Financings of the Fortnight And the Neverending Venture Round

Somewhere out there, perhaps, is the end of NovImmune's Series B round.

More than a year ago, our friends at START-UP examined the fates of biotechs that had reeled in huge private financing rounds. Giant biotech venture rounds are back with a buzz in 2014 thanks to Juno Therapeutics, which launched in December with a $120 million Series A commitment. Last month it added on with cash from Venrock and Bezos Expeditions, aka Amazon.com chief Jeff Bezos' private money stash.

But in raw coinage, Juno's A round doesn't hold a candle to what NovImmune has raised in its Series B. Novi-who? It's a Swiss antibody developer founded 16 years ago that in 2006 first notched CHF 58 million ($46 million at the time) for its Series B. Eight years and three extensions later, the Series B now stands at CHF 200.5 million, most recently boosted by a CHF 60 million ($67 million) tranche announced February 18 and led by London life science specialists Rosetta Capital, whose partner Jonathan Hepple is joining the NovImmune board.

That makes NovImmune's Series B the largest biopharma venture round with at least one extension raised in the past decade, according to our Strategic Transactions database. FOTF reached CEO Jack Barbut via email, and he said NovImmune has kept the round open this long to create fairness for all shareholders. "This makes the share structure very easy," Barbut wrote. "For employees, common stock options (sweat equity), and for investors, preferred shares, all [have] the same liquidation rights and thus comply with Swiss statutes, which are very stringent on equal treatment for ALL shareholders." 

CEO since 2000, Barbut said when the Series B started, he didn't expect it to carry on this long. He doesn't know if this recent tranche will be the last.

We went back a decade into our Strategic Transactions database to see what kind of precedent there might be for NovImmune. We found 59 private companies whose extended rounds reached at least $50 million. Here are the handful, other than NovImmune, that topped $100 million:

Four of those companies have since gone public and one (Sangart) has gone under, shut down by its main investor, as first reported by Fierce Biotech. Meanwhile, Symphogen is in no hurry to go public, as its CEO told Start-Up in this feature last year.

NovImmune is not only top of the charts for money raised, but it also has no peer in the length of time of the round. None of the companies with blockbuster rounds took more than two years to secure their extensions. A few smaller rounds took longer. For example, Theraclone Sciences began raising its Series B in 2007 as Spaltudaq (we applaud the name change) and brought the total to $50 million about a year ago. Endocyte took five years to raise a nearly $80 million Series C before going public in 2011. And Alvine Pharmaceuticals spent more than four years building its Series A and is now waiting to find out if AbbVie will exercise an option to buy its lead Phase II program in celiac disease or the entire company outright. (If AbbVie does, it would be one of the very few corporate investors to buy out one of its portfolio companies.)

NovImmune's Barbut said his investors expect "some sort of liquidity event" too, of course, but in the nearer term he said the company is focused on finding a partner for NI-0101, its anti-TLR4 monoclonal antibody that has entered Phase I. It would also like to advance its NI-0501 program, an anti-interferon gamma antibody, and commercialize it solo. NI-0501 has orphan status in the US and EU in hemophagocytic lymphohistiocytosis, a deadly pediatric autoimmune disease, and has completed a Phase I study.

NovImmune doesn't seem to have cushioned its cash with a lot of non-dilutive funding. Its biggest deal to date is the outlicensing of an anti-IL17 antibody to Genentech in 2010, no financials disclosed. The candidate completed Phase I in 2013.

So we've got an orphan disease-focused biologics company with multiple, wholly owned clinical assets, a partnership with one top-tier biopharma, and the kind of cash runway that seems to attract more investment these days from the public markets. The IPO market has welcomed every stripe of biotech, from still-preclinical platforms to heavily capitalized specialty plays, in the past year, so NovImmune seems like an inevitable "ask." If its cards are well played -- keep in mind several banks are in NovImmune's investor pool -- an IPO could provide a nice bump for those who didn't have to ride the traditional valuation escalator (or be forced off of it) through later rounds.

We offer a bump, too -- a fist bump to Maureen Riordan, who did much of the work behind the scenes for this column. Without her this week, there would be no...

Melinta Therapeutics: Known as Rib-X Pharmaceuticals until last fall, antibiotic developer Melinta hasraised a $70 million Series 3 round led by existing investor Vatera Healthcare Partners. New investors included Falcon Flight, an affiliate of the Santo Domingo Group, and undisclosed backers. As Rib-X, the firm raised more traditionally named A, B and C rounds last decade. But a failed IPO try in 2011, and a set of new investors led by Vatera, have led to a housecleaning. In November 2012, the company disclosed a $67.5 million "Series 2" funding led by Vatera. Last fall, it unveiled its new name and new executive team, led by CEO Mary Szela. The Series 3 cash will help fund its Phase III study of antibiotic delafloxacin, a differentiated flouroquinolone in testing as an oral, single-dose therapy for uncomplicated gonorrhea. Melinta is aiming for an NDA filing in late 2014. In addition, the money will finance a two-trial Phase III program of delafloxacin in acute bacterial skin and skin structure infections, as well as lead-candidate selection from the firm’s RX-04 discovery program seeking to address serious and life-threatening Gram-negative infections via targeting of novel binding site on the bacterial ribosome. – Joseph Haas

Argos Therapeutics: Immunotherapy is hot, right? Well, yes and no. While the likes of Juno can command above and beyond $100 million in a single financing, cancer and infectious disease immunotherapy play Argos raised a mere $45 million in its February 7 IPO, its second try at launching onto the public markets. And that’s only after it had to dramatically cut the price to $8 a share from a $14 mid-point of its proposed range. It also had to increase the dilution, selling 5.6 million shares rather than the 4.3 million it had proposed. Existing investors bought 1.4 million shares of the IPO, or roughly a fourth of the deal. No word yet if the underwriters will exercise the overallotment, but the share price has largely treaded water since the offering. Argos investors can take some solace knowing the bargain-priced IPOs of 2013 ended up as top performers of the year. What's discounted now might have legs later, as Argos is one of many biotechs with notable clinical milestones in reach this year, as START-UP explored in January. Argos might see a boost later this year when it reports Phase IIb data for AGS-004 for treatment interruption in HIV/AIDS patients, although data due in 2016 -- Phase III survival data in renal cell carcinoma -- is more likely to be game-changing for Argos. The firm also expects this year to start two Phase II HIV eradication studies, one in adults and another in pediatric patients. Argos aims in these trials are ambitious – to eliminate the HIV virus or to reduce it to negligible levels. – Stacy Lawrence

