Thursday, December 02, 2010

Financings of the Fortnight Pursues The Case of The Confounding Qs and Zeds

If we were playing Scrabble, FOTF would throw down a couple double-word scores (with double-letter scores of course embedded), whup your sorry butt, take a long contented sip of hot cocoa, and call it a night. But it's never that easy, is it?

The news of the past fortnight is more question mark than answer, leaving us to purse our lips and puff distractedly on our Meerschaum calabash. The two Zeds stand for Zealand Pharma and Zogenix, two of the three firms that took advantage of the open IPO window -- such as it is -- to debut their stocks.

With a few economic indicators perking up stateside, we thought investors might start to receive new issues with a warm handshake, especially from firms with Phase III drugs or marketed products (a bar Zealand and Zogenix clear).

Certainly the two companies' debuts weren't as bad as the raspberries the Irish government's getting for punting citizens' benefits in order to bail out bankers. Still there's no denying Copenhagen-based Zealand's CEO David Solomon had to put his best face on getting half of what he hoped for, telling Our UK Correspondent that, hey, at least we got out despite Dublin burning!

Back here in the US, where officials newly elected or otherwise are trying to make grown-up noises about debt reduction, Zogenix and fellow escape artist Anacor Pharmaceuticals also misgauged investor sentiment. Each took about a 70% discount in opening share price based on initially stated goals. They made up the gap somewhat by selling more shares, but that's cold comfort to investors who saw the delta between their buy prices and potential sale prices sink like a broken boat into Mississippi mud.

More mysteries: Stealthy as Quintiles Transnational tried to be -- on the QT, dare we say? -- it couldn’t hide the fact that its former investment unit NovaQuest has become an independent, standalone organization. In a Form D filed with the SEC the day before Thanksgiving, NovaQuest revealed that it had raised the first $117 million of a planned $500 million investment fund. A Quintiles spokesman confirmed that the new NovaQuest Capital Management will function as a separate company, which will operate NovaQuest Healthcare Investment Fund LP. Quintiles will be a minority investor in the fund among six total investors, but the giant CRO will not manage its investments. Rather, several former Quintiles executives, including John Bradley, Fred Cohen and Ronald Wooten, are now listed as directors of the new fund. NovaQuest’s principals couldn’t be reached for comment, but IN VIVO Blog did learn that Wooten played guard for the New England Patriots in the 1980s.

A Quintiles’ spokesperson told us its Capital Solutions division will continue to make investments on the company’s behalf. But the carve-out of NovaQuest suggests that Quintiles’ innovative investment model – offering contract research, clinical trials and other services alongside cash in exchange for equity or other future payments – hasn’t prospered since NovaQuest was launched in 2006. The company lost big on its investment in Eli Lilly & Co.’s Alzheimer’s disease treatment semagacestat, which failed in Phase III in August. Nor has NovaQuest yet produced a notable exit or successful drug, albeit in a relatively short existence. It’s unknown whether future NovaQuest investments will be tied to Quintiles’ services, nor whether the firm will continue to invest in tandem with TPG-Axon Capital, its partner in the semagacestat arrangement and other deals.* Tangential thought: We'd rather be a Q than a Z.

There's one more letter of mystery in today's edition: A. We're gearing up for our annual A-List feature, in which we highlight the year's most significant, creative Series A fundings and sort out the underlying trends. The mystery: Who will make the list? We have some good ideas, but we'd love to hear yours, as well. You can mail a - dot - lash at elsevier - dot com, or you can tweet me @InVivoBlogAlex. One word of warning: fundings in which the amount of cash remain a secret won't be considered. So much for Collegium Pharmaceutical's spin-out of its derm assets with the backing of Essex Woodlands. We've already got enough mysteries on our hands.

Time to set aside idle palaver, Watson! The game's afoot, and it's called...

