Deals Of The Week: Has BioCryst Struck Out?

As baseball executives gathered at the Opryland Hotel in Nashville during the week of Dec. 3 for the trade and free agency frenzy known as the winter meetings, the deal-making also continued in the biopharma corner. But just as executives from many major league teams were waiting for the strategies of big spenders like the Texas Rangers and Los Angeles Dodgers to materialize so they could make their corresponding moves, it was a week of frustration at BioCryst and Presidio as a planned merger that might have created a new significant player in the hepatitis C space crumbled under the weight of three rapid clinical setbacks.

In the aftermath of a third setback, FDA placing a clinical hold on oral hereditary angioedema compound BCX4161 the week of Nov. 26, the two companies announced Nov. 30 that they mutually had decided against a planned all-stock merger announced on Oct. 18 that would have created a new company with a wholly owned portfolio of three oral antiviral candidates for hepatitis C.

During an investor call Dec. 7, BioCryst announced that it will cut its staff by 50% while reducing planned cash-burn for 2013 by as much as 45% while it narrows its focus on the HAE and HCV programs, as well as preclinical broad-spectrum antiviral BCX4430. CEO Jon Stonehouse explained that the three clinical setbacks - the delay of a clinical trial for NS5B inhibitor BCX5191 in HCV because of toxicity concerns and the likely clinical failure of flu candidate peramivir - had eroded the North Carolina biotech's stock price.

"Despite these setbacks, we have a path forward for BioCryst to rebuild shareholder value because of our promising compounds," the exec said. "Following the review of BioCryst's assets, resources and cost structure, we concluded that restructuring and a highly focused approach to our development programs was required. This will preserve cash and enable BioCryst to reach near-term milestones that will give us greater insight regarding the opportunity and risk associated with our three core programs."

The planned merger with privately held Presidio not only would have combined HCV assets, but also would have brought BioCryst a needed injection of cash. The deal valued Presidio at $101 million and would have involved 24.5 million new shares in BioCryst being issued to Presidio's investors. At the same time, Presidio shareholders would commit to providing $25 million of a planned $60 capital raise for the new company.

Now, the retrenched BioCryst will cut down from 75 positions to a headcount of 37, which Stonehouse said reflected reductions evenly spread throughout the organization. Instead of spending $40 million in R&D and associated costs in 2013, the company now anticipates a cash-burn of $22 million to $25 million, excluding deal-related and restructuring costs. BioCryst will record a restructuring charge of between $2 million and $4 million during fourth quarter 2012.

The revised R&D plan is to study low doses of '5191 in HCV-infected chimpanzees in an attempt to demonstrate meaningful antiviral activity at lower doses than previously used in clinical trials. In November, BioCryst withdrew an IND for '5191 due to safety concerns regarding renal toxicity at the dosage thought needed to benefit human patients. BioCryst expects go-or-no-go data from the chimpanzee studies in early 2013, Stonehouse told the investor call.

The company also hopes to begin a Phase I study of '4161 in January 2013 to demonstrate the safety, level of drug exposure with oral administration and pharmacodynamic effects of the kallikrein inhibitor. BioCryst, which hopes to position '4161 as an oral prophylactic against HAE attacks, thinks such a product would be a game-changer in the rare disorder space. For now, however, the drug is stalled as FDA implemented a clinical hold on '4161 due to concerns about compounding of the drug at trial sites.

BioCryst also plans to seek medical journal publication of a manuscript describing the activity of '4430 in certain filoviruses. That candidate's prospects loom crucially because peramivir is considered virtually dead after a Phase III trial was ended due to poor efficacy findings.

While BioCryst and Presidio were mired in a "No-Deal," however, other biopharma companies were proactive just like the executives in the baseball world during the past week. Now, it is time to "play ball" with ...

Baxter/Gambro: In an effort to extend its global footprint to areas like Latin America, Europe and the Asia Pacific, Baxter International has agreed to pay $4 billion including the assumption of debt to acquire Swedish dialysis company Gambro, which reported revenues of $1.6 billion annually. Baxter is using its cash held overseas to pay for the transaction and the deal is expected to close in the first half of 2013. “With Baxter generating more than two-thirds of its cash overseas, we view the Gambro acquisition as a smart way to put that money to work,” wrote Leerink Swann analyst Danielle Antalffy in a note to investors. The acquisition rounds out Baxter’s kidney dialysis business, adding Gambro’s suite of hemodialysis products to its own peritoneal dialysis offerings. Gambro’s products typically are used in the hospital setting, while Baxter’s products usually are used in the home. Baxter expects to see $300 million in cost synergies by 2017 and add approximately 7% to sales over the next five years. The company currently brings in revenues of $13.8 billion. “Over the last three years, Gambro’s growth has been roughly flat, and Baxter's renal business has grown about 4%,” wrote Morgan Stanley analyst David Lewis. “Pro forma for the deal, Baxter believes it can accelerate growth to [about] 6% by investing to relieve Gambro capacity constraints, leveraging Baxter’s global selling infrastructure, using Gambro to accelerate the home HD launch, and using the new breadth of the business to pursue public/private partnerships.” - Lisa LaMotta

Optimer Pharmaceuticals/AstraZeneca: Building on its regional partnering strategy for Dificid (fidaxomicin), Optimer Pharmaceuticals has signed AstraZeneca to market the antibiotic in South America, including in Brazil, Central America, Mexico and the Caribbean in a deal announced Dec. 3. AstraZeneca has a “major market position in three key Latin American markets, Brazil, Mexico and Columbia, according to Optimer CEO Pedro Litchtinger. AstraZeneca will pay Optimer $1 million upfront, up to $3 million in milestones upon first commercial sale in certain countries, and up to $19 million in other milestones contingent on the achievement of sales-related targets in the region. In a related supply agreement, Optimer also stands to receive payments from AstraZeneca that amount to a double-digit percentage of net sales in the territory. One of a few big pharmas still investing in antibiotic drug development, AstraZeneca is Optimer’s fourth commercial partner. The company already has signed a co-commercialization deal with Cubist Pharmaceuticals in the U.S., and deals with Astellas Pharma in Japan and Europe and Specialised Therapeutics in Australia. It’s all part of a strategy Optimer says is focused on finding commercial leaders in key regions of the world while focusing its own attention and resources on North America, where it is building a commercial organization. The company still expects to sign at least one more partner to bring its Clostridium difficile infection treatment to China. - Jessica Merrill