Arrowhead Research: RNAi therapeutic developer Arrowhead said February 19 it grossed $104 million in a follow-on offering, selling 5.5 million shares at $18.95 a piece. Of the several public biotechs that sold $100 million-plus in stock this fortnight -- Ironwood Pharmaceuticals, Macrogenics, PTC Therapeutics and Puma Biotechnology were the others -- Arrowhead's inclusion would have been unthinkable this time last year, when it was bumping along in microcap land and had just a few million dollars in cash remaining. Arrowhead isn't strictly an RNAi developer; it has a peptide-drug conjugate in the clinic, too. But there's no doubt RNA interference, riding a revival of sorts highlighted by Alnylam Pharmaceuticals' giant deal last monthwith Sanofi/Genzyme, is driving the Arrowhead agenda. It's also worth noting that RA Capital, the hedge fund that helped propel the big Dicerna IPO, is also a key investor at Arrowhead as of last spring, having led a $35 million offering at $1.83 a share that recapped the company. With its stock now worth more than 10 times as much (it closed February 20 at $21.90) Arrowhead is pushing hard to get its lead RNAi compound, against Hepatitis B, into Phase II.  While RA, now a 9.9% owner, led a turnover in the company's cap table, it wasn't a bloodbath. Arrowhead's longtime CEO Chris Anzalone is still at the helm, and the board remains the same. – Alex Lash

Pronutria: Pronutria revealed February 13 a $12.5 million Series B round, with unnamed private investors participating alongside Flagship Ventures. CEO Robert Connelly told our colleagues at "The Pink Sheet" that Flagship provided less than half of the new round, while “business entities, individuals and family offices” supplied the remainder. Flagship created Pronutria within its VentureLabs program in 2011, quietly funding it with a $10.8 million Series A round over a two-year period before lifting the lid last October. Much of the Series B, which Connelly said is probably Pronutria's final venture round, will be used for clinical trials on two muscle-protecting candidates that preserve strength in frail, elderly people with sarcopenia, the loss of muscle mass that can occur during periods of hospitalization. The candidates, PN-107 and PN-365, are formulations of the amino acid leucine delivered as small “shot”-sized beverages similar to bottled energy products found on supermarket shelves. The specific pharmacokinetics and efficacy of each candidate, and the effects of their specific balances of amino acids, will be compared with each other in the trials. The company is still deciding on a regulatory pathway for each one, including possibly developing them as nutritional supplements, medical foods or pharmaceutical products, each of which has its own requirements. Initial clinical trials, now underway, are scheduled for completion by mid-year; Connelly said the company also is mulling parallel development of drug and non-drug formulations of similar product candidates. Further down the line, Pronutria is aiming for products addressing the metabolic, gastrointestinal, immune and renal disease areas, as well as beneficial products for patients with rare diseases and those going through chemotherapy. Whatever drug products Pronutria develops will reside in a separate business unit, which will help ease eventual sales or spin-outs. – Paul Bonanos

Best of the Rest (Highlights of Other Activity This Fortnight): Endocrine disease-focused Versartis raised $55M in Series E financing, and concurrently filed for an IPO…to support the launch of opioid dependence drug Bunavail in the second half of this year, BioDelivery Sciences grossed $60M in a registered direct offering…PTC Therapeutics publicly sold $126M in a FOPO to complete Phase III development and gain regulatory approval of ataluren in Duchenne muscular dystrophy and cystic fibrosis caused by nonsense mutations, in the wake of last month’s EMA/CHMP negative opinion on that candidate’s MAA…Concert Pharma priced its IPO at $14, the top end of its range, to net $78 million...three Israeli biotechs – Galmed, Bio Blast, and MediWound – are all hedging their bets and trying to float on Nasdaq…and PDL BioPharma, which manages patents and royalty assets, completed a $261M convertible notes offering. – Amanda Micklus

Photo courtesy of Mike Mantin  on flickr, via a Creative Commons license. 

Return to Seller: GlycoFi Next Tech to Exit Merck?

As the J.P. Morgan conference began to clog the San Francisco streets and restaurants on Sunday night, Alnylam Pharmaceuticals got the party started with a bang. In industry's first major deal of the year, Alnylam signed a broad agreement with Sanofi’s Genzyme Corp. and, separately and perhaps more dramatically, bought Merck & Co.’s RNA interference assets (essentially the remnants of Sirna Therapeutics) for $175 million ($25 million was cash and $150 million in Alnylam stock).

The latter deal unleashed the schadenfreude. Merck paid $1.1 billion for Sirna, then Alnylam’s biggest RNAi rival, back in 2006. It had been predictably if annoyingly tight lipped about any progress (or lack thereof) it was making with RNAi therapeutics ever since. And with 200 people within Merck working to surmount the therapeutic modality’s famous delivery challenges and more or less build an RNAi franchise for most of the past seven years, $1.1 billion was likely just the tip of the iceberg.

Why Alnylam wanted Sirna goes beyond (figuratively of course) putting the stuffed head of its former rival on the wall in the Cambridge company’s boardroom (but sure, on some level, that’s gotta be part of it?). Merck apparently did make some progress on sub-q delivery of RNAi and it had some IP that Alnylam likely wanted to tie up.

The broader point is that technologies once coveted by pharma but now seen as dead-end cost centers or just gathering dust may have utility – and potentially a lot of value – back out in the broader world. That’s been true for drug candidates for a long time – and we’ve seen plenty of deals where a company has acquired valuable drug compounds and eventually sold them off, even back to the VCs and executives that offloaded them in the first place (think Esperion, Vicuron, etc.).

Those originators are often the best placed to understand the compounds or technology and make another go at driving value. And Merck’s decision to part ways with Sirna and RNAi (and the ongoing reorganization the company’s R&D group) got us thinking about what other technologies the pharma may offload. One that comes to mind was another high-profile 2006 acquisition: the yeast-based antibody manufacturing play GlycoFi.

Allow us to speculate:

In May 2006 Merck plunked down $400 million to buy the technology. On a Sirna-scale, that’d mean a $10 million (or less!) down payment might be enough to extricate the technology. And GlycoFi founder Tillman Gerngross and his venture backers are now at the center of myriad antibody discovery partnerships via the decidedly profitable Adimab and a small handful of drug development start-ups enabled by the Adimab technology. They would be a logical set of suitors (Gerngross wouldn’t comment).

GlycoFi’s glycoengineering and optimization technologies would surely complement Adimab’s yeast-based antibody discovery tech. The company was never fully integrated into Merck and is still based in Lebanon, NH, home to Adimab and Gerngross’s other ventures (if the two companies don’t share an address, they’re at least within walking distance to each other near Dartmouth). GlycoFi was meant to enable Merck’s follow-on biologics strategy, but the big company’s ambitions around what is now biosimilars have shifted over the past several years. Biosimilars leadership specifically and R&D leadership more generally has turned over. GlycoFi’s ‘internal champion’ at Merck is likely gone. Merck is, like other big companies, shrinking its R&D footprint.

Adimab has somewhat famously – famous for the set that converges around Union Square in San Francisco this time of year, anyway – advertised its technologies and successful partnerships on the Powell-Mason cable cars that roll up the hill out front of JPM’s epicenter St. Francis hotel. The current biotech boom feels very much like a throwback and so it’d be fitting: maybe next year we’ll see GlycoFi on those cars instead?

Deals of the Year M&A Nominee: Pfizer/Nestle

It's time for the IN VIVO Blog's Fifth 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™.