Zealand Pharma: Zealand's IPO on the Copenhagen stock exchange, announced earlier in November, was going to be the gauge of European investor appetite for biotech. When it priced shares Nov. 23, it seems investors weren't so hungry. Despite Zealand's late-stage GLP-1 asset partnered with Sanofi-Aventis and a pipeline significantly more mature than when the company first tried to float back in 2005, the Danish biotech managed only to raise €50 million, listing at DKK 86 per share, at the very low end of its projected range. Nonetheless, CEO David Solomon told IN VIVO Blog "we're satisfied" given the economic climate at the time, with Ireland on the brink of its bailout and considerable global uncertainty. "Other deals [in the US] re-priced or aborted, but we got out," he said. Yes, but Zealand effectively re-priced, too. The company adjusted expectations downwards November 18 following its investor road-show. "We decided to listen to investors," says Solomon, and the price range was reduced from DKK 86-120 to a more telling DKK 86-90. Zealand's new investors are mostly European (and mostly Nordic) institutionals. Since shares listed they have hovered well below list price, but it's early days, and volumes are low. The IPO coordinators haven't yet taken up their over-allotment option. Solomon promised a "wealth of news flow" which might put some fire into the stock. No Christmas cheer, then, yet for major shareholder Sunstone Capital – nor for other biotech IPO hopefuls. -- Melanie Senior

Anacor Pharmaceuticals/Zogenix
: From A to Z, it was a fortnight of diminished expectations -- yet again -- for biotechs going public. In the case of Anacor and Zogenix, the haircuts were so severe, each in the neighborhood of 70%, you'd be forgiven for checking to make sure their scalps were still attached. Haircuts have been the rule not the exception among life-science IPOs this year, but the Anacor and Zogenix reductions were the unkindest cuts yet, and in fact rivaled only in the past few years by a little cell therapy play called Bioheart. Anacor, with a pipeline of four topical dermatology compounds, netted $55.8 million by selling 12 million shares of common stock Nov. 30 at $5 apiece, a far cry from its initial goal in the $16-$18 range. Meanwhile, San Diego-based Zogenix, which this year launched its first product, a needle-free sumatriptan injection for acute migraine and cluster headaches, sold 14 million shares at $4 per share, raising $56 million. It had hoped to sell 6 million shares in the $12-$14 range. At least Anacor could boast of tacking on some non-dilutive funding, as you'll see in the next item. -- Joseph Haas

: Part of the small but energetic Michigan biotech cluster, NanoBio landed a $6 million grant from the Bill & Melinda Gates Foundation to push forward with a nasally-administered vaccine for respiratory syncytial virus (RSV). It's one of a just a few vaccine-related grants to for-profit companies the foundation has made among its dozens in recent years. There are currently no vaccines approved for this indication, but the biotech is likely to face competition in the race to bring one to market. Alnylam has a Phase II candidate that targets the nucleocapsid "N" gene responsible for RSV replication, whereas NanoBio touts its NanoStat platform’s ability to generate robust mucosal, systemic, and cellular Th1 immunity. MedImmune, which made its name with an antibody treatment for RSV as well as the nasal flu spray FluMist, and ViroPharma also have clinical-stage intranasal RSV candidates in the pipeline. (NanoBio wasn’t the only for-profit Gates recipient this fortnight; on the same day, newly public Anacor Pharmaceuticals received more than $2 million to fund a new collaboration with UCSF and the New York Blood Center on river blindness.) The Gates money is a sliver of ten-year-old NanoBio's accumulated $115 million in financing, which includes venture capital, grants, and partnerships such as its 2009 alliance with GSK for a Phase II OTC cold sore treatment. -- Amanda Micklus

: Also no stranger to nondilutive funding, this San Diego firm eked out nearly $5 million in a private placement of 7 million shares at 70 cents each, it announced Nov. 17. Each investor also receives warrants to buy half again as many shares as they bought in the placement. The warrants have a two-year term and can be cashed immediately for $1.00 per share into restricted shares of Class A common stock. It's not the type of funding we normally highlight, but the San Diego firm, which develops monoclonal antibodies formulated to target bioactive lipids such as sphingosine-1-phosphate, caught our attention in the summer of 2009 when it was the first recipient of a new type of government small-business grant. The National Cancer Institute has a small "Bridge" program to extend its SBIR grants to translational projects to help biotechs get across the valley of death and into the clinic. Sometimes called "SBIR Phase III" awards, the Bridge awards are a little extra cash -- up to $3 million -- for SBIR awardees beyond the traditional Phase I and II grants that will hopefully get them to a milestone or data point that attracts private investment. The recent private placement probably wasn't what Lpath had in mind. Since the Bridge award, Lpath's partnership for its lead product, the anti-cancer Asonep, ended when Merck KGaA declined to opt in at the end of Phase I. Officials said the placement proceeds will help move a different candidate into Phase II trials for wet AMD and let the company continue to explore "strategic opportunities." -- Alex Lash
*Paul Bonanos contributed the Quintiles/NovaQuest reporting.

Photo courtesy of flickr user MarkHillary.

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