Ironwood/Protagonist: Constipation drug seller Ironwood Pharmaceuticals and peptide discovery platform company Protagonist Therapeutics said Dec. 6 that they have expanded an existing partnership. The parties did not disclose terms or specifically differentiate the expanded partnership from its two-year-old predecessor, but expressed that both sides are pleased with the progress of the existing deal to discover new therapeutics addressing unmet needs, based on Protagonist’s Disulfide Rich Peptide (DRP) platform. Like the January 2011 deal, the new arrangement includes an upfront payment by Ironwood, along with milestones and royalties if a product advances through the clinic and is approved and marketed; Ironwood will continue to fund full-time staff within Ironwood’s walls in order to evaluate and develop potential products. The companies did not identify which therapeutic areas are covered under the existing or new partnership, and they have not announced any product candidates from the original collaboration yet. Ironwood says it has discovered most of its pipeline on its own thus far; it currently markets Linzess (linaclotide) for irritable bowel syndrome with constipation and chronic idiopathic constipation. Protagonist established a separate discovery collaboration with Zealand Pharma in June 2012. - Paul Bonanos

MD Anderson Cancer Center/GlaxoSmithKline – University of Texas’ MD Anderson Cancer Center has tapped GlaxoSmithKline to help it develop and commercialize an antibody discovered by scientists at the center. Anderson will handle preclinical activities, while GSK will be responsible for clinical development and commercialization. Under the deal announced Dec. 7, the cancer center will receive an undisclosed upfront payment as well as research funding and development milestones. Anderson indicated that the deal could result in $335 million in payments for the center, as well as royalties on any commercial products that are developed. The antibodies activate OX40, a protein that stimulates the immune response in T-cells against cancer. "This agreement is not only a testament to the vision shared by GSK and MD Anderson that successful clinical development of oncology drugs requires seamless integration of drug development expertise and deep biological knowledge," said Giulio Draetta, director of the Institute of Applied Cancer Science at Anderson, in a statement. - L.L.

Mediolanum/Genovax: Eporgen Venture, one of Italy’s first suppliers of seed capital to life science companies from a network of private, non-institutional Italian investors, reported on Dec. 4 the first major transaction by one of its portfolio companies, Genovax, which has sold its Phase II-ready potential therapeutic cancer vaccine, GX-301, to the Italian pharma company Mediolanum Farmaceutici. Eporgen President Konstantinos Efthymiopoulos expects several other transactions involving Eporgen-supported companies to complete in the next few months, and is aiming to raise up to €10 million ($13 million) in additional financing to develop other assets to proof-of-concept in its portfolio companies, which ideally but not necessarily would be clinical proof-of-concept. Italian research and science is as good as in other European countries, Efthymiopoulos said, although he acknowledged that life science entrepreneurship and the network of academic technology transfer offices is not as highly developed. It is only a question of time before the country catches up with its neighbors, he asserted. GX301 will boost its research interests in oncology, Mediolanum said; it will take over all future development and commercialization activities for GX301. A Phase II study in patients with prostate cancer is expected to start in the first half of 2013. - John Davis

StemBANCC: One of the largest European “open innovation” projects to date will see Switzerland’s Roche and the U.K.’s Oxford University coordinate the work of nine other pharmaceutical companies and 22 other academic institutions in Europe on creating more than 1,500 human-induced pluripotent stem cell lines to use as disease models to discover new therapies. This and other new EU projects announced Dec. 5 echo themes for TransCelerate BioPharma, an initiative announced Sept. 18 involving 10 international drug companies which also seeks to identify and solve common drug-development challenges, although focused more on regulatory than research issues. The EU’s StemBANCC project, a public-private partnership formed as part of the EU’s Innovative Medicines Initiative (IMI) will have a budget of €55.6 million ($73 million). The funding will include €26 million from IMI’s EU funds and “in-kind” funding of €21 million from the participating drug companies. The in-kind funding includes company employees and their costs, access to research equipment, facilities and database access. The cell lines, of which 500 will be derived from patients, will be used to set up models of disease, like diabetes or dementia, in order to accelerate the drug-development process. - J.D.

Photo credit: Wikimedia Commons

There's A Financings of the Fortnight In Every Crowd

"Psst, wanna buy some biotech?"

It’s already helped rock singers and indie film makers and arapaima trackers. But can crowdfunding help fill the life sciences venture gap?

The JOBS Act of 2012, signed into law by President Obama in April, aims to let small private companies raise money and go public more easily. Part of the law deals with the brave new world of equity crowdfunding, or selling private shares to the grass roots. Many of the details have yet to emerge from the Securities and Exchange Commission, which is charged with writing the new rules, including those that regulate crowdfunding. That means US entrepreneurs eager to use the model for the time being have to give something other than equity as remuneration for their backers’ cash. On the science-focused site PetriDish.org, you can search for projects based on the awards they’re using as compensation. (Get back to us when someone offers hats.)

Another example a bit closer to our hearts – or more accurately, our guts – are two citizen-science projects on the crowdfunding site IndieGoGo that ask the unwashed masses to submit body swab  samples and help build massive microbiome databases. (The more unwashed the masses, the better!) Both of the projects, American Gut and uBiome, have a sliding donation scale, but for less than $100, contributors will receive a kit to swab their various regions and, er, effluences, and submit them for analysis. Once processed the personal microbial profiles are made available back to the contributors. (Hey, a hat would be nice, too.) We’ve reported on the caution VCs have shown so far toward the wealth of microbiome data emerging from this new field, so we’re eager to see if projects like these, if and once they meet their crowdfunding goals, draw interest from more traditional investors. 

