Thursday, September 10, 2009

Financings of the Fortnight: PIPEing Hot Returns?

The deal that Norwegian biotech Algeta signed with Bayer last week for its Phase III Alpharadin bone metastases candidate sent its shares soaring. The stock spiked to NOK83, closing the day on an all-time high of NOK56.

The investors in Algeta's February 2009 private placement have certainly achieved the venture-like return that VCs who invest in public biotechs aim for. That financing, led by Abingworth, was priced at NOK11 per share and brought Algeta NOK245 (about $35mm) in development capital.

If you're keeping score, that's more than a 5x return in about six months. Not too shabby!

We wrote back in April 2009 in IN VIVO that private investors looking for bargains in a downtrodden market could emerge as an important source of capital for cash-starved public biotechs, but cautioned that few companies--Algeta and its ilk, firms with late stage assets ready for partnering or about to hit a significant clinical or regulatory hurdle--would attract big PIPE dollars.

So how's our prediction holding up? The other two companies we profiled post-PIPE are doing quite well, though haven't had 500% gains like Algeta. Micromet is up more than 75% since raising the September 2008 PIPE that brought in $40mm through the sale of shares/warrants at $4.25; Cadence is up more than 50% since it sold $87mm in shares/warrants at $7.13 in February 2009.

But it appears that we were right in suggesting that VCs wouldn't pile into public biotechs en masse. According to data we crunched for September's Valuation Watch column in Start-Up, in 2006 and 2007 private placements largely kept pace with follow-on public offerings as a source of capital for public biotechs. Even though numbers were down substantially across the board, this held true in 2008. But so far this year, FOPO cash is more than double cash raised from private placements. FOPO totals are looking like they'll return to 2007 levels, but private placements, not so much.

There are plenty of reasons for this trend (that is if it is a trend at all, it may be a fluke). VC fundraising hasn't exactly been easy--sure some firms have plenty of money to spend on public biotech investments but others need to conserve dry powder to keep their existing portfolio companies afloat; FOPO financings have surged, as we noted in August; and even VCs with cash earmarked for the public markets have set high bars for the quality of their investments--regardless of fire-sale prices.

Speaking of quality, it's time for ...

Gloucester Pharmaceuticals: Following successful fund raises by Acetylon and Constellation recently, another venture-backed company working in the field of epigenetics has raised cash. And Gloucester Pharmaceuticals has a lot of things to be happy about. On August 25 it closed a $29 million Series D financing (according to the Form D, it’s raised $20.3 million so far). Joined by existing shareholders, Novo AS led the round, which brings the total invested in the firm to $100 million. Days after announcing the financing, Gloucester was boosted by more good news--the FDA’s Oncologic Drugs Advisory Committee (ODAC) voted almost unanimously (10 in favor, 1 abstentation) to recommend approval of the company’s HDAC inhibitor Istodax (romidepsin; FK228) for cutaneous T-cell lymphoma without the requirement for a randomized controlled trial. The news was surprising, given that the day before it ruled on Istodax, ODAC voted that randomized controlled trials in elderly patients with AML, feasible or not, would be required for Clolar and Onrigin (from Genzyme and Vion, respectively). As the only candidate in Gloucester’s pipeline, there’s a lot riding on the outcome of Istodax’s NDA (PDUFA date is November 12) plus results from upcoming studies of romidepsin in peripheral T-cell lymphoma. Gloucester has been developing the candidate since 2004 (a year after it was founded), when it licensed exclusive worldwide rights from Fujisawa, which was getting out of the cancer area just prior to completing its merger with Yamanouchi.--Amanda Micklus

Novelos Therapeutics: It looks like a win-win situation for Novelos Therapeutics and Purdue Pharma. The two entered into a private placement agreement on August 26 that makes Novelos a few million dollars richer, possibly giving it some breathing room financially beyond the end of this year, and provides Purdue a substantial stake in another biotech company. Purdue has initially bought 5.3 million Novelos common shares for $0.66 (a pretty good discount of 20% based on the share price ten days prior to the announcement of the financing) for total proceeds of $3.5 million. Purdue also received warrants to buy 1.8 million more shares for the same price, and could purchase another $5.5 million in common stock if additional authorized shares are available. The extra money improves Novelos’ cash position (it had $4.5 million in cash and equivalents at the end of Q2), which could change dramatically depending on the outcome of a single pivotal Phase III trial for lead compound NOV002 in advanced non-small cell lung cancer. Results are expected early next year. Through its Mundipharma affiliate, Purdue holds European and Asian rights to the candidate under a February deal, and at the same time the current financing was announced, it worked out an agreement to negotiate a license in the US, Canada, Mexico, and Latin America. Based on our raw calculations, Purdue’s stake in Novelos is now approximately 38%, including the equity that Purdue bought--200 Series E preferred shares that convert into 15 million common--as part of the February alliance. Purdue looks to be seeking out investments in early-stage companies outside of its traditional focus on pain meds. Novelos is the second biotech Purdue has made a significant investment in since its breakthrough collaboration with Infinity last year, a deal that also focused on cancer drug development.--Amanda Micklus

arGEN-X: Forbion Capital Partners and Life Sciences Partners have led a Eur9.5 million Series A for the Dutch antibody platform play arGEN-X, demonstrating again that there is no sating VC appetites for large-molecule platform start-ups. KBC Private Equity, BioGeneration Ventures and founding investors Erasmus MC Biomedical Fund and Thuja Healthcare Capital also chipped in. arGEN-X boasts a handful of ex-Ablynx executives at the helm (led by CEO Tim Van Hauwermeiren and CSO Prof. Hans de Haard, PhD) which is fitting since the company is, like its compatriot, developing a platform based on camelid antibodies. One big difference? arGEN-X's Simple Antibody engine creates full sized mAbs, not single domains like Ablynx's Nanobody platform. A description of arGEN-X's platform, which the company says yields unencumbered mabs 'with best in class human germline homology,' is here. It remains to be seen whether Big Pharma appetites for mAb platform acquisitions will continue to match VCs' enthusiasm for funding such companies, but we doubt we've seen the last novel mAb platform start-up.--CM

image by flickr user copyrider used under a creative commons license

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