Grading Pharma Partnering in 2012: Needs Improvement

Biotechs looking to out-license assets are generally less satisfied with their potential partners, particularly with industry’s largest companies.

What’s more the areas where larger companies tend to excel – regulatory, reimbursement, commercial and market access capabilities, for instance – are seen as increasingly commoditized skillsets.

These are two takeawys from The Boston Consulting Group's latest biopharma partnering survey, which you can read about in more depth in our latest issue of IN VIVO.

San Francisco-based BCG partner Dirk Calcoen talked wth us about this latest iteration of the survey, the consulting firm's fifth since 2003. It was the first time that biotechs with assets for sale said they were less enthusiastic about potential partners' capabilities since BCG started the survey. “Even the companies that score really well, like a GSK – which of all the big companies is on top of the heap in terms of partnering characteristics – have actually moved down substantially” in the eyes of potential partners, he told us.

So what's going on? Perhaps its the fact that companies are doing fewer deals -- fewer biotechs finding partners might sour the group on the buy-side companies. Large companies may have also become complacent with their perceived 'partner-of-choice' status. As for why commercial capabilities are less of a draw for biotechs -- we're scratching our heads here. But it's possible that asset-sellers consider these characteristics prereq's for sitting down at the table -- and haven't yet begun to differentiate among large companies' skillsets. That also suggests bigger co's need to do a better job of demonstrating their prowess in these areas.

There are of course some bright spots. AZ hadn't featured near the top of BCG's survey in the past but put in a good showing this time around -- a result of a concerted effort to improve its standing among potential partners. (AZ of course also shared honors in this year's IVB Deal of the Year competition in the M&A category.) Once again Roche, GSK, and Merck all performed well -- just not as well as in years past.

Perhaps most interestingly some smaller companies have inched their way to the top of the league tables. Celgene and Novo Nordisk ranked first and second as companies that give sell siders have a positive impression. They also finished in near the top in an average ranking of nearly twenty attributes BCG measured in terms of what sellers were looking for in a partner.

Read our IN VIVO piece here. For more information on the survey and a summary of findings from BCG, click here.

Financings of The Fortnight Sneaks A Peek At The VC Survey

Pennant races are on. Kids are back to school. (Wait, whatever happened to summer lasting until Labor Day?) And 90% of the venture capital world is on vacation. Whew. Good thing we caught more than 100 of the top life science VCs earlier this summer to participate in START-UP Magazine’s second annual Life Science VC Survey.

We’re putting the finishing touches on our package of feature stories and survey results, including a series of questions for corporate VCs, an ever-more important subset of investors whose role in funding biotech innovation has changed dramatically in the past few years. We’ve asked our participants a battery of questions, and here's a sneak preview: The overall mood hasn’t improved from last year’s survey, and unlike last year, a handful of VCs planning to hit the pavement and raise new funds now tell us that they’re willing to take lower terms and fees (virtually zero said so in 2011). Some are also moving forward with plans for smaller funds and smaller staffs.

(You can find the 2011 survey here and here. Subscription required.)

One partial counterweight to the sour mood and fundraising difficulties is the Food and Drug Administration. In 2011, not a single optimist said the FDA was a reason to feel positive, while 80% of the pessimists said the FDA was one of the largest obstacles the life science industry faced. In 2012, it’s not all horseshoes and hosannas, but 23% of the people who call themselves optimists said the FDA was a reason to feel positive -- a big jump from zero -- while 73% of the pessimists named the FDA as an obstacle. Given the consistency in recent years of the nearly comical vitriol life science VCs have aimed at FDA, any improvement is notable.

Another focus of our survey is therapeutic area. VCs are eternally curious what their peers find the most interesting areas for investment, whether to avoid the herd mentality or to avoid being left behind. Topping the list of most compelling indications or technologies on the biopharma side for the second straight year are oncology and rare disease. The latter we find particularly interesting, seeing how some observers of the field think we could be in a rare-disease bubble at the moment, typified by the Enobia Pharma sale to Alexion at the end of 2011.

One disease area that received a surprising boost of investor confidence in our survey was metabolics/diabetes, which went from solidly unattractive in 2011 to just a bit more hot than not. On the flip side, one of this year’s biggest losers was next-generation biologics platforms, perhaps an acknowledgment that the gold rush of a few years ago has played itself out.