Despite the temporary regulatory limbo, plans are afoot in the US to create crowdfunding platforms that let start-ups sell equity. (We’ll dig into one of those plans in the next Capital Matters column of START-UP.) Elsewhere, the model is already underway. As we noted in this column in October, the French crowdfunding site Wiseed.com shepherded grassroots investors to what it says is the first-ever equity crowdfunding exit – through a biotech firm, no less. French antibiotic developer Antabio raised €300,000 from 207 crowdfunders in late 2010. The firm pulled in a Series B round from an angel investor a year later, and in mid-2012, the same angel offered to buy out the crowdfunders’ shares. It’s not clear what kind of return they received. An Antabio spokeswoman told the IN VIVO Blog in October it was a 2x return, but Wiseed’s own material calls it a 44% return. And the co-editor of this site says he invested €1400 and received €2434, a 73% return. (When we get clarification, we'll pass it along.)

Back in Washington, the SEC recently held a small-business meeting and took public comment on what its JOBS-related rules should look like. Some of the key crowdfunding questions remain up in the air, such as: Should equity crowdfunding services be regulated lightly, like the arts-donation site Kickstarter, or treated like broker-dealers? With serious questions like that still unresolved, we probably won't know anytime soon whether crowdfunding can become a real piece of the life science funding puzzle. But you can still find all the other puzzle pieces every two weeks by opening the rectangular cardboard box marked…

BioTime: The San Francisco Bay Area stem cell company said November 15 it has secured $10 million from an unnamed private investor to help pay for its proposed acquisition of assets from stem-cell pioneer Geron. Those assets have been in limbo for a year after Geron said abruptly in November 2011 it would end its stem-cell R&D to focus on small molecule cancer treatments. Geron’s spinal-cord injury treatment, derived from embryonic stem cells, was the first of its kind to enter the clinic, the most advanced example of cutting-edge stem-cell technology that has, to date, been slow to attract backers beyond California’s publicly funded regenerative medicine agency. Led by a Geron cofounder and its former CEO, BioTime in October made a public offer for Geron’s stem-cell assets. On November 15, concurrent with the financing announcement, BioTime published a non-binding letter of intent with Geron. If consummated under the terms outlined in the letter, the deal would create a new company to house the Geron assets, with Geron shareholders receiving more than 21% of the common stock and warrants to buy 8 million common shares of BioTime itself. The unnamed financier would put $5 million into the new company in exchange for 7% of the common stock and three-year warrants for roughly 350,000 shares at an exercise price of $5 per share. In addition, BioTime would contribute to the new company $5 million in cash, $30 million in BioTime common shares, warrants, and other rights. The anonymous investor’s other $5 million would go to the parent BioTime to buy 1.35 million common shares at about $3.70 per share, plus three-year warrants to purchase 650,000 shares with an exercise price of $5 per share. – Alex Lash

Lanthio Pharma: New European biotech start-ups have been few and far between this year. Tapping an unusual syndicate, however, the new Dutch firm Lanthio said November 27 it has raised a €4.8 million Series A round to push a lead compound from its peptide discovery platform into clinical trials, likely to treat lung fibrosis. The round was led by seed investor BioGeneration Ventures, which specializes in Dutch start-ups. But the surprising part of the funding news is that 20-year-old German antibody firm (and first-time investor) MorphoSys also took part. It will take a minority stake in Lanthio, and it will also become an R&D partner, receiving what the companies called “preferred rights to exclusively license” Lanthio’s technology for drug discovery. No financial details were disclosed. Spun out of the University of Groningen in 2011, Lanthio’s platform produces peptides that are stable in circulation and act as receptor agonists – relatively rare, as most peptide technologies find it easier to produce receptor antagonists. Other investors included INKEF Capital and Hanzepoort. INKEF Capital is an investment vehicle for the largest pension fund in the Netherlands, Stichting Pensioenfonds ABP. The round remains open for one more investor, Lanthio CEO Bart Wuurman told our colleagues at “The Pink Sheet” DAILY this week. "The number of European life science VCs with money to invest in new companies can be counted on one, maybe two, hands, as they appear to be keeping back financing for their existing investments," Wuurman said. – John Davis

Applied Genetics Technology: As we noted in September’s issue of START-UP, some VCs have taken a shine to gene therapy companies lately. Once considered far too risky for investors, the field has seen an unlikely renaissance recently, thanks to improved clinical data sets, improvements in manufacturing, and even a drug approval that could be a bellwether. On Nov. 19, the latest investment in the sector went to Gainesville, Fla.-based Applied Genetics Technology Corp., which reaped $37.5 million in a new Series B round. Leader Alta Partners was joined by first-time backer and GSK affiliate SR One as well as academic spinout specialist Osage University Partners. Returning investors from AGTC’s $11.8 million Series A round in 2009 included InterWest, Intersouth Partners and MedImmune Ventures. AGTC will use the funds for a Phase II trial on a therapy for alpha-1 antitrypsin deficiency, a protein disorder that leads to loss of lung function and liver damage, as well as early-stage treatments for the rare eye disorders achromatopsia and X-linked rentinoschisis. AGTC uses adeno-associated virus vectors to insert DNA into cells in order to correct genetic disorders. In early November, Belgian gene therapy company uniQure received European approval for Glybera (alipogene tiparvovec) to treat a rare protein deficiency, making it the world’s first gene therapy to gain regulatory approval. – Paul Bonanos

