Friday, April 09, 2010

Financings of the Fortnight Presents --Ta-Da!--the Financier of the Fortnight

It hasn't financed anyone yet, but when German drug maker Boehringer Ingelheim formally unveiled March 30 its $134 million corporate venture fund BIVF, we knew we had to squeeze it into this week's column. The fund will invest in areas that are not only important to BI's future growth but a heck of a lot of fun to write about: RNA silencing, stem cells, and next generation vaccine, protein, and antibody technologies.

It’s a small piece of good news for early-stage biotechs and their venture backers, who continue to endure one of the worst financing cycles in decades. According to Elsevier’s Strategic Transactions Database, VCs invested just $628 million in biotech start-ups in the first quarter of 2010, down from nearly $1.1 billion invested in the same period a year prior. That’s not surprising; as a whole, the venture industry has struggled to finance itself with 2009 one of the worst years on record and an estimated 50% of the top firms running low on cash.

Drug and device makers have filled the financing void with in-house funds, both expansions of older ones and brand new ones from the likes of Abbott Laboratories and Merck Serono. Now privately-held Boehringer Ingelheim is jumping in. It's concerned that the institutional venture slump will result in a dearth of future drug candidates to license or acquire just as two top sellers, Miraprex/Sifrol (pramipexole) for Parkinson’s disease and restless leg syndrome and Flomax (tamsulin) for benign prostatic hyperplasia, go generic. “We’d been focused on in-house discovery and bolstered those [R&D] efforts with business development. Now it was time to complement with a corporate venture group,” said BIVF director Michel Pairet, a former managing director of BI's pharma R&D group.

Pairet's goal is for the fund to be self-financed and evergreen. His two-person team will report directly to the board of directors because BIVF's goals aren't completely aligned with finance, R&D, or business development. “We’re not financially oriented and we hold a more long-term view,” said Pairet. Boehringer’s six current therapeutic areas of interest are respiratory disease, cardiovascular disease, CNS disorders, virologic disease, oncology, and immunology, and the goal is to invest in companies that will eventually be partners or potential acquisition targets.

BIVF is also most interested in early financing rounds. Pairet anticipates approximately three deals a year over the estimated 10-year life of the fund. BIVF has no hard rules about the amount of capital to invest in any one company; in most cases Pairet expects to put up to $15 million into portfolio start-ups over a series of fund raises. BIVF will also push for board seats, which until recently corporate funds have not traditionally sought.

Why would an early-stage biotech take corporate venture money? Cold hard cash is the main reason, but the ability to tap into a big pharmaceutical company’s scientific wisdom is an allure, as is the value of making close biz-dev connections. Start-ups and their investors continue to rely on acquisition by pharma as the primary exit strategy, but pharma BD shops are swamped by potential sellers. What better way to compete for attention than be open to an investment?

Those cross-currents are good news for Boehringer Ingelheim. With cash at the ready and no prerequisite for options, which can hamstring the ultimate return a start-up gets in an M&A auction, BIVF is sure to be welcomed by both cash-starved biotechs and their venture capitalists. -- Ellen Foster Licking

Achaogen: Antibiotic developer Achaogen completed a $56 million Series C round April 7, adding to more than $100 million in non-dilutive funding it has raised from government agencies and non-profit organizations since its 2004 inception. New investors Frazier Healthcare Ventures and Alta Partners led the round, with participation from existing investors 5 AM Ventures, ARCH Venture Partners, Domain Associates, Venrock Associates, Versant Ventures and Wellcome Trust. The money will help the Calif.-based firm move its lead program, the neoglycoside antibiotic ACHN-490, into Phase II development for complicated urinary tract infections (cUTI). Neoglycosides are next-generation aminoglycosides which Achaogen believes will act against a number of multi-drug resistant gram-negative bacteria, including E. coli, K. pneumonia and P. aeruginosa. In September, Achaogen unveiled Phase I data for ‘490 showing a promising safety profile for the high-dose, once-daily short-course therapy aimed at patients with serious infections. Achaogen's previous venture raise was its $26.5 million Series B in 2006. That year the firm also signed a four-year, $24.7 million contract with the Defense Threat Reduction Agency to develop biothreat therapies, and in 2008 it got $26.6 million over five years from the National Institute of Allergy and Infectious Diseases to develop novel antibiotics, Indeed, Achaogen's ability to pull in significant non-venture money for its development programs is a feat closely watched--and likely soon copied--as biotechs search for models that allow them to stretch their private equity dollars.--Joseph Haas

