Thursday, February 03, 2011

Financings of the Fortnight Would Rather Not See The Rabbit Up Your Sleeve

Now you see it. Now you don't. This week, "it" could be the upper Midwest, now buried under eighteen zillion tons of snow. But more dramatically -- at least in our little corner of the world -- the disappearing act took place in Washington, DC, where the FDA slapped Orexigen Therapeutics with a complete response letter (CRL) regarding its obesity drug Contrave. In other words, now you see an approval on the horizon -- shazam! -- now you don't.

The rabbit up the FDA's sleeve was its requirement of a large cardiovascular outcomes trial before Contrave gets to market, as opposed to a post-marketing trial. FDA's Endocrinologic and Metabolic Drugs Advisory Committee voted for the post-marketing route by the slim margin of 11-8, even as it noted safety concerns. If investors thought that December vote was a ticket to ride, FOTF has a book we'd like you to read. Still, investors more than doubled Orexigen's stock price to $11 on Dec. 8, and it was only slightly less frothy Monday, at $9.09, before the FDA CRL news hit like a massive, thousand-mile storm. Now Orexigen and its investors are stuck like all those folks on Lake Shore Drive in Chicago, wondering what hit them.

OK, we're stretching our analogies to the breaking point, but stranded is an apt term. A pre-market trial will cost Orexigen tens of millions of dollars, possibly more than $100 million; its marketing partner Takeda isn't responsible for any pre-approval development costs, as our Pink Sheet colleagues noted this week.

Perhaps Orexigen could raise the cash it needs....oops. Did we mention Orexigen shares closed Wednesday at $2.68? The firm has been public since 2007, but it made us wonder if the setback -- with its high-profile example of regulatory uncertainty -- would make public investors, already picky about their biotech investments, even more skittish. In an informal FOTF poll of fund managers, the general consensus could be summarized with two notions: First, you're crazy if you think FDA is going to let any obesity drug through without unprecedented address of unmet medical need and spotless safety (in other words, don't hold your breath). Second, you're crazy if you bet on FDA listening to its advisory panels.

We also asked fund managers if FDA's decision on Contrave impacts decisions to invest in new issues? With three biopharmas lined up to go public this week -- Pacira Pharmaceuticals, Endocyte, and AcelRx Pharmaceuticals -- it's a salient question. As of this writing, only Pacira has debuted, raising $42 million Wednesday after initially targeting $64 million. (More below.) Endocyte has amended its goals. It's still shooting to net $68 million, but with twice the shares (10.7 million) at half the price ($7). It could start trading Friday.

On the potential of Contrave to slam the IPO window shut, the consensus answer: "If an IPO hopeful company hasn't gotten through approval -- and perhaps even reimbursement -- for its lead product, we're always going to be cautious." Thus, we think it's safe to say Orexigen's disaster only reinforced established opinion: When you bite on a diabetes or obesity stock, wash it down with an extra helping of caveat emptor. And even when you laissez les bons temps rouler in the markets, biotech is only where mavericks try to ride the wave.

Hang five, hang ten, or just hang in there, it's time for...

Seattle Genetics: The antibody-drug conjugate developer pulled in $178 million in a secondary offering that closed Feb. 3, cash that will help it gear up for filing its BLA this quarter for its lead product, SGN-35 or brentuximab vedotin, in both relapsed/refractory Hodgkin lymphoma (HL) and anaplastic large cell lymphoma (ALCL). Selling 11.5 million shares at $15.50 a piece, including an additional 1.5 million to the underwriters, Seattle was in a regulatory sweet spot, riding high from its pivotal trial data but not yet subjected to the unpredictable approval process. The firm has also retained US and Canadian rights to b. vedotin, with commercial partner Takeda responsible for all other countries in a deal signed in December 2009. The partners were buoyed when top-line data from a pivotal trial released last September showed objective response rates in 75% of the 102 relapsed/refractory HL patients, far higher than the rate the company said it was hoping for. B. vedotin is an anti-CD30 antibody that carries a toxic payload: the proprietary small molecule auristatin E. Seattle Genetics developed the entire suite of components. Approval would mark the first for an antibody-drug conjugate since Wyeth's Mylotarg in 2000, which was pulled from the market in 2010. But as we explain in this IN VIVO feature, advances in ADC linker chemistry, more sophisticated understanding of antibody targeting, and other factors have given Seattle Genetics and other companies such as ImmunoGen, Roche's Genentech division, Pfizer and Bristol-Myers Squibb hope ADCs can be biopharma's next big therapeutic platform. -- Alex Lash