TauRx Pharmaceuticals: Just when you thought late-stage Alzheimer’s trials were done for a while, the Singapore-Scotland hybrid TauRx said November 20 it has received the first tranche of a $112 million equity investment to help push its lead candidate into Phase III. The money comes from a sole investor, Genting Management, a subsidiary of the Malaysian conglomerate Genting Berhad. The full investment is due by year’s end, according to TauRx, and gives Genting a 20% stake in TauRx. It brings the company’s total equity raised to nearly $300 million since its 2002 inception. The company says those Phase III trials have already begun enrolling. They will total more than 1500 patients around the world to confirm disease-modifying effects that a Phase II trial of an earlier version of the drug showed in mild to moderate Alzheimer’s patients, says the company. The firm’s treatment, dubbed LMTX, is aimed at dissolving the tangles of tau protein implicated in the decline of cognitive function of Alzheimer’s. The leading theory of the past decade or so -- that clearing accumulation of beta amyloid, another protein in the brain, would ameliorate the disease -- has encountered major setbacks in recent years, most notably the Phase III trial data released this year for the drugs bapineuzumab and solanezumab. Those disappointments have helped boost a cautious resurgence of work on other pathways such as tau that might lead to an Alzheimer’s treatment. They have also pushed researchers to theorize that beta-amyloid accumulation is a symptom of Alzheimer’s, and once present too late to respond to treatment. – A.L.

The Best of the Rest: To support lead candidate delafloxacin in Phase III for acute bacterial skin and skin structure infections, Rib-X Pharmaceuticals completed the first tranche of a $67.5 million Series 2 preferred share financing… led by Lilly Asia Fund, Chinese mAb developer Innovent Biologics  brought in $25 million in Series B funding… in a Series F to advance EPI743 in Phase IIb for two orphan indications, Edison Pharmaceuticals raised $20 million… French immunotherapeutics company TxCell cleared $15 million in a Series C round… Life Sciences Partners led a $12.8 million late-stage round for blood cancer drug maker Kiadis Pharma… NanoBio’s $11 million Series C will support development of infectious disease candidates and nanoemulsion-based vaccines… With $8 million from Pfizer Venture, Rhythm Pharmaceuticals expanded its June 2012 Series B to $33 million… MabVax Therapeutics raised $5.25 million in a Series B…an at-market RDO of Series A convertible preferred stock brought in $40 million for spec pharma BioDelivery Sciences to support completion of Phase III for chronic pain candidate buprenorphine… In an amended S-1 filing, Audeo Oncology set a range of $14-16 for 3.25 million shares in its planned IPO… A private placement of convertible debentures brought in $12.7 million for OTC-traded cancer therapeutics developer Arno Therapeutics… Concurrent with in-licensing of Genentech’s Phase I IAP inhibitor GDC0917, Curis secured $30 million in debt financing from Pharmakon in exchange for certain future Erivedge royalties. -- Maureen Riordan

Photo courtesy of flickr user James Cridland, whose photo stream is crowded with cool pictures.

Financings of the Fortnight Checks The Forecast

We’ve got forecasts on the brain this fortnight. No laughing matter: What happened on the East Coast with Hurricane Sandy was grim, and as of this writing remains so. If you haven’t yet, please take a minute to donate to the relief effort.

A continent away, we here at FOTF HQ have many colleagues, friends and loved ones directly affected by the storm; before, during and after we have watched intently. The forecast called for disaster, and the storm brought fresh appreciation for what that overused term really means. We’re always amazed how people shrug away warnings of impending danger by saying previous warnings didn’t live up to their billing. Hurricane Irene barely ruffled New York City’s feathers, so how was Sandy going to be any different? Psychologists say this all-too-human trait is a reliance on cognitive schemas – forming assumptions or predictions upon an organization of previous experience.

We here in earthquake country are taking some time this weekend to make sure our emergency supplies are refreshed and at hand. Just because there hasn’t been a Big One in our lifetimes doesn’t mean there won’t be one tomorrow.

One example of humans – indeed, Californians – trying to imagine beyond their previous experience was the creation of the California Institute for Regenerative Medicine, or CIRM, a $3 billion bond measure the state voted for in 2004 to create an untouchable reservoir of funding for stem-cell and regenerative-medicine research. Whether such a measure would pass today, with the state fighting its way through a mountain of debt, is another matter. But Californians agreed eight years ago with the forecast that warned this brave new scientific world needed a protectorate. Eight years later, those monies are slowly making their way up the R&D food chain. In our next issue of Start-Up, we’ll check in on CIRM and the effect of its public largesse, including the new stem-cell-related companies that have sprung from CIRM-funded academic projects. CIRM has also funded a handful of for-profit companies through its various grant programs, and one thing our story will explain is a new initiative that awards grants to companies with solid venture backing or corporate partnerships. One of those awards just went to bluebird bio, which we detail in our roundup below.

Bluebird also happens to be part of another story in the next issue of Start-Up. The firm's $60 million Series D round, announced earlier this year, has significant participation from crossover investors; it's one of many big venture rounds in recent months to include hedge or mutual funds. The recession drove them away from investing in pre-IPO companies for the most part, but like a slow-moving weather system, the cycle has spun back around. The crossovers are back, investing the past 12 months in a sizable number of the venture rounds of $50 million or more, and we’ll explain why – and what’s different this time.

Another company in the news this fortnight is one of the biggest crossover successes to date, Puma Biotechnology, which became public in 2011 via reverse merger but only recently gained a listing on a major stock exchange – and raised $138 million to boot, as we explain below in our roundup.
 
