Thursday, March 25, 2010

Financings of the Fortnight Gets Slightly Ahead of the Curve

The year is nearly one-fourth done. Is it just In Vivo Blog, or is life speeding up? For those with small children and caffeine addictions, the answer is always yes. For makers of innovative biologics, the answer is no -- take your sweet, sweet time. No rush. No pressure. The Congress's gift of 12 years of market exclusivity is the legislative equivalent of a late-night shoulder rub. Or a first date with Scott Brown in pink leather shorts.

Well, no, not with the new senator's aversion to all things HCR. (But we had to sneak that reference in somehow.)

For those raising cash in the biopharma world, life is almost certainly bound to speed up, though our most recent spin through the Elsevier Strategic Transactions Database reminded us not to get too frothy. We don't have official first-quarter data, but here's a sneak preview: as of a few days ago, year-to-date venture funding, follow-on offerings, and PIPEs for biotechs were all tracking behind last year's numbers, despite general signs of economic recovery. Nearly at the one-quarter mark, venture was at 20% of 2009's total, follow-ons were 18%, and PIPEs were 18.5%. Only IPOs were projecting north of last year's numbers, with $350 million already raised, compared to $831 million all of 2009.

What do these data mean? A lively final week of March--March Madness--could put us on pace to match 2009. But in the aggregate, there's no great case yet to make that 2010 is going to be much better than 2009, and for those who barely survived last year, that's cold comfort indeed.

Funny, then, how 2009 on the surface wasn't that bad. Twelve billion dollars of IPO, PIPE, FOPO and venture is higher than the totals raised in 2001, 2002, 2003, 2005 and 2008. Some of that $12 billion is deceptive -- as we've noted, a third of the follow-on cash last year was sucked up by three big issues, Human Genome Sciences, Vertex and Dendreon. And some of 2010's numbers aren't quite what they seem. For example, despite a few IPOs including Aveo Pharmaceuticals, which we'll describe below, no biopharma has filed to go public this year except for BG Medicine, which freshened up an old registration in January. (We hoped for a moment that recent S-1 registrant Eyeblaster was some sort of radical ophthalmology therapy, but alas, it's a digital advertising firm.) In other words, the $350 million raised so far looks nice compared to last year, but there's almost nothing in the pipeline. The S-1 storm at the end of 2009 quickly fizzled.

Perhaps passage of health-care reform will remove enough uncertainty to encourage more filings, but we haven't seen the signs yet. That means IPO financing, which has started the year ahead of the curve, could quickly fall behind the curve.

Which reminds us: Time for more coffee. We're falling behind the caffeine curve. Pull up a chair and we'll pour you a fresh cup of...

Lexicon Pharmaceuticals: Amid a flock of recent follow-on offerings, Lexicon's stood out for both its size--nearly 162 million new shares at $1.15 a share for $181 million raised--and its arrangement. Once again Lexicon, of The Woodlands, Tex., turned to its largest shareholder, Invus Group. Invus, an evergreen fund that avoids club deals, bought a private placement of 65 million shares. Lexicon simultaneously floated a public offering of 96.5 million shares (including the over-allotment) run by Morgan Stanley and JP Morgan Securities. It's an old formula for Lexicon. Last October, it raised $55 million, selling nearly 23 million units to underwriters and 15.4 million to Invus at a price of $1.50. In 2007, Invus pumped $205 million into Lexicon in a warrant-heavy arrangement and took the right to buy up to $345 million more in Lexicon stock. Lexicon, which has four homegrown small-molecule candidates in Phase II, also has a joint-venture-like structure with another private-equity investor, Symphony Capital. For the Mar. 19 issue, $1.15 per-share provided a discount to the $1.54-to-$1.80 range in the weeks prior to the offering. After the offering, the stock fell to $1.20, but shares recovered a bit to close at $1.44 on March 24. -- Joseph Haas

Merck KGaA: As if to underscore German Chancellor Angela Merkel's constant harangue of Greece during the European debt crisis, Germany's Merck KGaA -- the world's oldest drug company -- went out and raised the largest European bond offering this year. Merck issued €3.2 billion ($4.9 billion) in bonds on March 17 to help fund its $7.2 billion acquisition of R&D equipment maker Millipore, announced in February. Bank of America Merrill Lynch, BNP Paribas and Commerzbank led the issue, which was heavily oversubscribed and included 2-, 5- and 10-year notes. The Millipore acquisition was initially funded by cash and a term loan from the three banks, and Merck said at the time it would sell bonds to repay the loan. The bond float reportedly benefited from receding worries about Greece reneging on its sovereign debt and the return of investors’ appetite for riskier corporate debt. But even in the darkest hours of the financial crisis, drug companies have been able to issue debt for strategic financing. Pfizer and the American Merck both sold bonds to fund multibillion dollar takeovers of Wyeth and Schering-Plough. Early in 2009, Amgen and Novartis also raised several billion dollars under reasonable terms. -- John Davis

Rhythm Pharmaceuticals: There were larger venture rounds to choose from, but we're intrigued by Rhythm for a couple reasons. First, it was essentially carved out of the flank of Ipsen, taking its lead candidates, formulation technology, and an equity investment from the French firm. Second, it was incubated in the Boston offices of MPM Capital, which is one of the many VCs in active fund-raising mode. MPM co-led the anticipated $21 million Series A round with New Enterprise Associates. The first tranche of $10 million will go to develop preclinical candidates in-licensed from Ipsen in a deal announced days prior to the Series A. Rhythm has pledged up to $80 million in milestones plus royalties for exclusive global rights to melanocortin and ghrelin analog agonists for metabolic diseases, an area Ipsen says is no longer part of its focus. Rhythm can also use Ipsen’s formulation technology to deliver the peptide therapeutics. Included are BIM28131, with potential in postoperative ileus, diabetic gastroparesis, and cachexia, and BIM22493 for obesity and diabetes. Ipsen also took a 17% stake in Rhythm. The financing is MPM’s third recent investment in metabolic-focused biotechs, showing that not all VCs are eschewing riskier primary care companies despite changing FDA guidelines. In January, the VC led the $35 million B round for Alnara Pharmaceuticals; last year MPM, through its MPM/Novartis venture fund, led Elixir Pharmaceuticals'$12 million Series E round. That particular financing occurred with Novartis' decision to secure an exclusive option to buy the Elixir outright. -- Amanda Micklus

Aveo Pharmaceuticals: The Cambridge, Mass.-based Aveo debuted March 11 after selling 9 million shares at $9 each, as it tried to ride the momentum of lead candidate tivozanib, a small-molecule triple VEGF inhibitor that Aveo licensed in 2007 from Japanese firm Kyowa-Kirin. Tivozanib recently started Phase III trials for renal cell carcinoma. The going-out price was lower than the $13 to $15 range the company first targeted, and it had to sell 2 million more shares. The issue was delayed one day while its bankers scrambled to assemble the book, not surprising in the current environment. The 36% discount was the second-largest among 2010 IPOs, according to Renaissance Capital. The largest was also a biotech, Anthera Pharmaceuticals. Right on Aveo's heels, tissue-repair firm Tengion on Mar. 17 set a target of 4.4 million at $8 to $10 per-share. If Tengion prices, it will be the eighth biopharma to go public since the window re-opened last fall. Given investors' appetite for risk is still tepid, the pricing of Tengion's IPO is a must-watch event. -- Alex Lash

Photo courtesy of flickr user The Wolf.

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