Somaxon Pharmaceuticals: The specialty pharma completed a $52.8 million FOPO on March 31, selling 6.9 million shares -- 900,000 in the overallotment -- at $8.25. After two complete response letters, Somaxon on Mar. 18 finally received FDA approval of lead candidate Silenor (doxepin) for insomnia, which nearly tripled the firm's share price above the $10 mark before it settled back down to the FOPO price. Somaxon couldn't quite capture all the upside, but it had little choice. It only had $5.2 million cash on hand at the end of 2009, and it last raised funds in July 2009, pulling in a $5.4 million PIPE. It's planning to launch Silenor in the second half of this year but needs a US marketing partner. Somaxon is banking on Silenor's different mechanism of action for a marketing advantage over established sedative-hypnotic sleep meds that have faced harsh warnings from the FDA in the past because of dangerous side effects. Additionally, since Silenor hasn’t shown any high abuse potential, it won’t have to be regulated as a Schedule IV controlled substance, the second such non-regulated insomnia treatment available next to Takeda’s Rozerem (ramelteon). -- Amanda Micklus

Epigenomics: The German molecular diagnostics play Epigenomics placed nearly 14.7 million ordinary shares at €2.25 apiece in a late-March offering to help it build out its commercial infrastructure and launch a novel test for colorectal cancer. Though not officially a PIPE, the stock sale allowed venture capitalist Abingworth to nearly double its stake, which now stands at a shade over 20%. The €33.1 million offering makes Abingworth, which clearly has a taste for what it calls a VIPE -- a venture investment in public equity -- the group’s largest shareholder. The goal, says Epigenomics CFO Oliver Schacht, was to raise sufficient capital to take the company through the next phase of European growth, the launch of its first diagnostic test in the US and potentially into profitability. Epigenomics raised all the cash it could: 50% of its outstanding shares, the maximum allowable. Pre-emption laws to protect shareholders from dilution also meant Epigenomics first had to offer shares to existing holders, including Abingworth. Epigenomics' non-exclusive licensing strategy for the SEPT9 colorectal cancer test is to make it available on multiple platforms. Abbott has licensed non-exclusive global rights to develop a SEPT9 diagnostic for its platform, and Epigenomics own version of the test will likely run on an ABI machine in the US. Soon after previous Abingworth VIPE deals with Algeta ASA and Amarin Pharmaceuticals, the firm's Joe Anderson took a seat on the board. Anderson declined to say if the same would happen with Epigenomics. -- Chris Morrison

Altheos: Just a year after its inception, the San Francisco Bay Area start-up said Apr. 5 it pulled down a nice chunk of change--a $20 million A round led by Bay City Capital. Altheos is not quite as early-stage as it first seems, however. Its lead drug, the Rho-kinase inhibitor ATS907, was in-licensed from Japanese firm Asahi Kasei Pharma and joins a long list of compounds to come to the US from Japan in the briefcase of a biotech scout, VC or executive. Altheos will test the preclinical compound as an eye-drop therapy for glaucoma. There are no current rho-kinase inhibitors on the market for glaucoma, according to Altheos. Certain VCs have long been hip to ophthalmology, but at least in glacoma, much of the interest has been on device approaches to treating this leading cause of blindness. That's because Pfizer’s highly effectively prostaglandin juggernaut Xalatan goes generic in 2011 and to warrant premium pricing new agents will have to outperform a suddenly cheap alternative. Still, rho kinase inhibitors have been commanding attention because of their novel mechanism of action andthe potential to be used in combination with existing prostaglandins. In addition to Bay City, Novo A/S, Canaan Partners, Life Science Angels and Atheneos Capital also invested in Altheos. Bay City's Lester Kaplan becomes chairman; Kaplan was a long-standing executive at Allergan, which has a substantial glaucoma portfolio. -- Alex Lash and Ellen Foster Licking

Photo courtesy of flickr user Magic Lantern Shows.

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