Meanwhile, the real fundraising begins this week in thousands of towns, from the nation's largest on down, to put lives and communities back together. We're forecasting a lot of hard work ahead, and we're keeping everyone who was in Sandy's path in our thoughts as we head into another edition of...


  
bluebird bio: The gene therapy company said October 26 it received a $9.3 million grant from the California Institute of Regenerative Medicine to push forward a Phase I/II trial of its treatment for beta-thalassemia, a genetic blood disorder. Bluebird’s lentivirus technology inserts a gene into a patient’s hematopoetic stem cells ex vivo to correct a mutation, the cells are reintroduced to the patient and prompt the bone marrow to start producing healthy red blood cells. The stem-cell angle qualifies bluebird for a grant from CIRM, which was approved by California voters as a $3 million bond in 2004 to create a steady source of stem-cell and regenerative medicine support. The bluebird grant is part of CIRM's new $60 million fund earmarked for companies that have either rounded up significant venture backing or secured a partnership. Bluebird is in the former category, having announced in July a $60 million Series D round, and puts the Cambridge, Mass. firm in the spotlight of a small renaissance for gene therapy, as we detailed in a recent Start-Up article. The field fell into disfavor for much of the previous decade, but a gene-therapy product was approved today in Europe, and bluebird has made clinical progress, with safety concerns giving way to clinical, manufacturing and commercial problems to solve. -- Alex Lash

Puma Biotechnology: The single-asset company quietly went public through a reverse merger in late 2011, but only recently did it tap the public markets for the first time, all while upgrading its listing to the New York Stock Exchange. On October 24 Puma closed out a $138 million offer, selling 8.625 million shares at $16 apiece that included more than a million additional shares purchased by the underwriters. The company was formed to develop neratinib, a small-molecule PAN-HER inhibitor licensed from Pfizer in October 20011. The compound is currently in Phase II trials to treat HER2-positive breast cancer. In November 2011, Puma reverse-merged into a shell company and raised $60 million by selling 16 million shares at $3.75 each to a group led by Adage Capital Partners, even though its stock was not listed on an exchange. It began trading publicly in April on the over-the-counter bulletin boards. Its shares closed Wednesday Oct 31 at $20.60. Part of the company’s appeal is its founder's track record. Puma is led by Alan Auerbach, who built Cougar Biotechnology around the prostate cancer drug abiraterone, brought it into Phase III, and sold it to Johnson & Johnson in 2009 for $1 billion. J&J ushered abiraterone to an FDA approval in 2011 with the trade name Zytiga. Like Puma, Cougar in 2006 reverse-merged its way to public standing and raised cash to push forward its lead candidate. The J&J deal helped peel away some of the stigma reverse mergers carry (as in, “if you couldn’t go public the normal way, how good can your company really be?”). One high-profile VC actually said last year the acquisition provided inspiration to reverse-merge the osteoporosis company Radius Health into a shell. Radius recently filed for its first public offering, aiming to bring in $56 million, and a Nasdaq listing. -- A.L.

Atara Biotherapeutics: Amgen and venture firm Kleiner Perkins Caufield & Byers jointly announced the spinout and funding of Atara Biotherapeutics on Oct. 26, creating the company to house and develop six Amgen assets. The start-up will have programs in nephrology and oncology, with assets ranging from pre-clinical to Phase I. Amgen will retain an unspecified amount of equity in the new company, while Kleiner will provide funding in its early days. A former Kleiner partner, Isaac Ciechanover, will be its chairman and CEO. Neither Amgen nor Kleiner would comment specifically on the assets or why Amgen chose not to develop them itself, and it’s not yet clear whether Kleiner will eventually close a formal Series A round or attempt to form a funding syndicate with other VCs. The biotech and venture firm have a prior relationship: Boston-based cancer drug maker Tesaro, a Kleiner portfolio company, acquired a key asset from Amgen in 2011, a year before it went public. Amgen has spun out other companies as well; it created Relypsa to house assets that formerly belonged to Ilypsa, a company it acquired in 2007. – Paul Bonanos

Aclaris Therapeutics: Newly formed dermatology start-up Aclaris announced Oct. 24 a $21 million Series A funding with the founder and former CEO of Vicept Therapeutics and  support from the same three venture capital firms that backed Vicept. Vivo Ventures and Fidelity Biosciences led Aclaris’ initial funding, and Sofinnova Ventures provided a supplementary component of the round. A $16 million Series A round from those three firms supported Vicept from its inception in 2009 through its July 2011 buyout, in which Allergan paid $75 million upfront. Aclaris CEO Neal Walker wouldn’t disclose the nature of its primary asset except to say the compound is a preclinical, topical treatment for a highly prevalent condition. The drug will have both medical and aesthetic uses. Aclaris is the second entity to emerge from NeXeption, which establishes, funds and supplies management to independent operating companies tied to individual assets it believes are potential targets for pharma partnerships. The model echoes creative asset-based financing structures that venture firms have formed, such as the Velocity group carved out of venture firm CMEA Capital, the Atlas Venture Development Corp., or Inception Sciences, which was formed by Versant Ventures to discover drugs and spin them out into single-asset virtual operating companies. But the start-ups under NeXeption’s umbrella will license rather than discover new assets, and they will be standalone entities staffed by a combination of NeXeption executives and additional employees brought in to suit their specific needs. NeXeption also shares risk with outside venture investors, while taking equity itself. NeXeption’s first company was Ceptaris Therapeutics, which is developing a topical treatment for cutaneous T-cell lymphoma. Vivo also has invested in that company, formerly known as Yaupon Therapeutics. – P.B.

 Photo courtesy of flickr user Brian Birke via 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.

Deals of the Week Doubles Down on Neuroscience

Hit me! While many Big Pharmas have shied away from central nervous system drugs lately, at least one is placing bets on early-stage scientific advancements in neuroscience. AstraZeneca's new neuroscience innovative medicines unit (iMED) is still a virtual company division, but it is showing some real concrete progress in its deal-making, making a pair of deals that redouble its commitment to neurodegenerative diseases.

On July 12 (a warm summer's evening, on a train bound for nowhere?), it announced its second and third agreements since the division was set up earlier this year, acquiring a portfolio of small molecule assets from the U.S. company Link Medicine and, separately, entering into a research alliance, dubbed the A5 alliance, with four academic laboratories to evaluate the role of apolipoprotein E4 (ApoE) in Alzheimer's disease.