After digesting the 2009 acquisition of Wyeth, Pfizer has been reprioritizing. Since taking the helm in 2011 CEO Ian Read has vowed focus the company exclusively on biopharmaceuticals. In 2012, Pfizer followed up on last year's $2.4 billion sale of Capsugel by selling its nutritionals business to Nestle for $11.85 billion and announcing plans to spin out its animal health unit.

We’re nominating the Pfizer spin-outs in the M&A category because when industry’s biggest pharma player gets the deconsolidation religion, we’re intrigued to see how far it will go. To paraphrase those old Tootsie Roll Pop commercials, how many spin-off deals does it take to get to the innovative core of a large pharmaceutical company?

Pfizer’s deal with Nestle reflected the fierce competition in the global infant health market. The high price tag of the April 23 sale – well above most analysts’ expectations for the unit -- kept Nestle’s competitors at bay. Pfizer Nutrition reported 2011 sales of $2.14 billion, with 85% of the business coming from emerging markets such as China, Indonesia, Mexico, the Middle East and Thailand. The addition of the business to Nestle brings its portfolio to about $7 billion; well above revenues generated by its closest competitor, Mead Johnson Nutrition (about $3.7bb in 2011).

The Big Pharma announced in early-June that an IPO for its animal health business will likely to take place in 2013. The stand-alone company will operate under the name Zoetis. By spinning out the minority stake, much like Bristol-Myers Squibb did with Mead Johnson in 2009, Pfizer keeps its competitors from expanding their lofty animal health businesses. This move also allows Pfizer to avoid the tax consequences of an outright sale of the $4.2 billion business, but still hold on to about 80% of Zoetis – at least for the foreseeable future. Analysts expect the company to further reduce its stake in Zoetis, perhaps through a swap for Pfizer stock mimicking BMS’s DOTY-nomination garnering move in 2009.

Read’s efforts to reprioritize Pfizer were not immediately well-received when announced in mid-2011. Investors had hoped for even more drastic moves as the company anticipated the loss of patent exclusivity for the blockbuster cholesterol drug Lipitor (atorvastatin), which lost patent protection in early 2012. Yet, Pfizer has so far maintained that it will hang on to its Established Products unit, a $10 billion business that handles most of the mature drugs the company owns that have already lost patent protection. Pfizer has been keeping the unit to capitalize on the rapid growth within emerging markets, though intriguingly it has not ruled out a sale.

It has also planned to keep its Consumer Health business close to its vest as a means of converting some legacy pharmaceutical products to over-the-counter drugs. Pfizer execs have commented in recent months that unwinding the Established Products unit or even the Consumer Health business could be more effort than its worth – the products are not manufactured by unit, but scattered across many different manufacturing facilities, and consolidating those businesses would require some major reorganization on the part of the company.

So how many deals would it take to get to that innovative core? The world may never know.

--Lisa LaMotta

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.

Financings of the Fortnight Says It's Not Ova Til It's Ova

A two-year-old biotech trying to get listed on the over-the-counter exchanges wouldn’t normally qualify for much notice. But OvaScience is different. First, its founders include Christoph Westphal, who has co-founded and either sold or taken public several companies. The OvaScience CEO is Michelle Dipp, also a co-founder, as well as a partner with Westphal in Longwood Fund. Working together, their biggest coup was the sale of Sirtris Pharmaceuticals to GlaxoSmithKline for $720 million in 2008, and they also raised a few eyebrows while still at GSK for their side project selling dietary supplements related to Sirtris’s compounds.

OvaScience, which aims to start a pivotal trial by the end of this year for its fertility enhancement product, Augment, has gone public via a route normally traveled by shell companies to attract reverse mergers, using the SEC’s Form 10. Touted by some as a new alternative to burdensome and uncertain IPOs, the route hasn’t attracted many operating companies to date. If approved via Form 10, a company has the same disclosure rules as those that undertake an initial public offering, but its shareholders don’t have anywhere to trade until it can get listed somewhere.

That’s OvaScience’s situation.  In its latest SEC filing, the company says it’s shooting for an over-the-counter listing, but makes no guarantee of attaining it. It’s contractually obligated to try; its shareholders signed on with the expectation of liquidity at some point in the not too distant future. The list of shareholders includes OvaScience’s largest institutional investors, Bessemer Venture Partners, Longwood Fund, Fidelity Investments, and General Catalyst Group, but also dozens of individuals, some of whom are biotech boldface names. For example, Skyline Ventures’ John Freund and his wife Linda Grais, a former InterWest partner and currently CEO of Ocera Therapeutics, hold more than 5,000 shares in a trust; Dicerna CEO Doug Fambrough, also a former VC, owns 1,000 shares; Alnylam Pharmaceuticals top dogs John Maraganore and Barry Greene each have 3,636 shares. (Alnylam is one Westphal’s babies, which he helped take public in 2004.) The full list is here.

Westphal and Dipp were among the cofounders of Verastem, which managed to go public in January in a risk-averse market despite its cutting-edge science targeting cancer stem cells and early-stage pipeline (nothing even in the clinic). This time, however, they’ve eschewed the IPO process for a route that proponents say makes a lot more sense. “The beauty of the Form 10 strategy is that you’re custom-building the public company in a more rational way,” says William Hicks, an attorney at Mintz Levin Cohn Ferris Glovsky and Popeo in New York. “You’re not going through the SEC review process hoping to raise the money. You’ve already raised it.”

One limitation of the Form 10 process is having enough crossover investors – those who usually invest in public companies but have the capacity to make private investments – to support a deal. One such crossover is RA Capital in Boston. “It’s nice for a company when it has enough support from investors willing to do a deal before the company has a stock symbol,” says Peter Kolchinsky, managing partner of RA Capital, which owns 3.1% of OvaScience stock. “They know it will file the paperwork and get liquid, but they don’t need to get liquid right away."

Given the friends-and-family flavor of the investor list, it's no surprise to see RA on it. It was founded by and sports the initials of Rich Aldrich, now one of Westphal and Dipp’s partners at the Longwood Fund. RA crossed over to buy into OvaScience’s $35 million Series B round, and bought again in a small private placement OvaScience offered in August 2012 after it had become public. The placement, which raised only $4 million, was mainly a way to build a shareholder base and reach toward the minimum requirement needed to list on a major exchange. For now, however, OvaScience hopes to list over the counter, which should afford its investors some measure of liquidity if they’re inclined to sell. Seeing how the investor base is handpicked, it’s unlikely shareholders will rush for the exits. The firm is gearing up to test its lead product and, because it uses autologous material -- a woman’s own mitochondria extracted from her egg precursor cells and inserted into her eggs during in vitro fertilization (IVF), to potentially boost the odds of conception -- the company claims it won’t need FDA approval. The same won’t be true of a second product OvaTure that hasn’t yet begun preclinical development.

It remains to be seen if the Form 10 route becomes fertile ground for biotechs seeking wider capital access. OvaScience looks like it's on its way, but how many others can scramble through the side door with the help of dozens of friends in high places?

Had your fill of bad puns? You'll only egg us on by reading the latest edition of...

