Thursday, September 09, 2010

Financings of the Fortnight Goes Trend-Spotting. Ooh, There's One Now!

Back to school. Back to work. Strip off those summer whites, unless your name is Tom Wolfe. (But seriously, does anyone who didn't grow up on a yacht or "summering" on the Vineyard really care what colors you wear according to the calendar?) The best part of summer vacation, if you're lucky enough these days to have a job to take a vacation from, is checking out from the real world, diving into a book, be it throwaway fiction or essential history, and letting your kids bury you in sand.

But now we're back, and a few interesting things happened while our attention was diverted by Stieg Larsson, hot dogs and hurricane swells. Out in the wider world, the IPO pipeline became a crowded place, and we're now seeing the largest pent-up demand on record. Surely that must mean, at long last, biotech investors have another type of exit -- something other than a trade sale chock-a-block with milestones and earnouts.

Yes? No. In our little corner of the world, it's plus ├ža change, mes amis. While established names like General Motors and Toys 'R' Us were making plans, only four drug and two diagnostics firms joined the queue this summer, and only two left it via IPO: Trius Therapeutics and NuPathe. The most recent biopharma filer is Zogenix, which we detail below. If there's a candidate for "one to watch" -- other than the next potential killer forming in the Atlantic -- it's Ikaria, a commercial-stage firm that sells a nitric-oxide delivery system for critically ill patients. It registered in May and set down a $200 million placeholder; no word yet on more specific terms. (Here's our take from May on Ikaria's unusual origins and its unusual shareholder dividend. Here's Ikaria's recently updated S-1.)

Another macro-trend we've noted upon our return: corporations borrowing cash cheaply but not spending it. Alas, the trend doesn't extend to biotech venture investors, for whom it's hard to find cash right now, let alone spend (or invest) it, and they face a shakeout that will force survivors to find new partners and new investment models. As we describe in the September issue of START-UP, VCs must turn more frequently to Big Pharma either as syndicate partners or for cash. The latest example is Eli Lilly, which is putting as much as $150 million into three venture funds, one of which is managed by CMEA Capital of San Francisco. Lilly's head of new ventures Darren Carroll told Bloomberg News that Lilly's cash will only represent about 20% of each fund's reserves, but the Big Pharma will still have first crack at buying some of the portfolio companies. VentureWire reported that deals with the other two firms aren't finalized, but the general idea is to spin out compounds Lilly can't or won't develop on its own, let CMEA and the other funds develop them, and give Lilly the option to buy them back. Sounds to us like a new spin on project financing, a puzzle many folks are trying to figure out these days. Carroll didn't respond by press time to questions. We'll let you know as we hear more.

Across the pond, a veteran life science investor also had funding news. Forbion Capital Partners, based in the Netherlands and Germany, said it closed its second fund, FCF II, as well as a sidecar to its first fund. The two totaled more than €190 million ($240 million). Forbion has already started spreading its FCF II cash, as we noted here.

Anyone who's tried to have a little fun this summer certainly has recognized the need to do more with less. Just ask Mrs. Fortnight, for whom a trip to the luxurious day spa these days means a hot bath, two cups of epsom salts and a nail file. You could also ask practically any biotech startup. All venture rounds now seem to be tranched, a trend that won't disappear anytime soon. Who says it's a bad thing? As one startup CEO noted in the September START-UP feature, sometimes management gets too sloppy with big piles of money. Several startups were rewarded with top-ups of their current rounds, and we've highlighted two: stem-cell platform developer iPierian and next-generation antibody play Zyngenia.

Another trend you've probably noticed: we're pathologically unable to write short columns.Enough jibber-jabber. It's time for...

: San Diego’s Zogenix hopes this season’s IPO climate will be warmer than in 2008, when it scuttled a proposed offering as the broader economy chilled new listings. The company filed a new S-1 September 3, previewing an offering that could be worth up to $90 million. Since its first attempt at going public two years ago, Zogenix has won FDA approval for Sumavel DosePro, its needle-free sumatriptan injection device, which delivers fast-acting migraine relief via a puff of nitrogen gas that delivers a liquid dose of the drug subcutaneously. The product, which hit the market in January 2010 and brought in $6.1 million in revenue by June 30, is co-promoted in the U.S. through an agreement with Astellas Pharma. The offering will bring liquidity to top shareholders Clarus Ventures and Domain Associates, along with Abingworth, Scale Venture Partners, Chicago Growth Partners and Thomas McNerney & Partners, which have collectively invested north of $140 million in the startup. Zogenix is also conducting Phase III trials on an oral, controlled-release version of hydrocodone, intended for patients experiencing chronic pain, and exploring other uses for the delivery technology in DosePro. -- Paul Bonanos

Zyngenia: Antibody player Zyngenia has tapped existing investor New Enterprise Associates for an additional $15 million in Series A financing, bringing the total raised to $25 million since the round initiated in September 2009. There was no specific milestone that triggered the Series A extension, Zyngenia president and CEO Peter Kiener told IVB, but NEA recognized the company’s success in pushing three candidates to lead optimization, as well as building out the technology platform and putting together their scientific team. The funds will sustain operations through the second half of 2011. Looking to overcome limitations of monoclonal antibodies that only interact with one target, Zyngenia is developing what it calls Zybodies, which are engineered antibody-like proteins that combine the activity of two or more biologics. The technology comes from the lab of Carlos Barbas of the Scripps Institute (and Zyngenia’s CSO). While the targets aren’t disclosed, the three lead multi-specific antibodies are being investigated for solid tumors and inflammation associated with rheumatoid arthritis, and they have achieved preclinical proof-of-concept in vitro and in vivo. The Series A money should help advance the candidates towards human testing; INDs are planned for the beginning of 2012. In addition to the venture capital, Zyngenia received $2.5 million in grants and loans from state and county organizations in Maryland earlier this year. -- Amanda Micklus

iPierian: We knew that the brouhaha over the Obama administration's embryonic stem-cell (ESC) policy didn't directly affect the nascent field of induced pluripotent stem cells. But we were curious nonetheless how non-ESC companies would fare. Here's one answer: iPierian, which is using induced pluripotency to create cells to be used for more conventional drug discovery, added cash from the venture arms of GlaxoSmithKline and Biogen Idec to push its Series B round up to nearly $29 million, a few million beyond what iPierian said it intended to raise in a SEC filing earlier this year. The lead investor on the previous tranche was Google Ventures, so not only is iPierian surfing the rising wave of corporate venture, it's hanging ten with unlikely people. Google's Krishna Yeshwant took a seat on iPierian's board, which itself is notable because pharma venture arms often prefer observer roles. So far Google's new investment arm has made just two life-science forays, iPierian and yeast-based antibody discovery firm Adimab. -- A.L.

Shanghai Pharmaceuticals: The firm that makes Tamiflu (oseltamivir) in China for Roche is going to float as much as 667 million shares in Hong Kong to raise cash for acquisitions, it said this week. It could raise up to 1.2 billion dollars -- Hong Kong dollars, that is, or about 150 million of the American kind. Still, $150 million for a biopharma firm on any public market is nothing to sneeze at, even if you're coming down with the flu. The firm said it wants to use the cash to acquire domestic competitors and sales networks both in and out of China, adding to the bounty of four regional distributors that it bought last year. Shanghai is now the country's second-largest drug distributor, trailing only Sinopharm, which has been on a partnership and buying spree of its own. Both companies are state-owned. -- A.L.

Photo courtesy of flickr user Randy Son of Robert.

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