In the Link Medicine deal, AZ's neuroscience iMED has acquired a number of molecules in the clinical and preclinical stage that target the enzyme farnesyltransferase and modulate autophagy – the process whereby cells degrade and recycle their own misfolded or damaged proteins. Neurodegenerative diseases such as Parkinson's and Alzheimer's diseases are characterized by a build-up of such incorrectly folded, aggregated or neurotoxic proteins.

Established in 2005 by two philanthropists and Harvard Medical School neuroscience researcher Peter Lansbury, Link Medicine will receive unspecified upfront and milestone payments, while AZ will assume all R&D activities with the programs. Link Medicine has courted little publicity since it was established, although it did raise $40 million from a couple of VCs, Clarus Ventures and SV Life Sciences, in 2008, in a series C funding round.

With the A5 alliance, AZ will join with Dr. Steven Paul of Weill Cornell Medical College, Dr. David Holtzman of Washington University, St. Louis, Dr. Peter Davies of the Feinstein Institute for Medical Research, and Dr. Cheryl Wellington of the University of British Columbia, to try to identify, validate and risk reduce ApoE-related drug targets in Alzheimer's. Although ApoE is well-known to be a risk factor in Alzheimer's, second only in importance to age, no drugs have been developed which target ApoE-related mechanisms. AZ will fund the research. Since being set up in February 2012, AZ's neuroscience iMED, through the pharma's biologics arm MedImmune, has also forged an agreement with the U.S. company Axerion Therapeutics involving preclinical antibodies for Alzheimer's disease.

As AZ places its bets, some other companies have doubled down with pairs of deals. We hope you'll take a chance on us with the latest installment of...

Verastem/Pfizer and Verastem/Eisai: Verastem had a busy week, striking two separate deals that will help build its cancer stem cell-focused pipeline. On July 11, Verastem in-licensed Pfizer Inc.’s focal adhesion kinase (FAK) inhibitor formerly known as PF-04554878, which Pfizer decided to stop developing after a strategic review of its portfolio. Pfizer is not currently developing any FAK inhibitors, but GlaxoSmithKline Inc. and Boehringer Ingelheim GMBH are both developing compounds against this target that are currently in Phase I. VS-6063, as the compound will now be known, has completed a Phase I safety study in 36 patients with advanced solid tumors that was presented at the American Society of Clinical Oncology meeting last year. The study showed that the compound was well-tolerated and showed signs of clinical activity. Verastem will receive all intellectual property surrounding ’6063, including a composition of matter patent that will last until 2029, and in exchange Pfizer will reportedly receive an upfront payment of $1.5 million in cash, about $2 million in stock and the potential to earn $125 million in milestones. Verastem will be solely responsible for the development of the compound. Hours later, the company announced that it inked a deal with Eisai Inc. to collaborate on its Wnt inhibitor program, based on its compound VS-507. The 12-month collaboration will focus on analogs of VS-507 and Verastem will have full ownership of any compounds that result. Verastem will use its Wnt signaling and cancer stem cell assays to test the resulting analog compounds for selectivity. Eisai will be eligible for royalities and will have the right of first negotiation on any compounds that result. Having concluded the agreement with Eisai, Verastem announced that it will deprioritize the development of ‘507 as it pushes the FAK inhibitor program into the clinic. – Lisa LaMotta

 

Alnylam/Ascletis:  Looking for a partner for its Phase II-ready RNAi candidate for hepatocellular carcinoma (HCC) for more than a year now, Alnylam found one – at least for China and three other small Asian markets – in a licensing deal with U.S./China hybrid Ascletis. Announced July 12, the deal provides Ascletis, headquartered in both Hangzhou, China, and Research Triangle Park, N.C., with rights to develop and commercialize ALN-VSP in China, Hong Kong, Macau and Taiwan. Although Alnylam is eligible for milestones and sales royalties, it receives no upfront payment in the deal. Alnylam Chief Business Officer Laurence Reid told our sister publication PharmAsia News that gaining the rights to use Ascletis’ trial data for registrational efforts in other countries matters more to his company than an upfront payment. “From our perspective, the largest HCC population is in the Asian region, particularly China, where it’s driven by the dreadful prevalence of hepatitis virus infections, so having them finance the advance of the drug in that population and us getting rights to the data, that’s the basic value-swap of the deal,” Reid said. About 55% of new diagnoses of HCC each year occur in China. Ascletis CEO Jinzi Wu said his firm would negotiate a Phase II protocol with China’s State FDA, with a plan to test ALN-VSP in about 100 patients with a primary endpoint of progression-free survival.— Joseph Haas

Janssen/Evotec/Harvard: Regenerating ailing pancreatic islet beta-cells inside a patient's body is the aim of a new three-way collaboration announced July 11 between the J&J unit, Janssen Pharmaceuticals Inc., the German drug discovery services company Evotec AG, and Harvard University. The deal comes only a year after Evotec forged links with the Harvard laboratories of Prof. Doug Melton, to help advance research on small-molecule and biological substances that appear to regenerate beta-cells, and move closer to a potentially curative approach to diabetes; the project's name, CureBeta, highlights the ambitious nature of the enterprise. Janssen has paid a relatively modest $8 million upfront to take potential products arising from the research through clinical trials and on to the market, with Evotec and Harvard sharing in milestones worth a $200-300 million per product, and royalties on sales. The size of the split was not revealed. The research should add to Janssen's efforts in diabetes which notably include a new type of antidiabetic, canagliflozin, which ws recently submitted for marketing approval in the U.S and Europe. The German company's role in providing a bridge between academia and the pharmaceutical company is a new one  – making academic research more attractive to the industry through "industrial-standard" experimentation in industrial-grade infrastructure, rather than its usual role of providing discovery development services for biotech and pharma companies. Perhaps buoyed by CureBeta's success, Evotec has set up similar projects in other areas, including CureNephron, another collaboration with Harvard set up in February 2012; CureNeuron and CureHeart. – J.D.