Nektar Therapeutics: Once on the ropes when its inhaled insulin partner Pfizer backed out of the ill-fated and much-mocked Exubera program, Nektar has reinvented itself as an oncology drug developer. It recently decided to keep all rights to its lead compound, so with high development costs on the way Nektar tapped the public markets for $220.4 million in a secondary offering, issuing 19 million shares of common stock in a transaction completed Jan. 24. Underwriter Jefferies & Co. has a greenshoe option to acquire 2.85 million more shares by mid-February. Nektar executives surprised analysts in December, as we noted here, when they said new Phase II results for NKTR-102, a polymer-conjugated molecule designed to improve on approved chemotherapy drug irinotecan, were so encouraging that the company would halt ongoing partner discussions. While keeping the drug in-house could bring a higher upside, Nektar will face higher costs in the near term. Nektar had $303 million in cash and short-term investments on its balance sheet at the end of September. The company has multiple other programs under development, including a pain drug expected to enter the clinic in the coming months. It garners revenues from partnerships, including deals with AstraZeneca and Bayer. -- Paul Bonanos

Pharmasset: The hepatitis C drug developer raised $123 million in a follow-on offering that closed Jan. 24, as the Princeton, NJ firm begins the first cross-company collaboration to study two investigational oral drugs for HCV treatment, which we discussed here in "The Pink Sheet." The partnership is with Bristol-Myers Squibb, which will contribute its NS5A replication complex inhibitor BMS-790052. Pharmasset is bringing to the collaboration its nucleotide polymerase inhibitor PSI-7977, which is in Phase IIb studies in combination with the current HCV standard of care, pegylated interferon and ribavarin. Pharmasset released interim data from that study Jan. 6. Its other late-stage asset is RG7128, a cytosine nuceloside analog in Phase IIb and partnered with Roche. Pharmasset is one of several companies jockeying to provide next-generation HCV care that moves beyond the limited efficacy and nasty side effects of the standard of care. One challenge for the N.J. biotech: many of its rivals, such as Vertex Pharmaceuticals and Gilead Sciences, are much larger and better funded. On Sept. 30 the company had $127 million in cash, which means the new offering likely more than doubled its existing reserves. The offering included the sale of 1 million shares by selling shareholders; Pharmasset did not receive those proceeds. With the underwriters exercising their overallotment, Pharmasset sold nearly 2.8 million shares at $46.33 a share. -- Jessica Merrill

Pacira Pharmaceuticals: The first biotech IPO of the year looks like many IPOs from last year: It has a bad haircut. Specialty pain firm Pacira, which inherited SkyePharma's injectables business when it spun out in 2007, sold 6 million shares at $7 each Wednesday, raising just two-thirds of the cash it hoped for. Its previous target was to sell 4.25 million shares at $14 to $16 each, or approximately $64 million. Pacira's lead product is a non-opioid analgesic for post-operative pain, Exparel, a long-acting bupivacaine reformulated in a proprietary delivery technology called DepoFoam. Pacira filed an NDA in December with a PDUFA date of July 28. Its main investors are HBM BioVentures, MPM Capital, OrbiMed Advisors, and Sanderling Ventures. Whether the stock price and volume affords them an exit once the lockup period ends remains to be seen, but their path to liquidity was short compared to traditional biotech investments. Pacira inherited the formulation technology from SkyePharma and royalties associated with it, but about 20% of the royalties flow to private equity firm Paul Capital, which bought the rights from SkyePharma a decade ago. -- A.L.

Photo courtesy of flickrer AnnieGreenSprings. Check out her pictures of India, too!

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