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Thursday, July 01, 2010

Financings of the Fortnight Gets an Earful in the Hall of Byers

For a guy with the good fortune to speak in front of hundreds of people under the roof of a building that carries his own name, Brook Byers was sure in a cranky mood this week.


The venture veteran of Kleiner Perkins Caufield & Byers was part of a panel discussing academia-industry ties at the University of California, San Francisco's Mission Bay campus. It was the capper of an open house to showcase the school's research departments and its desire, which rivals the Massachusetts Institute of Technology, to encourage entrepreneurial ties to venture and industry.

The event took place in the side-by-side Genentech and, ahem, Byers Halls (see picture). And if Byers' participation didn't emphasize enough the deep connections everyone was celebrating, another panelist was UCSF's new chancellor Susan Desmond-Hellman. We've heard she once had something to do with Genentech.

As the panel, rounded out by Pfizer chief scientific officer Uwe Schoenbeck, BayBio chief Gail Medaris, and QB3 director Regis Kelly, cooed over innovation as if it were a gently swaddled newborn, Byers was the cranky uncle banging his coffee cup on the table for a refill.

Of course, he's all for innovation, which in our world is as sacred and gauzy a concept as "freedom" is at a gun show. You just don't mess with it, pal. But while everyone else kept the conversation sunny, Byers cast a rather Nixonian shadow, sowing blame on various parties for the economic gloom.

First came the media: He took the New York Times to task for a feature on MIT's Deshpande Center and other entrepreneurial engines on academic campuses that failed to mention all the similar activity happening at UCSF. Later, after Kelly asked about the dearth of venture money for start-up companies these days, Byers seemed to hold himself in check. "I was going to say something not very nice," he said, then proceeded to suggest negative media coverage is helping keep investors on the sidelines.

He also wished out loud for policy changes. Many VCs these days are fending off attacks to tax carried interest as regular income -- although some think it is a fine idea (be sure to read the comments, too) -- and in grumbling about the issue Byers said he was "very frustrated right now" with President Obama even though "I helped elect him."

Byers had a few words for the innovation-stifling FDA, too, especially for the confusion that forced one of Kleiner's anti-infective companies developing a MRSA treatment to re-do re-design a Phase III trial. That sounds a lot like Trius Therapeutics, which had to postpone its IPO because of the trial do-over re-design. (Don't mess with innovation can also mean Don't mess with my money.) [Correction: Trius has not yet begun its Phase III trial; it reached agreement with FDA on a special protocol assessment last month.]

Byers isn't alone: DowJones VentureSource reports that venture-backed companies that went public this past quarter took a median 9.4 years to exit, the longest the service has ever recorded. In a different data set, the NVCA/Thomson Reuters quarterly exit poll showed that biotech and health care accounted for 4 of 17 venture-backed IPOs and 8 of 92 venture-backed acquisitions in the second quarter. Overall IPO volumes are up, but -- sorry if this is accentuating the negative, Brook -- post-IPO performance isn't encouraging. That's not our opinion: even NVCA chief Mark Heesen says so. Nothing in the data so far points to anything but a "washout" of health-care venture firms. Again, that's not our opinion: Ask Jim Garvey of SV Life Sciences.

As the panel wrapped up, Byers tried to make amends by ending on a more positive note. When we caught him outside, we apologized with a smile on behalf of our journalistic brethren for prolonging everyone's financial bummer. He smiled, too, and said a lot of his comments on the panel were deliberately provocative, a favor to Kelly to spice things up. But seriously, we asked: Are we missing something from the big picture? We lay out the data, we slice and dice it, we talk to investors and entrepreneurs all the time. Byers amicably eased away; dinner with his fellow panelists beckoned. That, he said, would have to be part of a longer conversation.

Until then, we will always have...