We also asked about politics and policy, geography and stage preference, and we’re slicing and dicing the results in various ways to find out how these subgroups of respondents intersect. We’ll feed you more tidbits in our next column and on Twitter (@invivoblogalex), but if we give away more this time around we’ll have to sing for our supper. Let’s get on with our round-up. Survey says it's…

Novira Therapeutics: Anti-viral drug developer Novira said Aug. 23 it had closed a $23 million Series A round led by first-time investors 5AM Ventures and Canaan Partners. Contract research organization WuXi PharmaTech, based in Shanghai and listed in the U.S., also participated in the round. Three-year-old Novira had been backed previously by seed-stage backer BioAdvance, as well as regional angel groups Mid-Atlantic Angel Group, Robin Hood Ventures and Delaware Crossing Investment Group, which had collectively supplied about $3.5 million to date; all contributed to the new round as well. The Philadelphia-area company plans to develop novel therapies that disrupt viral replication and proliferation by inhibiting the life cycle of the capsid, the protein shell that encloses genetic material inside of viruses. It currently plans to investigate drugs for hepatitis B and HIV, although candidates have not yet been identified for either indication. The company intends to retain rights to a lead program in HBV as it progresses into mid-stage trials, while it may partner an HIV program at an earlier stage, according to CEO Osvaldo Flores. Although HIV research has spurred excitement with renewed hope for a cure, deal-making in the space remains a rare occurrence. An SEC filing indicates that Novira has collected the first $11 million of a $26.5 million round, which Flores said includes the seed money as well. – Paul Bonanos

MediciNova: MediciNova, a specialty firm that licenses approved small-molecule compounds from Japanese companies for development and approval in the U.S., has signed a two-year, $20 million common stock purchase agreement with Aspire Capital Fund. The funds will lengthen MediciNova’s runway as it tries to move a pair of lead programs into pivotal clinical trials. Aspire has bought 606,000 MediciNova shares at $1.65 per share, the firm’s closing price on Aug. 2, for a total of $1 million. Headquartered in both San Diego and Tokyo, with shares traded on both countries’ stock exchanges, MediciNova was one of the more successful biotech IPOs in 2005, raising $113 million.  The income bought additional time for MediciNova’s business model in 2009, allowing it to outlast Biotechnology Value Fund in a battle to acquire Avigen, which brought MediciNova additional cash and the compound ibudilast (MN-166/AV411), in development for progressive multiple sclerosis, neuropathic pain and drug addiction. Ibudilast is currently in grant-funded mid-stage trials for drug addiction. MediciNova’s other lead program is bedoradrine sulfate (MN-221) for acute asthma and chronic obstructive pulmonary disorder. The Aspire deal will help MediciNova advance '221 into a Phase III trial in either acute asthma or COPD by early 2013, but it's unclear how much beyond that trial the cash will last. Based on Aspire’s previous dealings with biopharmaceutical companies, which include similar equity line arrangements with Bionovo and NuPathe, MediciNova expects Aspire to be a long-term investor, with an ownership interest that should reach and then remain in the 5% to 10% range. -- Joseph Haas

Elcelyx Therapeutics: San Diego-based Elcelyx announced a $7 million extension of its Series B financing on Aug. 13, as well as a pair of executive hires, including former Biogen Idec and Mpex Pharmaceuticals business development leader Mark Wiggins as its senior VP of business development. Built upon a platform that produces first-in-class Gut Sensory Modulators (GSMs), Elcelyx plans to develop two products: Lovidia, an over-the-counter weight-loss supplement, and NewMet, a delayed-release formulation of diabetes drug metformin, which the company says will offer a much better safety profile than existing formulations. It’s the latest example of a biotech, or a management team, using a single platform to pursue a dual prescription/over-the-counter strategy. Elcelyx’s two products could offer a life cycle management opportunity for a future pharma partner. Elcelyx launched in 2010 and has raised about $20 million in venture capital over its lifespan, including $17 million under the B round. The $7 million extension was funded by existing backers Morgenthaler Venture Partners, Kleiner Perkins Caufield & Byers and Technology Partners. At present, Elcelyx is taking down $4 million of the extension, which CEO Alain Baron said will take the firm “well into efficacy trials” for Lovidia and NewMet. – J.H.