StemCells Inc: The San Francisco Bay Area company has been awarded a second $20 million grant from the California Institute for Regenerative Medicine (CIRM) under its Disease Team Therapy Development Award program. As reported in “The Pink Sheet” DAILY, the money will support pre-IND development of adult neural stem cell technology for the treatment of Alzheimer’s disease. HuCNS-SC, which consists of purified neural stem cells derived from human brain cells, is an allogeneic treatment, administered as a direct transplant to the hippocampus, the spinal cord, or the eye during a single procedure. The grant, announced September 6, comes a few months after CIRM awarded StemCells $20 million to support the pre-IND activities of its HuCNS-SC cells in patients with cervical spinal cord injuries. Both grants are based on the expectation that StemCells will file INDs for both indications within four years. The grants will help the company move the programs forward; currently, StemCells has about $18 million in cash on hand and expects to burn cash at a rate of $18 million to $20 million annually. Data in Alzheimer’s were presented in mid-July at the Alzheimer’s Association International Conference in Vancouver, but the grant has been delayed as the company needed to prove to CIRM that the treatment does in fact migrate deep into the brain. Data showed that treated mice had significantly improved memory and recognition of their surroundings compared to untreated mice. According to StemCells, the money will start coming the next few months after its financials have been properly vetted by CIRM and terms of the grant have been negotiated. – Lisa LaMotta

Sanofi: When Sanofi bought Genzyme in early 2011 for $74 per share after a long pursuit, the book wasn’t quite closed. Part of the deal value included contingent value rights – one of a multitude of recent biotech buyouts that featured earn-outs – tied to the commercial prospects of Genzyme’s not-yet-approved multiple sclerosis therapy Lemtrada. Today, Sanofi is clearly less skeptical about that drug’s prospects than when it originally signed its $20 billion acquisition, and it said September 4 it wanted to buy back some of those CVRs while they’re still relatively cheap. The Genzyme CVRs were floated on the Nasdaq in late March 2011, and they trade under the words-with-friends friendly GCVRZ symbol. Sanofi wants to buy 86,766,040, or about 30% of them in a modified Dutch auction process that would value the biobucks somewhere between $1.50 and $1.75 per share.  A modified what? Essentially Sanofi will let holders tender their shares at any price in that 25-cent window. It will buy up to 86,766,040 of them, and price the offering at the lowest possible price that allows them to pull in that number of shares. (Once the process is complete, Sanofi will pay the same amount for each CVR, the price at which the 86,766,040th cheapest share was tendered.) Buying some of the CVRs now – there’s potentially $13 per CVR left to be paid out, but only a dollar of that is attached to pre-commercial Lemtrada milestones – could cost the French pharma from $130 million to $152 million, a 7% to 25% premium to the shares’ pre-announcement value. But the offer allows Sanofi to save a little cash in the longer term should Lemtrada win FDA approval and begin to rack up sales. Prior to the Sanofi announcement, the GCVRZ shares were trading at $1.40. They quickly shot up in value and are trading at $1.72 as of the end of September 6. The tender offer expires at 5pm Eastern on October 5. Dutch auctions in biotech sound familiar? Not too long ago WR Hambrecht & Co. was marketing its own version of the process under its OpenIPO brand, a path followed by companies like New River Pharmaceuticals and Avalon Pharmaceuticals. – Chris Morrison

Avalon Ventures: San Diego-based hybrid venture firm Avalon is attempting once again to close a fund $50 million larger than its previous vehicle. The firm disclosed in an August 30 SEC filing that it has raised the first $202 million of Avalon Ventures X, a proposed $250 million fund which would be its largest yet. It’s been just 20 months since Avalon closed its $200 million ninth fund in January 2011. That exceeded the firm’s $150 million goal, which would have matched its 2008-vintage eighth fund. The firm has enjoyed some lucrative exits lately: It had stakes in vaccine developer BioVex, sold to Amgen in 2011 for $425 million up-front, as well as Amira Pharmaceuticals, for which Bristol-Myers Squibb paid $325 million up-front later the same year. Avalon traditionally splits its funds 50-50 between life sciences and tech; the firm’s biggest recent exit arrived from the IPO of online game developer Zynga. The firm has been a holdout among hybrid firms as some other VCs have split their teams or funds in order to focus on either tech or life sciences individually. Avalon is also known for taking early stakes in life sciences start-ups and running them itself as virtual companies for a couple of years before bringing in senior management, a strategy we explored last year in START-UP’s Capital Matters column. Key partners Kevin Kinsella and Jay Lichter didn’t respond to a request for comment, so we’ll have to wait and see when the firm tops off the tank. – Paul Bonanos

Aerpio Therapeutics: This Cincinnati-based spinout of a spinout said August 30 it has raised $27 million in a Series A round to push forward a drug for diabetic macular edema, a disease characterized by leakage of blood proteins into tissues behind the macula of the eye, causing a thickening of that tissue. DME is the leading cause of vision loss in diabetics. The round was led by Novartis BioVentures and joined by Venture Investors LLC, Triathlon Medical Ventures, Kearny Venture Partners, Athenian Venture Partners and AgeChem Venture Fund LP. All were previously investors in Akebia Therapeutics, itself spun out from Procter & Gamble five years ago. Both companies are run virtually and share a CEO, Joseph Gardner, who told “The Pink Sheet” DAILY that the money will fund a Phase Ib/IIa trial of AKB-9778, a Tie-2 activator that works by inhibiting human protein tyrosine phosphatase beta, an enzyme which counteracts vascular leakage to restore Tie-2 signaling. The 28-day dose-escalation study will begin in September and will test the safety and tolerability of ‘9778 in 30 patients with DME. Gardner said the company also is hoping to see strong signs of efficacy including decreases in retinal thickness and improvements in visual acuity. Results from that study are expected next spring. Once the Phase Ib/IIa study has been concluded, the remainder of the funds raised will be used to fund a second Phase II study with 100 patients “that will get the attention of partners and make future financings a bit easier in this dry funding environment,” said Gardner. Results from this trial are expected in 2014. – L.L.

Eggcellent photo courtesy of flickr user Ecstatic Mark.

2011 M&A of the Year Nominee: Abbott/Abbott Pharma

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™.

When the IN VIVO Blog polled its readers on their preferred name for the newco drug company to be spun out of the break-up of Abbott, the hands-down favorite was Costello, the hapless, blimp-like other half of the comedy duo. Once again, Sagacious Reader, you have cut to the heart of matter: Who’s on first?
We’ll get to that in a moment. First, we want to note that the decision to bust up comes at an historic moment for the industry, and captures several of the issues that make CEOs and directors wake up at night in a cold sweat:

Diversification vs Focus. Focus is in. Diversification, not so much. Leading analysts have lately been beating the drum for diversified companies to unlock value by breaking up into pure-play splitcos. The valuation argument has its dissenters – Barbara Ryan (Deutsch Bank) isn’t persuaded that split-ups have made anyone much money, though she concedes it might make sense in Abbott’s case. As to which model best serves innovation, we note that the drug divisions of J&J and Roche, both diversified companies, outshine their peers; while BMS, the poster company for slimming down, has been delivering a superb pipeline.

