1250 jobs (mostly in sales, and including 510 'third-party' sales positions) in the US, a move cheered by analysts and expected to result in savings of about $230 million in 2008. The layoffs are part of a restructuring of its pharma development and commercialization organization.

Most conspicuously Thomas Ebeling, the current head of pharma, will be shuffled over to Novartis' consumer business--a position perhaps more suited to his background: he came to Novartis from Pepsi a decade ago. At pharma he'll be replaced by American Joe Jimenez, the current head of the consumer business who joined Novartis earlier this year (and was until 2006 European president and CEO of the food giant Heinz), effective immediately, "to expand management experience and provide fresh impetus." That might be a new euphemism, we're not sure.

Less surprisingly, the company is also establishing Novartis Biologics "as a focused unit to accelerate and optimize the potential of research and development of innovative biologic medicines." We've noted before (and discuss at length here) certain pharma's need to bulk up in large molecules. Novartis says:

This unit will unify and expand the expertise within Novartis by bringing together the key elements necessary for fast and high-quality R&D activities and to help attract top talent. Biologics comprise 25% of the pre-clinical research pipeline at Novartis and are increasingly a priority in R&D activities.

It will be interesting to see whether Novartis feels the need to augment its internal biologics capabilities with the kind of external moves being pondered by Sanofi-Aventis and Pfizer. The company has inked some 22 deals in large molecules over the past five years and most impressively has bulked up in vaccines (through the full acquisition of Chiron) and in RNAi, though a first-mover deal with Alnylam.

But back to the layoffs for a moment. Novartis' cutbacks don't approach the level of some of the other Big Pharma that have cut back this year--see the chart below from the September issue of IN VIVO--and will mainly be executed by not filling vacant positions, the company says.

Nevertheless, can the decision be seen in the broader context of the general shrinkage of Big Pharma sales forces, thanks to a variety of factors including but not limited to the rise of biologics and a shift toward specialist medicines? Which brings us back to the pharma/consumer reshuffle; both execs' backgrounds are more grounded in consumer marketing than pharmaceuticals. To say the least appointing Jimenez to the pharma post goes against the grain of the specialist marketing trend.

Sometimes the Bayer Gets You

It has been on the cards for some time--and some cuts have already been implemented, for sure--but Bayer has made its restructuring official: 6100 jobs have been eliminated at the German specialty pharma company, which ought to go a long way towards its goal of €700 million in savings by 2009.

Most of the jobs lost come from Europe (3150) and the majority of which will be administrative redundancies in Germany, the direct result of Bayer's €17 billion takeover of Schering AG last year.

And surely it all makes sense. But what's more important in the long run is where is Bayer going from here. The company has more boldly than most larger pharmaceutical companies embraced specialist medicines as the way forward--it didn't have much of a choice, really. The move seems to be paying off; progress may or may not be confirmed when Bayer talks up its R&D strategy at the end of the second quarter.

Abbott Joins In: Sales Force too Kos-tly

The conversation over at Cafepharma is even more colorful than usual these days in the wake of news that Abbott is slashing 20% of its newly enlarged pharmaceutical sales force.

After it's $3.7 billion acquisition of Kos we expected Abbott to reduce headcount in sales--much the same way Lilly had little need for Icos' extra infrastructure after it acquired the company last year. Expect more companies to follow suit, as Big Pharma bulk up fading pipelines via acquisition of specialty pharmaceutical companies, or smaller companies with specialty pharma assets.

Shire nipped a potentially similar problem in the bud when it bought New River. Had the companies moved forward with their co-promotion agreement on Vyvanse (New River had previously opted in to this portion of the companies' deal), Shire would have found itself footing the bill for New River's 25% contribution to the cause.

Meanwhile, Abbott's axe falls this Wednesday.

First flagged up at Pharmalot

UPDATE: The AP is reporting that Abbott will also shed 200 jobs in R&D:

The majority of the 200 scientists and researchers to be cut will come from the company's offices in northern Illinois, Abbott spokesman Scott Stoffel said Monday night. The bulk will come from a research unit that deals with the early discovery of treatments for metabolic disorders such as obesity and diabetes, he said.