Relypsa: Still trying to get its phosphate binding agent into Phase III, Relypsa has raised nearly $50 million as part of an $80 million Series C round, according to a regulatory filing. Its lead compound, RLY-5016, is designed to linger in the GI tract and absorb excess potassium, a toxic side effect of certain drugs such as blood pressure medicine. An acute buildup of potassium is called hyperkalemia and can lead to arrhythmia or cardiac arrest. RLY-5016 has been tested in five clinical trials since entering the clinic in 2008 and currently is in a 300-patient, year-long Phase IIb trial for the treatment of diabetic nephropathy. Data from the ongoing trial are expected to be presented later this year. Two Phase III trials are expected to start in early 2013. The company plans to file for an NDA by the end of 2013 and will commercialize the drug on its own, president Gerrit Klaerner told “The Pink Sheet” DAILY. Relypsa is the reincarnation of Ilypsa, a company bought by Amgen in 2007. After paying $420 million, Amgen spun out the remaining four preclinical compounds; Ilypsa’s previous management team has overseen the business. Amgen took an equity stake in the company, less than 20%, when it was spun out. RLY-5016 appears to be tracking behind original expectations. In 2007, at the time the company was formed, management was aiming to advance RLY-5016 into Phase III trials within 18 to 24 months. Later, upon the Series B raise in 2010, the company said those funds would be used to take the compound through Phase III. – Lisa LaMotta
 

Take the PharmAsia China Survey, Get a Discount to PharmAsia Summit-Shanghai

Our colleagues at PharmAsia News are launching a survey on the China life sciences industry. We encourage all readers interested in China to participate. (Filling out the survey should take five minutes and in exchange you'll be eligible for a 15% discount on the PharmAsia Summit-Shanghai Sept. 24-26.)

The rise of emerging markets like China has provided life sciences companies with significant new growth opportunities, but also the challenge to achieve better health outcomes in regions struggling with affordability barriers and huge unmet medical needs.

China, in particular, is on the radar of most industry executives given its scale. China has risen to become the world’s third largest pharma market, according to data from IMS Health, and some analysts believe China is already the second largest market, trailing only the U.S.

To gain a better understanding of how industry is integrating China into their global strategies, Elsevier Business Intelligence (publisher of PAN, In Vivo, and "The Pink Sheet", among other titles) is teaming up with BayHelix, an organization of leaders of Chinese heritage in the global life sciences community, and the Monitor Group, a leading strategic consultancy, to launch a proprietary survey of PharmAsia News and EBI readers.

To start the survey, please click here.

Findings from the survey will be included in an exclusive report on innovation in China, to be released during the PharmAsia Summit-Shanghai (sponsored by EBI and BayHelix). In addition, selected findings will be covered in PharmAsia News during the weeks leading up to the Summit.

Please note that survey participants will remain anonymous. You will be issued a special code at the end of the survey to receive your 15% discount to the PharmAsia Summit-Shanghai.

Thank you for participating!

photo by Josh Berlin

Financings of the Fortnight Follows The IPO Froth

We're big fans of Fortune columnist Dan Primack (not pictured here). But we couldn't help notice this line in his Thursday morning "Term Sheet" newsletter: "Small company IPOs are just fine."

It's an elision we often see from our brothers and sisters in the press. "IPOs" is a kind of shorthand for "high-tech IPOs that make young nerds rich." Generally Primack is right; there are many small companies with excellent chances of ringing that bell. Very few of them, though, are in the biotech sector, where IPOs are not just fine. Investor appetite for the next Web thingamadoodle is far more whetted than it is for the next cancer-drug developer that's, say, five years and a massive regulatory review away from the ability to sell its product.

It's a big reason we're seeing schisms in hybrid venture firms, with the health-care side shutting down or leaving to join other like-minded investors. For the former, see the Scale Venture Partners story that broke this week (scoop to Primack!); for the latter see our blurb below on the Morgenthaler/Advanced Technology Ventures news or our "Pink Sheet" story here.



We're not surprised the high-tech froth of recent months hasn't bubbled over into the biotech sector, but might we be on the verge of a froth-sharing moment thanks to Groupon? For those of you who've been glued to a lab bench the past couple years, Groupon is the online daily coupon service that, despite getting caught with its hand in the creative-accounting cookie jar, raised $700 million in its Nov. 3 IPO. Other hot tech firms like Zynga (games for Facebook) and Yelp (unfiltered reviews from the unwashed masses) are grabbing hold of its coat tails, but might a few biotechs follow?
 