Incline Therapeutics
: Investors in Incline's new $43 million Series A round have already lined up a buyer. Along with Incline’s June 21 announcement, Cadence Pharmaceuticals of San Diego said it had acquired options to buy Incline for up to $285 million sometime in the next 42 months, based on performance milestones. The two companies share more connections: Incline management includes former Cadence executive David Socks and Alan Levy, also a partner with Cadence investor Frazier Healthcare Ventures. Cadence CEO Ted Schroeder sits on Incline’s board. Founded in 2009, Incline has acquired rights from Johnson & Johnson's Alza division to the IONSYS transdermal patch, used to deliver the painkiller fentanyl to hospital patients after surgeries. Approved in both the U.S. and Europe but marketed only briefly overseas, the system was recalled in 2008 because corrosion in circuit boards could have led to accidental overdoses. Incline and its investors apparently see an easy fix, and J&J was ready to wash its hands of the product. With cash from Frazier, 5AM Ventures, Adams Street Partners, Technology Partners, Saints Capital Partners and Emergent Medical Partners, Incline aims to regain regulatory approval and bring IONSYS back to market. (For more deal details and a look at why Cadence didn't simply buy IONSYS outright, stay tuned for the upcoming issue of START-UP.) -- Paul Bonanos

SV Life Sciences: As we noted above, SV chairman Jim Garvey predicted a washout among venture firms. What we didn't note was that SV will stay high and dry. The health-care-only firm said June 29 it has closed one of this year's largest funds, right behind Orbimed's $550 million close this spring. At $523 million, the firm's fifth fund since inception comes during a time of contraction in the venture world, with other firms scaling back or folding up shop. If you squint you could call this scaling back, too: SV's fourth fund was $572 million, and instead of investing in 32 to 37 portfolio companies, it plans a slightly smaller range of 30 to 32 companies. That's scaling back the same way that ten days in Fiji instead of 12 in Bora Bora is a penny-pinching vacation. SV even plans to hold steady with its investment mix: about 50% biopharma and the rest spread between diagnostics, devices, services and IT. -- Alex Lash

Bind Biosciences: This Cambridge, Mass. nano-play reeled in a $12.4 million venture round that caught our eye for a couple reasons. First, the company makes nanoparticle drug encapsulation that it says will pair with existing or new drugs. It hasn't reached the clinic yet with its lead '014, a formulation of docetaxel; that should come later this year. Once in the clinic, good results might be lucrative, as rival nanoparticle designer and chemo-reformulator Abraxis found out with Celgene's $2.9 billion cash-and-stock acquisition offer June 30. Abraxis' lead is paclitaxel encapsulated in nanometer-sized shells of albumin, a common protein in the blood. We also took note of Bind's odd nomenclature for the round, what it called a Series "C-1." It's not unheard of, so we asked why not call it the second tranche. Because, replied a spokeswoman, it wasn't. The $11 million C round came only six months ago. This was a brand-new up round with at least one new investor, Endeavour Vision, a Swiss group that's a bit heavier into high-tech than biotech. Hmm, we replied, so why not call it a "D round"? "Nuance and technicality" was the answer. Unfortunately, we couldn't dig any deeper by press time. Besides, nuance and technicality make our heads hurt. -- Jessica Merrill and A.L.

Calistoga Pharmaceuticals: Among oncology targets, PI3K (phosphoinositide-3 kinase) has piqued a lot of investor and partnership interest of late. Calistoga's lead candidate CAL-101, an oral delta-selective PI3K inhibitor in several Phase I trials for certain types of hematologic cancers such as non-Hodgkins lymphoma, is unpartnered, but investors have anted up again with a $40 million C round announced June 30. It comes a year after a $30 million B round, and the new cash should help push CAL-101 into a registration trial later this year, the company said in a release. The round was led by Quogue Capital with existing investors Alta Partners, Amgen Ventures, Frazier Healthcare and Three Arch Partners and new investor Latterell Venture Partners also on board. Frazier's Jamie Topper was a busy man this fortnight; he was also in the middle of the Incline financing, described above. -- A.L.

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