 Portfolio Rationalization. Is anyone minding the store? CEO Miles White has acknowledged that the pharma company was masking the value of the device company, and that its Humira-driven growth had thrown the diversified giant’s balance out of whack. Apart from questions about the value and depth of Abbott’s later-stage pipeline, analysts have fastened on the extraordinary concentration risk posed by Humira which accounts for nearly half of the pharma unit’s $18 billion in annual sales. Jami Rubin of Goldman Sachs recommends diversifying away from that risk and several analysts believe the best route to that end is through a smart acquisition.

The Influence of the Street. Rubin, who’s been the most vocal of the breakup-to-unlock-value school, appears to be getting heard in the C-Suites and boardrooms of some pharmas. Which raises the question of whether the agenda of sell-side analysts should influence the strategy of large, research-based pharmaceutical companies.

The Allure of the East. Speaking of strategy, what more powerful force is there than emerging markets for redistributing capital, infrastructure, and operations across the globe? White was clear: the device company, which will include diagnostics and the established products business, faces eastward toward China, India, Russia, and Turkey, while the drug company “is very much a developed market game.” The established products business, which includes branded generics, will be the beneficiary of the emerging market synergies of the Piramal and Solvay acquisitions.

The Abbott break-up deserves the nomination because it marks the first time that a diversified healthcare company has spun off its pharmaceutical division. In the past such split offs have been the province of global chemical companies like Eastman Kodak, Du Pont, BASF (whose drug unit, Knoll, Abbott purchased to get Humira), and Akzo Nobel. It may also mark the ascendance of investor interest in devices – the biggest life science M&A of 2011 by a good margin was J&J’s acquisition of Synthes – over drugs.

At a recent industry conference in London sponsored by the Financial Times, Miles White had to fend off speculation that Abbott’s drug business might be on the block. We don’t hear anyone speculating that the device business will be for sale. Who’s on first? Ask Miles White.

Deals Of The Week: Outsourcing

Stop the presses! Pfizer has done the unthinkable! The Big Pharma has upended its huge R&D operation!

Reading the headlines and tweets May 26, this blogger anticipated a dramatic pronouncement from Pfizer's head of R&D Mikael Dolsten explaining exactly how the behemoth intended to strengthen its "innovative core." But we were pretty sure Pilates wasn't part of the prescription.

It was just three months ago, after all, that newly installed CEO Ian Read announced sweeping budget cuts to the R&D organization and hinted that certain business units might be ripe for spinning out. But the R&D changes announced Thursday was more ho-hum than a humdinger.

In fact, it wasn't even an R&D shake-up at all. What Pfizer has instead done is winnow its myriad clinical service providers from 17 (!) to 2, moving to a system that is less about buying clinical trials capacity than it is about buying expertise. "We think that expertise can actually help us execute trials more effectively, faster, and with better quality, which will ultimately lower costs," Pfizer's SVP of development operations John Hubbard told "The Pink Sheet" DAILY.

With the looming patent expiration of Lipitor coming in November, there's no doubt Pfizer must cut costs. But it's hardly clear how much Pfizer will actually save via its newly announced preferred provider relationships with Icon and Parexel. It's not as if the drug maker is outsourcing significantly more of its total research and development work to outside organizations after all, a move that would allow for additional job eliminations -- and cost reductions -- in the R&D organization.

According to PSD, Pfizer will increase the percentage of clinical trials work it outsources by only about 10%, with the move really designed to streamline the management of vendors, something Hubbard admits is "complex." Thus, consider this not a revamping of how R&D is done but a consolidation of already outsourced development work into the hands of just a few players. As such, the move sounds a lot like Sanofi's broad 10-year collaboration with Covance. Announced last year, that alliance also met with sweeping headlines but was in reality a more prosaic realignment designed to reduce the complexity of managing development work.

We aren't saying Pfizer's newly announced arrangement isn't noteworthy-- or smart. We're just saying its iterative rather than innovative. (And, maybe, just plain old common sense.)

What's really smart about the set-up is that Pfizer didn't pick just one preferred provider. By signing on two different CROs (can we now call them clinical repair orgs?), the drug maker has created a situation that fosters competition. Financial details of the two new partnerships, which start in June and last until 2016, haven't been disclosed, but Pfizer is apparently keeping a scorecard that benchmarks how well Icon and Parexel each execute on their assigned trials. And as Pfizer gathers data on quality, timeliness -- and perhaps most importantly cost -- that means it can pit the two service providers against each other, potentially further increasing efficiencies. Five years from now, you can imagine CROs jockeying for position to be the next preferred vendor. To merit an alliance, such outfits will be forced to guarantee they can deliver "x" by time "y", and it will only cost "z".

It's a new kind of pay-for-performance arrangement -- and it's definitely a step in the right direction.

But it's far from the sexy R&D shake-up proclaimed in the blogosphere -- and still far from what Pfizer (or any other big pharma, quite frankly) needs to do to solve its moribund R&D productivity problem.

As for the larger changes afoot in Pfizer R&D, it's anybody's guess what model (or what acronym), the drug maker will pursue. We hear CEDDs are out and TAUs and TSUs are the new fashion. (Don't forget OI -- for open innovation -- either. JNJ's promising its externally driven model will yield fruit -- and plenty of products for regulatory approval by 2015.)

Whatever. To be honest, the acronym that most excites us is B-B-Q. Before you quaff your first summer pale ale of the holiday weekend, remember to read...

Elan/Proteostasis: Elan's tie-up this week with Proteostasis replicates last year's mega Celgene/Agios tie-up on a smaller scale. The new deal, potentially worth $50 million to the privately-held Proteostasis, requires Elan to pay $20 million upfront as well as $30 million for R&D expenses over the next five years. In return, the developer of the blockbuster multiple sclerosis drug Tysabri (natalizumab) gets a 24% stake in the U.S. biotech, seats on its board of directors and scientific advisory boards, and the first right to license any neurodegenerative compounds that come out of the collaboration. Yeah, that's right. The privately-held co. has agreed to an option-style deal that gives Elan first dibs on its potentially novel disease-modifying drugs in return for the security of funding. The deal is the first industry collaboration Proteostasis has signed since its splashy debut in 2008: a $45 million Series A financing from high-profile investors, including HealthCare Ventures, Fidelity Biosciences, New Enterprise Associates, Novartis Option Fund, and Genzyme Ventures. (Hmm, wonder what happens to any Novartis options as a result?) The company has stayed under the radar in the interim, using the time and considerable financial backing to build its platform, which is designed to target the biological pathways that regulate the correct folding or placement of proteins within a cell. (For more on protein folding and disease, check out this still-relevant Start-Up feature.) Proteostasis' molecules are still preclinical but the new alliance with Elan could accelerate the biotech's clinical development plans; that's because it marries the biotech's discovery technology with Elan's proprietary animal models, biology, med-chem and clinical development capabilities. --EL