They should try. As we report in the upcoming issue of START-UP, it behooves biotechs to grab for the IPO brass ring rather than stay private. We analyzed the fundraising of 35 companies that have gone public either in the US or abroad since the start of 2008. Those companies have raised more money (average and median) than comparable companies who remained private, even if total dollars for the pool of public firms is dwarfed by the total amount raised by their private brethren. And this is while most of the IPO class are still trading below their IPO price. We won't give away all the data, but we will note this: 31 of the 35 had at least one asset in Phase II development or later, and several firms had marketed products at the time of the IPO. 

Because of that, it won't be a shock if Clovis Oncology, which threw its hat into the IPO ring June 23, emerges with the roughly $130 million it's seeking to raise next week. It's got a late-stage, reconjugated version of well-validated cancer drug gemcitabine aimed at metastatic pancreatic cancer, with a companion diagnostic that it hopes will help pinpoint the patients whose tumors have a mutation (low hENT1 expression) that confers resistance to standard gemcitabine therapy. Clovis also has seasoned management with an impressive deal-making record, and massive venture backing. (And incidentally Newlink Genetics with a $43 million debut today managed to sneak out ahead of them to raise money to fund late stage clinical development of their pancreatic cancer treatment. More on NewLink below.)

But when a biotech with cutting-edge technology that's at least a year away from putting a drug into the clinic files its paperwork, we take notice. Verastem? Really? Remember just a few months ago when VCs told us as part of our life-science venture survey the only thing they were less eager to fund than stem-cell related companies was RNAi-related companies? 

Granted, Verastem is going after cancer, but to do so it's using technology from the Whitehead Institute to create cancer stem cells, against which they screen small-molecule compounds. Now, Verastem was able to attract venture money -- in fact it raised a Series C just as it filed its S-1 (with a $50m target, current backers have poured in $68 million and include Longwood Founders Fund, MPM Bioventures, CHP, and Bessemer Venture Partners). But it'll require extremely biotech-savvy public investors, who are already more freaked out than the caterer at a Berlusconi Bunga-Bunga party, not to hear "stem cells" and "preclinical" and not say, "Take $100 million more in venture cash and call me in seven years." Perhaps we're overstating the potential for cold feet. It's often too easy to find warning signs in the risk-factor section of a company's S-1, which includes everything but the possibility of flaming asteroids crashing to Earth, but this sentence caught our eye: "Research on CSCs [cancer stem cells] is an emerging field and, consequently, there is ongoing debate regarding the existence of CSCs."


Perhaps the recent deal struck by Celgene -- $45 million for exclusive use of Quanticel Pharmaceuticals' cancer genome analysis technology and options to buy Quanticel outright -- is a validating moment. One of Quanticel's cofounders at Stanford specializes in the isolation and characterization of individual cells, including those that are tumorigenic, or stem-cell-like, within a tumor. Is Celgene's cash commitment a sign that the study of cancer stem cells is about to yield clinical results, and thus, more interest from drug makers willing to pay premiums for the technology?

That's a big question that Verastem's backers hope potential investors might ask, too. Because if the public market buyers don't see the real connection between cutting-edge science and tangible benefits, they'll just move on to the next Groupon.   


How's this for a spontaneous Web-based daily discount? Free of charge, it's...

Morgenthaler Ventures/Advanced Technology Ventures: One result of the painful venture shakeout has been consolidation. Limited partners frustrated by weak returns are choosing to allocate funds among specialized firms rather than diversified ones. That’s bad news for hybrid firms that invest in both tech and life sciences, who are increasingly finding the model untenable. Case in point: the venerable Morgenthaler Ventures, whose biotech team split from the firm to join forces with two partners from Advanced Technology Ventures and form a new life sciences-only fund, as yet unnamed. A Morgenthaler spokesperson declined to discuss the situation, but a source close to the firm told "The Pink Sheet" DAILY that the seven-person team had originally aimed to raise a life science-only fund of about $200 million within Morgenthaler, but instead separated from the organization. The group had already allocated its half of the $400 million fund Morgenthaler closed in 2008, while the firm’s tech team continues to invest its share. ATV, meanwhile, had downsized over the past year, retaining only its general partners. ATV and Morgenthaler have invested side-by-side in several companies, including UCSF spinout Calithera Biosciences, catheter technology developer Ardian (acquired by Medtronic for $800 million), and microbial diagnostics startup Second Genome. Of course, not every hybrid firm is in trouble; Avalon Ventures, for one (profiled here), closed an oversubscribed $200 million fund in January. Avalon founder Kevin Kinsella may not appreciate Big Pharma’s negotiating tactics, but he and his LPs will surely enjoy the mammoth return from its previous fund: It holds a 6.1% stake in online game maker Zynga, slated to go public this month at a valuation that could exceed $15 billion. -- Paul Bonanos