Janssen/Genmab: Separately, Janssen's U.S.-based immunology, oncology and nephrology unit Janssen Biotech will collaborate with Danish biotech Genmab to identify and develop bi-specific antibodies for multiple disease targets, under the terms of a deal announced July 12. Janssen agreed to pay DKK 21 million ($3.5 million) up-front in the deal, which also includes potential milestone and licensing payments valued at DKK 1.06 billion ($175 million) for each drug. Janssen will fund research on panels of antibodies supplied by Genmab, for disease targets Janssen has identified. Although the companies didn’t specify the disease areas on which they will focus, Genmab typically uses its “DuoBody” platform to discover and develop drugs for cancer, autoimmune and infectious diseases, and central nervous system disorders. Publicly traded in Denmark, Genmab previously introduced the antibody Arzerra (ofatumumab), approved by FDA for chronic lymphocytic leukemia in 2009. – Paul Bonanos

John Davis reported on both AstraZeneca deals. Thanks to Flickr user twobobswerver for taking a chance with a five and a six, and sharing via Creative Commons.

Financings of the Fortnight Starts Spring On the Right Foot

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Financings of the Fortnight Looks For the IPO Insiders

We've got windows on the brain this fortnight after seeing Verastem, a wee cancer stem cell company that says its first drug might be ready for clinical trials later this year, convince the public markets to buy its stock. The Cambridge, Mass. firm, which is targeting cancer stem cells that drive aggressive disease such as triple negative breast cancer, raised $63 million starting January 26 by selling 6.3 million shares at the midpoint of its targeted range of $9 to $11 per share. One caveat: Verastem insiders, including Advanced Technology Ventures, Bessemer Venture Partners, CHP, Longwood Fund, and MPM Bioventures, bought nearly $15 million of the offering, leaving the underwriters a little less work to do. (Interesting to note that the bankers received the same commission -- 70 cents a share -- on all shares sold. In some cases, as we'll see soon, underwriters get a smaller commission for the shares insiders purchase.)

But that's all wonky deal stuff. The larger point is that biotech IPOs can get done, especially when the folks who've been pumping cash into the company promise to keep doing so. Insider participation in IPOs can be tough to measure -- lack of mention in regulatory filings doesn't mean it's not happening -- but if it is happening, and the company thinks the purchases are material, they let us know. At FOTF HQ, we've been debating whether insider participation is a sign of desperation to get a deal done or a sign of long-time owners who simply love their portfolio companies and want to smother them with more hugs. Most people we talk to, be they entrepreneurs, lawyers, or VCs, say it's desperation. But all agree that there can be exceptions. (People at Ironwood Pharmaceuticals, whose follow-on fundraising we detail in this week's round-up, have long insisted that insider purchases in their 2010 IPO came from their long-term bullishness, an attitude the company is careful to cultivate in documents such as the prospectus for its latest offering.)

Deals also get done when those involved have a long track record of bringing companies to Wall Street. Verastem and its technology might be young in years -- it was founded in 2010 around research published in 2008 and 2009 -- but the co-founder and CEO is Christoph Westphal, whose previous companies include IPOs (Alnylam Pharmaceuticals, Momenta Pharmaceuticals) and acquisitions (Sirtris Pharmaceuticals, Alnara Pharmaceuticals). "Later stage is better, sure," says investor relations specialist Lilian Stern, who connects venture-backed biotechs with public buyers, "but people are happy to bet on the jockey."

Let's shift the metaphor to a different sport: As soon as Verastem cleared the lane, antibiotic developer Cempra and cancer specialist ChemoCentryx took the ball to the hoop. Mind you, the former was no slam dunk. Half of Cempra's $50 million IPO came from insider purchases. You hear the mantra all the time -- "the IPO is just another round of funding" -- but Cempra is a particularly acute example. There's been a lot of insider participation in IPOs since late 2009, and among those with publicly available details, Cempra's insider crutch is among the largest. (More on Cempra below.)

ChemoCentryx sold 4.5 million shares for $45 million, below the terms of 4 million shares at $14 to $16 per share it first expected. In a side deal, its two largest shareholders, GlaxoSmithKline and Techne Corp., bought $7 million and $5 million respectively at the IPO price of $10 a share in separate private placements.

One firm that had no mention of insider participation in its regulatory filings was Merrimack Pharmaceuticals. (Perhaps because investors have pumped nearly $270 million into the company over nearly two decades, most recently with a $77 million Series G round, at an average share price of $3.92.) Guess who had to postpone their IPO? We should have seen it coming. There were hints as early as last October, if you knew where to look. But seriously, the only reason Merrimack gave for the delay was unfavorable market conditions, which is odd, because the conditions are as favorable as they've been for months. In its last terms before withdrawing its IPO, the firm set a goal of raising $150 million through the sale of 16.7 million shares. It's possible that some Merrimack investors were poised to buy at IPO. As noted above, no mention of it could simply mean the firm didn't feel the information was material. But in such a large IPO, even a small percentage of insider purchase would add up to big dollars, and lawyers who work on IPOs told FOTF it's unlikely that kind of activity would go unmentioned. (Look for more on IPO insiders in the next issue of START-UP.)

Who's next? As of this writing, TVAX Biomedical is scheduled to debut any day now, shooting for a miniscule offering of $20 million. Radius Health is the latest to file (see below). It's an odd case, however, as the firm has technically been public for several months after maneuvering onto the bulletin boards via a reverse merger. Otherwise there's not much raring to go. Last year from March through August an average of 29 U.S. firms per month filed paperwork, according to IPO research firm Renaissance Capital. Since then, the monthly count hasn't topped 20, and biotech companies have been few and far between.

IPOs might be rare; we don't care. Every two weeks, you'll always have...