Eli Lilly/BioCritica: Attention biopharma insiders! We interrupt your regularly scheduled programming to bring you news of that rare species observed in the Rx wilderness: the spin-out. On Monday May 23 came news that Eli Lilly was spinning out US development and commercial rights to its commercially underwhelming sepsis drug Xigris to private investors Care Capital and NovaQuest Capital. The new private company, which has been christened BioCritica, will focus initially on the continued development of Xigris but the ultimate goal is to create a portfolio of critical care medicines. To bolster its pipeline, BioCritica has the option to in-license other critical care compounds in preclinical development at Lilly as well as the right to acquire ex-US rights to Xigris. In exchange, Lilly will receive royalties on US sales of the drug and an equity stake in BioCritica. The financial terms of the agreement were not disclosed.The decision to shed Xigris reflects Lilly's effort to focus development resources, according to the company. Though Xigris has been available commercially since 2001, its sales have not met Lilly's or Wall Street's expectations and Lilly has had a spate of expensive late-stage development snafus. BioCritica will continue Lilly's work on identification of the best uses of the controversial treatment, which has serious bleeding side effects and questionable efficacy in the broad sepsis patient population.--Jessica Merrill

Medco/Exagen: Can Medco do for methotrexate in rheumatoid arthritis what it's done for warfarin in the blood thinner market? An interesting alliance announced Monday May 23 between Medco's research institute and the privately-held Exagen Diagnostics shows that it is going to try. Exagen, which has raised a minimal amount of venture money since its 2002 founding, has developed proprietary software to discover and create predictive molecular tests that can aid in disease diagnosis, prognosis, or predict a likely treatment response. One of its tests, Avise PG, helps doctors and patients monitor the effectiveness of low-dose methotrexate therapy in rheumatoid arthritis patients. The oral anti-folate is, of course, decades old --it was first introduced as an oncologic in 1947 and became an important part of the RA armamentarium in the 1980s. And compared to newer TNF-alfa injectables like Humira or Remicade or Simponi the drug is definitely a cost-effective choice for treating the auto-immune disease. The problem is that establishing the right dosing regimen for patients isn't trivial, since individuals metabolize the medicine so differently. (Hmm, methotrexate's profile is starting to sound a lot like another cheap, effective, but difficult to use medicine: warfarin.) And if docs can't get the dosing right in a defined period of time, the default is to move to the costlier biologics. For payers who are increasingly concerned about the cost of specialty products -- and RA is an area of intense interest these days -- new tests that can promote the use of older, cheaper drugs are an obvious solution. But there's got to be data showing the utility. Enter Medco, whose research arm will recruit around 400 patients to participate in a pilot study (called Nimble) gauging the usefulness of Avise in RA patients beginning methotrexate therapy. Docs will send patient blood samples to Exagen's lab, which will conduct the Avise test, and report back on appropriate dosing; outcomes data will be compared to a similar cohort of patients who don't receive the Avise PG test. Why should the drug industry care? Medco's been resurrecting warfarin, conducting a series of observational studies gauging the utility of the medicine plus the genetic test versus newer, pricier drugs like Pradaxa. If the Medco/Exagen team can demonstrate the same utility for methotrexate, it's bad news for newer RA meds, creating a higher bar for adoption with payers.-- EL

Valeant/Sanitas & Watson/Specifar: Need growth? Try a branded generics firm in Central or Eastern Europe. That's the message from a duo of deals this week, both acquisitions by hitherto US-focused firms – and the first of more to come as US growth shrivels up, according to those familiar. Barely a week after Takeda finally confirmed it was forking out €9.6 billion to buy Nycomed, whose attractions also included its strength in CEE and Russia, Canadian specialty pharma Valeant announced it was paying €314 million cash for Lithuania's listed Sanitas, and Watson snapped up Greece's privately-held Specifar for €400 million, plus earn-outs linked to a tablet form of Nexium due to launch in some markets later this year. Europe's ultra-tough pricing and reimbursement environment may make it a graveyard for growth in innovative drugs, but there's plenty of upside in generics, particularly of the branded, specialist kind. The battle for Germany's ratiopharm, ultimately won in March 2010 by Teva, was one of the more high-profile asset-grabs in this field. Valeant had to pay almost four times' sales for Sanitas, a healthy multiple that reflects what was a "dynamic" auction process, according to someone close to the deal. The attraction: for starters, development prowess in dermatology, ophthalmology and hospital injectables (niche, high-margin drugs), formulation expertise, some pipeline, and a portfolio that's 80% non-reimbursed (thus circumventing the government pricing pressures). The deal furthers Valeant's stated goal of doing at least five ex-US deals this year, and follows the February 2011 acquisition of PharmaSwiss, which provided a commercial infrastructure in Eastern Europe. If Sanitas shareholders think they did well, how about Specifar's: Watson appears to have paid over five times 2010 revenues for this group, based in a country whose economy is falling apart and where generic penetration is one of the lowest in Europe. Most of Specifar's revenues come from developing and out-licensing products worldwide, and it’s highly profitable, according to a source involved in the deal. So Watson has paid for a European R&D engine to bolster the sales infrastructure and starter revenue-base it started to establish via its $1.8 billion cash and stock deal in 2009 for Western-European based Arrow. --Melanie Senior

Nestlé/Prometheus Labs: Via its newly formed Nestlé Health Science subsidiary, global food products conglomerate Nestlé SA is buying specialty pharma and diagnostics provider Prometheus Labs as part of its goal of developing personalized nutrition strategies that will help in the management and prevention of chronic health conditions, according to the company’s announcement of the deal. Prometheus, which had been looking to go public, generated revenues of $519 million in 2010 including $316.5 million from the sales of the glucosteroid Entocort EC for Crohn’s disease, which Prometheus licensed from AstraZeneca for the US market in 2004. Prometheus also began distributing Novartis’ cancer drug Proleukin in the US in February 2010, which brought in $64 million. The diagnostic services business, comprising GI tests to differentiate irritable bowel disease (IBD) and Crohn’s from other disorders and oncology services to guide the use of targeted therapies, accounted for $81.3 million for the year, according to an S-1 amendment filed in February 2011. The companies are silent on the deal price, which an analyst cited in a Bloomberg report put at somewhere north of $587 million. Nestlé has also recently added Vitaflo, a maker of nutritional products aimed at individuals with genetic disorders that affect how the body processes food, and CM&D Pharma, which produces IBD, kidney disease, and cancer-related nutritional foods. But unlike those others, the Prometheus acquisition is aimed at the physician market. Nestlé is one of several food and consumer products companies thinking about ways it can leverage its marketing and distribution capabilities to deliver medical diagnostics and personalized medicine. Unilever has engaged the VC firm Physic Ventures to explore opportunities in the area, and for years, Procter & Gamble has maintained a notable presence at personalized medicine meetings. – Mark Ratner

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

What Lipitor? Pfizer's Strategic Shrinking Solution

Investor pressure on Pfizer to downsize radically has been rising for several months, controversial as it is, but Sanford Bernstein analyst Tim Anderson's jarring note on Monday underscored how serious Pfizer's new CEO Ian Read is about shaking up the ship.

