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Friday, May 13, 2011

Financings of the Fortnight Watches The Paper Tigers Float By



Whatever image Chinese-made drugs might conjure for you -- or in this case, whatever music they plant in your ear -- a lot of people want a piece. There were 34 Chinese health-care IPOs last year, as counted by Morgan Stanley, and there's been no slowdown in 2011. Indeed, Chinese drug maker Shanghai Pharmaceutical Holdings is listing shares in Hong Kong this month in an offering worth up to $2.2 billion, which could challenge to be the largest pharmaceutical IPO ever, according to our PharmAsia News colleagues. (Japan's Otsuka Holding, diversified well beyond biopharma, raised $2.4 billion last year.)

SPH is already listed in Shanghai, but with domestic exchanges in China reserved mainly for domestic investors, going public in Hong Kong allows it to tap more easily into foreign sources of cash. High-profile sources, too: according to SPH’s prospectus, Pfizer has already pledged to buy $50 million in shares, and Singapore's state investment firm Temasek Holdings is buying $300 million. Two others, Malaysian conglomerate Guoco Group and Bank of China Group Investment, will bring the total from "cornerstone" investors to $550 million. SPH is the largest distributor of Pfizer products in China, and products from multinationals will account for 60% of its distribution business this year, it said recently.

It's not just the 500-pound pandas raising cash in the Middle Kingdom. According to the Elsevier Transactions database, the five previous Chinese pharma IPOs this year raised a total of $1.3 billion, as a wave of consolidation among manufacturers and distributors continues to jolt the Chinese market. Or shall we say Chinese "market," as the consolidation is being steered by the government and its latest five-year health plan. Under the plan, the ministry outlined its intention to encourage consolidation, with the creation of three large national drug distributors and 20 regionally based players by 2015.

Despite its exposure to outside investors, Shanghai Pharma will remain majority-owned by the regional Shanghai government. Those ties don’t completely rule out competition. As this Wall Street Journal story explains, SPH and its rival Sinopharm Group have been scrambling to get in front of the same set of investors and stepping on each other's toes in the process. Sinopharm went public for a cool $1.1 billion in 2009; its recent issue was a $440 million secondary offering.

Those are mind-boggling amounts of money, especially compared to the IPO market in the US where life science companies scratch and claw to raise $50 million. Apparently in some parts of the world, capitalists are plenty happy to lend a hand to health care socialism. Funny how the world works, eh? Don't forget your passport, you're flying first-class today with...


Array BioPharma: With Array, Deerfield Capital Management giveth, and it taketh back. Back in 2008, the cancer and inflammation therapeutics developer received an $80 million loan from Deerfield to support development of six projects through proof-of-concept studies. In return, Deerfield got six-year warrants to buy six million common shares at $7.54 apiece. In July 2009, the private equity firm committed another $40 million, bringing the loan total to $120 million, and exchanged the original warrants for new ones exercisable at a much cheaper price of $3.65. On May 2, Array announced it raised $30 million by selling more than 10,000 Series B convertible preferred shares to Deerfield, with the proceeds immediately going back to Deerfield to reduce the loan to $90 million. The parties also amended the credit facility to repay the rest of the outstanding principal and interest, with the rate staying at 7.5%. Array has agreed to apply to the loan 15% of any up-front or milestone payments it receives in deals through June 2016. It has also agreed to pay the remaining balance minus $20 million by June 2015, and the leftover debt up to $20 million by June 2016. Deerfield’s warrants will now expire on June 30, 2016 instead of April 2014. Since being founded in 1998, Array has brought in $507 million in R&D funding, up-front fees, and milestones. But despite partnerships with multiple Big Pharmas and top-tier biotechs, the company has not seen an uptick in its stock price (see here for some background). Shares closed at $2.89 on May 10, more than 25% lower than the $4.02 closing price on April 20, the day after it announced its Novartis MEK inhibitor alliance. -- Amanda Micklus

Delenex Therapeutics: Spun out of Swiss antibody fragment developer ESBATech in September 2009 when ESBATech was acquired by Alcon, Delenex has double-dipped on its Series A, opting for a second closing that more than doubles the round’s size, the company announced May 3. Six months after the first closing was announced, first-time investor Novo Ventures led the new CHF 16.7 million ($19.3 million) installment of funding, which tops off the Series A at CHF 30.2 million ($34.8 million). Existing backers, including SV Life Sciences, HBM BioCapital, HBM BioVentures, BioMedInvest and VI Partners, also followed on. The Zurich-based startup, which retained ESBATech's non-ophthalmology assets, aims to bring anti-tumor-necrosis-factor-alpha compound DLX105 to proof-of-concept in an unspecified dermatological indication. The company is seeking a partner to develop the same compound for osteoarthritis, and has other drug candidates in neuroscience and oncology. Delenex inherited an antibody fragment platform called PENTRA that produces molecules approximately one-sixth to one-third the size of a full-length immunoglobulin. -- Paul Bonanos

Naurex: The Evanston, Ill. biotech, which our colleagues recently profiled in the March issue of START-UP, said May 11 it has raised an $18 million Series A round of financing to fund Phase II trials of its lead compound GLYX-13, an NMDAR (N-methyl-D-aspartic acid receptor) modulator, for patients with treatment-resistant depression. In a Phase I trial there were no signs of schizophrenia-like side effects often associated with NMDAR modulators, a tricky class of drugs that have garnered notoriety for their recreational use, such as ketamine and PCP. Based on discoveries made at Northwestern University, GLYX-13 only partially activates NMDAR, increasing the likelihood it won’t cause unwanted side-effects. Adams Street Partners and Latterell Venture Partners led the Series A, but an interesting syndicate of corporate investors also participated, including Lundbeck, Shire, and Takeda Ventures, the Silicon Valley investment arm of the Japanese giant. Naurex is also working on second generation, orally administered preclinical NMDAR modulators that it also hopes to develop for depression and other CNS indications. Naurex was founded in 2000 as Nyxis Neurotherapeutics then renamed Naurex and recapitalized in 2007. -- Alex Lash

Fate Therapeutics: One of the few regenerative medicine companies to attract high-profile funding, Fate has now signed up its fourth strategic backer. Takeda Ventures, a busy group this fortnight, has taken an undisclosed stake in the San Diego firm, and we're guessing it's not for the surfing lessons, which Fate employees have been known to give visiting colleagues and partners. Fate is working on ways to endow adult cells with the pluripotency of their embryonic kin, then exploit the newly pluripotent cells into various differentiated cell types. Long-term, Fate wants to apply its stem-cell expertise to its own drug discovery, but nearer term, the company’s business model is more practical: the company wants to sell differentiated cells as biopharma discovery tools. In the fall of 2010, it signed up Becton, Dickinson as its distribution partner. Revenues from this service help offset the development costs of Fate’s first small-molecule candidate, FT1050, which is in early clinical trials to improve engraftment of hematopoietic stem cells in patients with blood-based malignancies receiving transplants. The Takeda investment was not part of a larger round; the firm's most recent funding was a $30 million Series B led by OVP Venture Partners that included three other corporate investors: Astellas Venture Management, Genzyme Ventures, and one undisclosed. -- A.L.

Many thanks to Maureen Riordan and Dailing Jai for help with today's introduction.

Photo courtesy of flickr user Kevin Dooley under a Creative Commons license.

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