Corporate VCs Star In Financings Of The Fortnight

Oh, venture capitalists. After Dow Jones released its third quarter investment numbers for venture capital two weeks ago, we decided to mine our database to see if all flavors of vc--traditional and strategic--were equally affected. It wasn't terribly surprising to discover that investment from traditional VCs had plummeted--as we noted in our previous post, it's hard to commit money when your pockets are empty.

But to our surprise, investing by strategic groups also dropped in the same period. (You want to know by how much? You'll have to check out the Valuation Watch column in the November START-UP.)

Hang on a minute. Haven't we been arguing for months that corporate venture groups will play a starring role in new company creation, filling the vacuum left by financially struggling traditional players? We have, and we stand by that assesment for the forseeable future--or at least until we see the fourth quarter numbers.

On the one hand, the improving market conditions could make biotechs less willing to accept money from corporate VCs, especially if the funding comes with strings attached. On the other hand, the public markets are still decidedly chilly, suggesting that for the time being, privately-held biotechs will have to hitch their exit aspirations to dreams of lucrative acquisitions by bigger pharma and biotech companies.

But that means finding better ways to capture potential acquirers attention, other than fat sandwich boards that scream "Buy Me!" (If that works, will you let us know?) Certainly one way to forge those ties with pharma is through their corporate venture groups. Perhaps more importantly, even as some limited partners have signaled they are ready to dive back into the risky venture waters, that money is still on the come. Corporates have capital at the ready now, and at least from October's numbers they seem prepared to use it.

Indeed, since October 1, at least eight private biotechs have raised money from corporate venture groups, including three in the past two weels alone. All of which suggests corporate venture's starring role in early stage biotech funding is not yet waning. Still if you doubt us, read on for a round-up of the past two week's financing news.


Probiodrug AG: On November 2, German biotech Probiodrug announced it pulled in more than €36 million ($54 million) through a Series B financing, a pretty significant venture round in the biotech sector, but by no means the largest this year. (Remember Pharmion spawn Clovis Oncology’s $145 million Series A in May and Hyperion Therapeutics’ $60 million Series C round a month later?) Probiodrug’s financing, which was co-led by first-time investors BB Biotech and Edmond de Rothschild Investment Partners also included other new backers Life Sciences Partners and Biogen Idec’s New Ventures. (Corporate Venture!) The German firm is--or maybe was is the better descriptor--widely regarded as an expert in dipeptidyl peptidase (DPP) IV inhibition, a critical mechanism in treating Type II diabetes. In 2000, its work in this area led to an exclusive global licensing deal with Merck, research from which eventually produced the marketed drug Januvia--although not without some bumps, including the failure of the lead compound around which the Merck deal was centered. Four years later Probiodrug got out of DPP R&D altogether via an asset sale worth $35 million to OSI’s Prosidion division. The retrenching set the stage for further evolution. In 2007, the biotech, which had raised $52 million since its initial founding in 1997, merged with drug discovery firm Ingenium Pharmaceuticals in a deal that also included a €20.6 million Series A recapitalization. Probiodrug’s new focus in on inflammatory and CNS disorders, especially the big kahuna, Alzheimer’s disease.—Amanda Micklus

Aldagen: Regenerative cell therapeutics developer Aldagen has revived its plans to go public, filing an S-1 on October 28. Only a day earlier it disclosed in a Form D filing that it sold $7.3 million through the issue of convertible bridge notes—the first fund raise it’s done since bringing in $18.4 million through a Series D in April 2008. Founded in 2000, Aldagen is developing adult stem cells that have high concentrations of aldehyde dehydrogenase, an enzyme that controls the developmental state of progenitor and stem cells. The biotech firm believes these stem cell populations have a greater ability to differentiate into multiple types of cells and tissues. Its lead candidate, ALD101, is used to improve the engraftment period after umbilical cord transplants for inherited metabolic diseases in children. Completion of the pivotal Phase III trial is expected in the first quarter of 2011. As the biotech looks to an NDA filing, it will likely rely on help from the recently formed Alliance for Regenerative Medicine—an effort in Washington to facilitate the regulatory and reimbursement pathway for stem cell drugs. The company says the net proceeds of its IPO, along with cash and cash equivalents (approximately $8.8 million at September 30, 2009) and interest income will sustain operations for two more years. Aldagen is the latest biotech to test the IPO waters after scupppering a previous attempt last year due to market conditions. Earlier this week ophthalmology player Alimera also announced it would try to go public after canceling its first try this past April.—Amanda Micklus

Pulmatrix: Pulmatrix obtained further validation of its technology for developing broad-spectrum anti-infective drugs Nov. 2, bringing in a $30.2 million Series B led by two new investors, ARCH Venture Partners and Novartis Bioventures Fund. (There it is again. The all important corporate venture backing.) The company also won a $2.2 million grant from the National Institutes of Health to advance work on its lead program, PUR003, currently in Phase Ia/IIb studies as a treatment for influenza. Together the two transactions should give the biotech a financial runway for 18 months or more, says CEO Robert Connelly. Of the $30 million in new funding, $7 million covers bridge funding the privately-held biotech has already burned through. Pulmatrix declined to say whether the financing was a step-up round, other than to note “we were happy with the valuation and financing terms.” (Did you expect a different answer?) In addition to completing the flu study, the VC funds will enable Pulmatrix to launch studies of ‘003 in chronic obstructive pulmonary disease and asthma, while the grant money will support ongoing preclinical studies to extend the spectrum and efficacy of the molecule.—Joe Haas

Virdante: Virdante Pharmaceuticals, a new privately-held biotech focused on antibody-based therapeutics for autoimmune and inflammatory disorders, closed an extended Series A financing on Oct. 29, bringing the total raised since January 2008 to $47.75 million. New investors in the round were led by Thomas McNerney & Partners and also included Osage Partners. They join the initial investors in the Cambridge, Mass.-based newco: Clarus Ventures, Venrock, MedImmune Ventures and Biogen Idec New Ventures. (Ooooh! Two strategic investors. Theoretically that boosts the chances of a higher return upon acquisition.) CEO John Ripple said the company’s business model is to develop and commercialize its own proprietary pipeline and “apply our technology to development candidates from a select group of corporate partners.” We’re guessing MedImmune and Biogen Idec will be among that select group, given their investment in the biotech and its Sialic Switch technology, licensed exclusively from Rockefeller University.—Joe Haas

Image by flickrer Herve Boinay used with permission through a creative commons license.