"If we hadn't been there ourselves to hear it firsthand, we would not have believed it, but it seems from our recent meeting with CEO Ian Read that Pfizer may be destined for a significant shake up in the form of shrinking its behemoth ~$67 billion yr. revenue base," Anderson wrote. "No final decisions have yet been made, but all options appear to be on the table and through a series of major potential moves the "new" Pfizer might end up with annual sales of ~$35 to $45 billion/yr, something Read terms the 'innovative core…'"

The timing of such talk is hardly coincidental. Read was appointed CEO Dec. 5, almost exactly a year to the date from when Pfizer's leading drug Lipitor goes generic. What better way to deflect attention from that cataclysmic event than to rip up a company that just underwent a two-year reorg?

True, Lipitor may not face the worst kind of blood bath encountered by many small molecules once they go off patent, given various global six month exclusivities and extensions and Pfizer's own mapped plan for bolstering its sales in emerging markets. But analysts are projecting that the brand will lose at least 80% of its $5 billion in U.S. sales within a year.

And, if Pfizer spins out its $10 billion Established Products Business Unit – one of the plans under consideration -- even the 20% remaining revenues may no longer belong to it but to the new entity, in whatever shape that entails. Other moves in play include spinning out non-core consumer health, nutritional and/ or animal health businesses, which together make up about 15% of the company's total sales.

Underlying the yakking is a lingering disappointment in Pfizer's 2009 acquisition of Wyeth for $68 billion, as the company clearly has struggled to meet financial targets it set when it first announced the deal. A series of late-stage R&D failures also hurt. And there's the observation that even if the pipeline pans out, in an era of targeted therapy no one drug can move Pfizer's swollen needle. The stock therefore has barely budged, even as management cut spending, closed manufacturing sites, and shaved the once-generous dividend to help pay for the Wyeth acquisition.

Given all the challenges Pharma faces, the fierce discussion underway about right-sizing pharma is appropriate. But until now, deliberately downsizing an industry leader by taking $25 billion in sales off the table wasn't considered a viable option. Recall the debate that consumed Wall Street when Pfizer originally announced its Wyeth deal and Pfizer's then CEO Jeff Kindler's adamant argument that getting bigger was the best way forward.

In part, the sentiment underlying Pfizer's options – as Anderson points out -- could be the grass is greener in my neighbor's yard kind of wishful thinking, given how well the much smaller Bristol Myers Squibb has done as a focused company, which made a killing by spinning out its Mead Johnson nutritional subsidiary in early 2010. It could also be a response to investors looking for any sort of creative strategic idea to raise Big Pharma, and Pfizer in particular, from Wall Street's dumping ground.

Or, maybe it's all part of some brilliant rational plan. Two years ago, an unnamed source spoke to IN VIVO magazine about shrinking Pfizer: "But if Pfizer had wanted to do the spin-offs, they could have," one executive close to the transaction said. The tax problems with spin-offs, he believes, are no more challenging than those Pfizer is incurring by repatriating perhaps $8 billion in off-shore profits, which will likewise increase Pfizer's tax bill. In fact, this executive and others suspect that spinoffs will be in any event the longer term result of Pfizer's acquisition [of Wyeth]: after all, if Pfizer is serious about keeping its five business units managerially independent, each responsible for its own P&L, they'll also be larger and theoretically more sustainable–and thus better candidates for spin-offs."

No matter what course Pfizer takes, none of it gets the company off the hook for the need to improve its R&D. And there's no guarantee that shrinking will help that effort; while disciplined focus is helping Bristol on pharma innovation, it certainly isn't doing Lilly wonders (note the latter's recent efforts to bulk up its non-core animal health business, albeit on an entirely different scale than Pfizer's). But once again, the story will play well on Wall Street, which is waiting for some new ideas from pharma executives. -- By Wendy Diller

Versartis: So Cutting Edge

Early Wednesday, Versartis said it had raised a $21 million B round and, at the same time, spun out its lead molecule, an extended-release version of the type-2 diabetes drug exenatide, into a new company. Dig a little deeper, and you'll find the deal encompasses two cutting-edge trends in biotech financing.

First, Index Ventures, the firm that backed Versartis' Series A in 2009, is also investing in the new company, Diartis. It would love to match what it did with PanGenetics: create companies around single molecules with a leaner, cleaner path to exit. With PanGenetics, Index successfully sold one compound but saw the second fail in 2010. Last year, Index funded Mind-NRG, essentially one person and one asset, with an initial tranche of €1.5 million. This asset-financing vision is one Index has embraced, with other VCs cautiously following, as more traditional venture strategies are buffeted by continuing financial pressures and rare exit opportunities.

Second, the carve-out of Diartis from Versartis creates a second investment for Amunix, the platform company behind each firm's extended-release technology. The technology is the pegylation-like XTEN, which Amunix co-founder Willem "Pim" Stemmer wants to apply to a whole host of proteins. He says the firm is focused on a list of "20 to 30," some already commercial like exenatide, some "fallen angels" that failed in the clinic, and some addressing new targets. The idea is to get them ready for clinic, then either sell them directly or create new, Versartis-like companies around them.

It's a platform-only model, once dismissed as unworkable by investors who didn't see enough value creation to build a viable exit. But it's gaining traction. As this blog first reported last month, yeast-based antibody company Adimab is licensing its technology to newcos that will do the drug-development dirty work. First up is Arsanis, in Vienna, Austria.

We have a lot more on the deal in the next Pink Sheet Daily, including more thoughts from Stemmer -- who's been named a recipient of the 2011 Draper Prize, the nation's most prestigious engineering award -- and Index partner Kevin Johnson -- no, not that Kevin Johnson! -- plus a comparison of the Diartis GLP-1 diabetes molecule to other next-generation diabetes treatments. -- Alex Lash and Chris Morrison

Photo courtesy of flickerer LollyKnit.

Financings of the Fortnight Will Sell No Wine Before Its Time

Among many other things, last week's J.P. Morgan conference was a movable feast, what with all the sandwiches and fruit we ate while running from one meeting to the next, not to mention the fancy canapes (or as we say in California, "tapas") and glasses of merlot we quaffed while circulating after hours.

We're still digesting, and what at first blush seemed like a Beaujolais nouveau glow of optimism is now more subtle, more complex: we're getting a not-unmanly bouquet of strawberry and pine tar layered with the churlish piquancy of an overripe kumquat.

In all seriousness, what we're really feeling as we sift through our notes, replay our interviews, and follow up with old and new sources, is that there are more worrisome threads to tug on as we dive into 2011. For example, no one's quite sure where funding for innovation is going to come from in the next few years.

VCs? Sure, from the handful of early-stage stalwarts and quasi-rock stars. By and large, though, VCs are leaving a void, and so are their backers. Fundraising in 2010 across all venture sectors fell for the fourth straight year, to $12.3 billion, according to the National Venture Capital Association.