Radius Health: Osteoporosis and women’s health-focused Radius filed an S-1 with the Securities and Exchange Commission Feb. 7 to seek an initial public offering. Pricing and amount of shares have not been determined. Based in Cambridge, Mass., the company’s lead candidate is BA058, an analogue human parathyroid hormone-related protein (hPTHrP) for postmenopausal osteoporosis being developed in both injectable (Phase III) and transdermal (Phase II) formulations. To lead the late-stage clinical charge, the firm hired former Genzyme CFO Michael Wyzga as its president and CEO in December 2011. A month earlier, the biotech drew down the second portion - $27.65 million – of a three-tranche $91 million venture round to fund the Phase III study of the injectable formulation and launch a Phase II trial of the transdermal version. The company hopes to position ‘058 as a direct competitor to Lilly’s Forteo (teriparitide), the only current osteoporosis therapy that builds bone, rather than slow the rate of bone resorption. Radius laid the groundwork for its listing on the NASDAQ through a reverse-merger in May 2011 with shell company MPM Acquisition Corp, which created a recapitalized entity currently traded on an over-the-counter basis. MPM Capital emerged as the largest shareholder with 39% of Radius, followed by the Wellcome Trust (13.4%), HealthCare Ventures (10.7%) and BB Biotech Ventures (8.9%). -- Joseph Haas

Cempra: Apparently the antibiotic maker didn't manage to get all the bugs out of its February 2 initial public offering, which required heavy participation from pre-IPO shareholders. Cempra, whose lead program CEM-101 (solithromycin) just completed Phase II in an oral dose to treat community-acquired bacterial pneumonia, raised $50 million by selling 8.4 million shares at $6 a piece, a sharp drop from its goal of selling 6 million shares between $11 and $13 each. Cempra says it will use about half the proceeds to start a Phase III pivotal trial of CEM-101 this year, but it cautions that it will need to raise more cash to pay for materials and testing to support its marketing application for CEM-101. Existing shareholders bought 4.2 million shares, which couldn't have pleased Cempra's bankers. Their commission on the shares sold to insiders was 21 cents per share, half the commission they earned on sales of shares to new investors. Which insiders bought IPO shares wasn't immediately available; the top owner pre-IPO with 19.3% was Wistar Morris, an angel investor and scion of a famous Philadelphia family quite familiar with biomedical research, followed by Intersouth Partners (18.7%), Aisling Capital (18.6%), and Quaker BioVentures (18.5%). The firm underwent a 1-for-9.5 reverse stock split on January 29. Stifel, Nicolaus and Leerink Swann led the underwriters, which also included Cowen & Co. and Needham & Co. They have an option to buy up to 1.26 million shares in the over-allotment period. -- Alex Lash

Ironwood Pharmaceuticals: The Cambridge, Mass. developer of the late-stage gastrointestinal treatment linaclotide has begun selling 5.25 million shares of common stock with an eye toward raising at least $73 million at the Feb. 6 closing price of $14.85 a share. Underwriters J.P. Morgan and BofA Merrill Lynch have 30 days to buy an additional 787,500 shares at the public offering price. The firm also said that the FDA won't schedule an advisory committee meeting for linaclotide, which Ironwood has partnered in the US with Forest Laboratories and submitted for FDA review in August 2011. Company shares dropped then regained most of the temporary loss, closing Feb. 9 at $15.09 to approach the six-month high of $15.67. It's the first time Ironwood has tapped the public markets since its 2010 initial public offering, which raised $203 million for the company. Known most of its life as Microbia, Ironwood took in more than $330 million in venture capital over 12 years. Since 2008, the firm has had a dual-class share structure designed to discourage takeovers by placing change-of-control decision-making with long-term shareholders. There's another company creating a bit of IPO buzz lately that also has a dual-class structure in place. Bookface, or something. (Its debut promises to be a wee bit pricier than Ironwood's.) And it's interesting to note that Facebook CFO David Ebersman is also on the Ironwood board. (It's his only public board seat*.) The former Genentech wunderkind, who in his 15 years there rose to become CFO, joined the Ironwood board in July 2009, and he signed on at Facebook two months later. In November of that year, Facebook announced it would adopt a dual-class stock structure. -- A.L.

* A previous version of this post incorrectly stated that Ironwood was David Ebersman's only board membership. He is also on the board of at least one private company. We regret the error.

Acetylon Pharmaceuticals: The Boston biotech, working on an HDAC inhibitor to treat multiple myeloma, announced a $15 million investment from Celgene on February 9. The cash comes with no apparent strings attached: Acetylon says Celgene's chief commercial officer will be a board observer, but the big biotech isn't taking a board seat or receiving rights or options to Acetylon assets. The cash, Celgene's first investment in Acetylon, is untranched and brings Acetylon's total cash raised from equity to $50 million, CEO Walter Ogier told FOTF. The Celgene cash is also independent of the $28 million Series B the firm closed in 2011. Three HDAC (histone deacetylase) inhibitors have been approved in the US, one of which is Celgene's Istodax (romidepsin) for cutaneous T-cell lymphoma and peripheral T-cell lymphoma, both in second-line settings. Celgene bought Istodax's sponsor, Gloucester Pharmaceuticals, as soon as it was approved for CTCL in 2009, and Celgene has since expanded the label to PTCL. Acetylon's lead program ACY-1215 is a second-generation, more selective HDAC inhibitor that it hopes will avoid the harsh side effects of some of the first-generation pan-inhibition drugs, particularly Merck & Co.'s Zolinza (vorinostat), as the field becomes more crowded. Acetylon says ACY-1215 could be tested in combination with Celgene's franchise leader Revlimid (lenalidomide) for progressive multiple myeloma. The firm has not yet published results of preclinical tests of the drugs together. -- A.L.


Photo courtesy of flickr user orijinal via a Creative Commons license. Thanks, orijinal!