AffiRis: The Strungmann brothers, who have invested in a string of German biotech companies since they sold their generics company Hexal to Novartis six years ago, have targeted Austria's AffiRis as their first biotech investment outside Germany. Through their investment vehicle, Santo VC, the Strungmanns have taken a €20 million equity stake in the Vienna vaccines company. At the same time AffiRis' existing investor the MIG Fund, a Munich venture firm, put in €5 million. Santo and MIG have also acquired an option to increase their stake in AffiRis by a further €30 million. The move underlines the support of entrepreneurial families in Europe for the biotech sector, not just during this tough funding period but historically. Firms such as Merck KGaA and Roche were family-run for decades and descendants of the founders still hold substantial stakes. Another German biotech benefactor is software mogul Dietmar Hopp, who has invested more than €300 million in at least 15 firms -- mainly around his home town of Hoffenheim -- in the past decade through his firm dievini Hopp Biotech Holding. AffiRis is collaborating with GlaxoSmithKline on a potential Alzheimer's disease vaccine, one version of which is in Phase II clinical trials. It also received $1.5 million in October from the Michael J. Fox Foundation to support development of a Parkinson's disease vaccine scheduled to enter Phase I clinical trials early in 2012. The new funding plus the option represent a huge step-up for the firm, which previously had raised €11.5 million in a Series A and extension, all from MIG. -- John Davis

Rempex Pharmaceuticals: Rempex gets high marks for fundraising, but low marks for creative naming. A spin-out of assets from the former Mpex Pharmaceuticals -- which makes us sad they didn't try, say, "Mpex 2: Electric Boogaloo" or "Mpexer Than Ever" -- the firm announced November 9 it completed the first closing of a Series B financing that could reach $67.5 million, the seventh-highest Series B figure for a biotech in the last five years according to Elsevier’s Strategic Transactions database. Just ahead of it: a pair of $70 million fundraisings from Amyris Biotechnologies in 2007 and Relypsa last year. (Yes, Relypsa was a follow-on to Ilypsa, so perhaps boring sequel names are the way to go.) New backers Frazier Healthcare Ventures and Vivo Ventures joined existing shareholders SV Life Sciences, OrbiMed Advisors, and Adams Street Partners in Rempex’s round, which brings the total equity in the June 2011 start-up to $76 million. Rempex was established with the infectious disease assets from Mpex, which was acquired this past April by Axcan Pharma (now Aptalis Holdings). Axcan bought Mpex primarily for Aeroquin, an aerosolized form of levofloxacin in Phase III for pulmonary infections in cystic fibrosis. That left several preclinical candidates to be spun off, and now Rempex, led by former Mpex management, is aiming for FDA approval for a gram-negative therapeutic sometime early next year. The spun-out assets also include efflux pump inhibitors partnered with GSK in a 2008 deal that gave the Big Pharma’s infectious disease CEDD an exclusive option to EPIs combined with GSK antibiotics. -- Amanda Micklus

NewLink Genetics: NewLink debuted on the Nasdaq Friday, Nov. 11 and raised $43 million by selling 6.2 million shares at $7 each. The share price was well below the $10-$12 range it hoped to hit, and shares traded flat in the first half of the day of the firm's debut. Ames, Iowa-based NewLink has a lead immunotherapy drug for pancreatic cancer, and the IPO proceeds will help pay for Phase III trials, with 161 patients already enrolled as of Sept. 1 toward an enrollment goal of 700. The firm has received fast-track and orphan designation for the drug in adjuvant treatment of surgically-resected pancreatic cancer. The immunotherapy, dubbed HyperAcute Pancreas, is allogeneic; it does not depend on the patient's own cells. The most high-profile cancer immunotherapy on the market is Dendreon's Provenge (sipuleucel-T), which modifies a patient's own cells before re-infusing them back into the patient. NewLink is not venture-backed. The only listed institutional 5% stockholder is Stine Seed Farm, also of Iowa. CEO Charles Link owns 17% of the company. -- A.L.
 

Photo courtesy of flickr user jessicafm via the Creative Commons license.

It's the Post Where We Give Away Free 3-Month Subscriptions to Our Premium Content If You Fill Out a Short Survey

"Survey Says!?"

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