Meanwhile, liquidity is returning, what with the IPO market cracking open. As we noted in our post-JPM musings, several hopeful execs and investors mentioned the IPO as an exit option in 2011. But that's money out. What about money in? Big Pharma's continued willingness to plow big bucks directly into academia, as evidenced by three recent University of California, San Francisco deals and one with the Sanford-Burnham Medical Research Institute, speaks volumes. As the Burnham Institute's new chief business officer Paul Laikind told us last week, the guiding principle of the past decade for such collaborations has been to avoid the mistakes of the past. There's no proven model for pharma to turn academic investment into pipeline productivity, but they're still plugging away.

So is that the answer? Big Pharma's once-vaunted labs are disappearing, but its cash flows will let a thousand external innovations bloom via academic collaborations, corporate venture, licensing and M&A? Not so fast. There's a little something called the patent cliff, and it's no longer a distant notion. A new Datamonitor report calls for growth among the top branded pharma companies to slow to 1.5% by 2015. Of the 43 firms in the study, only six will exceed the 7.1% growth the industry averaged from 2003 to 2009. Only four Big Pharma -- Bayer, Novartis, Roche, and GlaxoSmithKline -- will generate growth above the 1.5% average in the next four years.

We're not throwing our weight completely behind one data set, nor do we believe that Pharma's cash reserves will dry up. After all, every layoff in the lab frees up dollars to spend outside Pharma's walls. But those dollars will be heavily scrutinized. Shareholders will want some of them back in their own pockets. And there are plenty inside Big Pharma's walls still fighting to keep those dollars in-house. We're not convinced Pharma can adequately address the widening Valley of Death, and we can't find anyone who thinks traditional VC will cycle back to its old "adventure capital" roots. And that makes us scratch our heads and continue to wonder who's going to pay to make the medicines that come to market 15 years from now.

We're just glad doctors now say it's good to have a glass of wine or two a day. We recommend pairing an earthy, sun-baked Rioja with a spicy plate of...



Dendreon: The Seattle immunotherapy pioneer said Jan. 14 it sold $540 million in convertible debt, due in 2016 and with an annual interest of 2.875%. The cash comes as Dendreon is rolling out its autologous treatment for prostate cancer, Provenge (sipuleucel-T), which was approved in the US last April. It isn't expected to gain heavy adoption until the fourth quarter of 2011, when the company has said it expects to gain half its revenue of $350 million to $400 million for the year. (Total 2010 sales were $47 million.) Meanwhile, Dendreon needs cash. Provenge requires complex logistics and multiple production facilities, as well as persistent education of medical staff. To create the product, a patient's immune cells are extracted at a blood bank or Red Cross center, shipped to a production center where the cells are exposed to a protein that acts as a prostate-cancer antigen, then shipped back and infused into the patient at a clinic. Dendreon is building out three manufacturing facilities in the US in New Jersey, Atlanta, and Southern California, and building another in Germany. The new cash will also go to fund ongoing commercial and regulatory efforts, particularly its European sales strategy, where Dendreon aims to sell Provenge on its own at the same price -- $93,000 a dose -- as in the US. The debt conversion rate starts at about 19.5 shares of stock per $1,000 of debt, or about $51.24 per share of stock -- a 40% premium over $36.60, which was the closing share price on January 13. Dendreon noted that the conversion rate could change "upon the occurrence of certain events." -- Alex Lash

Amarin: The Irish company completed an offering of $104.9 million in American depository shares this week, selling 13.8 million ADS at $7.60 a piece, a 2% discount to the price announced on Jan. 13. Amarin plans to use the funds to pay for commercialization of AMR-101, an omega-3 fatty acid meant to treat high triglyceride levels. Amarin has been chasing GlaxoSmithKline’s Lovaza, a medicinal-grade fish oil already on the market. Positive top-line results from a Phase III study conducted under a special protocol assessment from FDA showed in November that AMR-101 raised HDL-cholesterol, while lowering LDL, or bad cholesterol. The positive results will allow Amarin to file for approval of AMR-101 in 2011, a year ahead of schedule. Lovaza has annual sales of $1 billion but has a restricted indication due to its propensity to raise LDL-cholesterol. The momentum around AMR-101 has ratcheted up speculation that Amarin is a likely take-out target, fueled in part by the company itself. At the J.P. Morgan conference, new CEO Joe Zakrzewski told IN VIVO Blog Amarin is "definitely" looking for a commercialization partner but is weighing whether to partner before the final data from the Phase III ANCHOR trial reads out. Plenty of big firms with global reach could use a cardiovascular offering for their depleted late-stage pipelines. (Merck comes to mind, for starters.) Jeffries & Co. and Leerink Swann acted as joint book-running managers for the offering. -- Lisa LaMotta and Ellen Licking

Rib-X Pharmaceuticals: Antibiotic developer Rib-X said Jan. 11 it has raised a $20 million round led by longtime investor Warburg Pincus, mainly to fund a 240-patient Phase 2b trial of its lead product delafloxacin against standards of care linezolid and vancomycin. The firm hoped to be in Phase III by now, but an overhaul of FDA guidelines for clinical endpoints in complicated skin and soft tissue infections from drug-resistant bacteria, which delafloxacin is aimed to combat, pushed Rib-X into a Phase IIb. The biotech will now measure its medicine's ability versus comparators to stop the spread of lesions as well as fever abatement, the new primary endpoints in FDA's rewritten guidelines. Success in the trial would "substantially de-risk" simultaneous Phase III trials, as CEO Mark Leuchtenberger told IN VIVO Blog last week. Last year antibiotic rival Trius Therapeutics delayed for several months the start of a Phase III trial in skin and soft tissue infection to discuss design with FDA. It eventually proceeded without adding an intermediate trial to its program. Trius also put a planned IPO on hold for a few months but went public last August. Rib-X will have to raise more money or find a partner for a Phase III, said Leuchtenberger. The company also hopes to announce a partnership by the end of the first quarter for its preclinical RX-04 program against Gram-negative bacteria. -- A.L.

Civitas Therapeutics: Talk about breathing new life. Civitas is the spin-out of Alkermes' pulmonary business, which was left gasping for air in March 2008 when larger partner Eli Lilly dropped its inhaled insulin program, the third major program of its kind to get the kibosh in a five-month span. (The fourth and final, Afrezza from Mannkind, was just ordered back to the drawing board by an FDA complete response letter.) With its target Parkinson's disease, not diabetes, Civitas is resuscitating the AIR system -- an inhaler about the size of a fountain pen and a dry powder technology -- and taking over Alkermes' manufacturing plant in the Boston suburb of Chelsea. Civitas is armed with a $20 million Series A from Longitude Capital and Canaan Partners and ready to push aggressively forward with an inhaled version of an undisclosed Parkinson's treatment that CEO Glenn Batchelder told IN VIVO Blog he hopes to bring to clinical proof of concept by the end of 2012. The former CEO of BIND Biosciences, Batchelder said AIR can deliver a consistent, immediate dose to patients in the midst of an acute "off period" -- characterized by halting or frozen movement -- even when it might be difficult to draw a sustained breath. Bachelder said the company hasn't decided whether to target maintenance therapy, "rescue" therapy for acute attacks, or both. Alkermes remains a shareholder in Civitas with an undisclosed stake. -- A.L.

Image courtesy of flickr user nyoin via a Creative Commons license.