Thursday, December 08, 2011

Financings of the Fortnight Ponders The Twilight of the Eurozone

Three years past the downfall of Lehman Brothers, the defining seismic event of the U.S.-led recession, life-science venture capitalists are still weak-kneed from the aftershocks. Now walls are tumbling down in Europe as the Euro heads toward, well, no one knows exactly, but the "unthinkable" -- as Sofinnova Partners managing partner Antoine Papiernik calls a potential currency break-up -- is now imminently thinkable.

So where does that leave already beleaguered life-science VCs in Europe, only a few months after the landscape was starting to brighten? Our colleagues will examine that question in detail in this week's Pink Sheet. The outlook isn't good, unsurprisingly, but not everyone is stocking up on bottled water and canned beans. Take Papiernik, who says his firm is just starting to raise its seventh fund. The currency crisis matters less than the regulatory landscape, which in Europe is far more consistent than in the U.S, says Papiernik. “Never mind the Euro," he says. "We've lived through massive fluctuations in the dollar-euro exchange rate” but still made money. “The buyers [for our companies] will be there, whether they pay in dollars, Euros or even rubles.”

As in the U.S., some firms will carry on, raise cash, and find themselves with a wide-open field to invest in. But they'll still have to hold more in reserve for portfolio companies, because the specter of supporting them farther down the road looms large. Fewer VCs mean syndicates will need to forge iron-clad commitments for the long haul "so you don’t get stuck somewhere if the pharma partner doesn’t show up on time," says Regina Hodits of Wellington Partners.

Our European editor Melanie Senior will also examine whether pharma corporate funds will (or even should) ride to the rescue, either as direct investors in biotechs or as limited partners in venture funds. We've certainly seen more enter the fray sometimes in rather complicated ways, as our IN VIVO colleagues detailed here in a feature about the American Merck's corporate venture plans.

Or will governments plug the gap? Two new funds have made news this week. In the U.K., prime minister David Cameron popped in on the Financial Times' pharma conference to announce a £180 million ($280 million) biotech fund -- half of which is new cash, the other half drawn from previous research allocations -- to help both academicians and early-stage private companies take research across the so-called "valley of death" and into the clinic. (In the U.S. a like-minded scheme under the National Institutes of Health has awarded grants to 14 projects, both public and private; we'll profile it in START-UP's next Capital Matters column.)

EMBL Ventures also announced a new fund, with €40 million ($55 million) for the first closing. The German firm is mainly backed by the fund-of-funds ERP-EIF Dachfonds, which in turn gets its cash from the German government and other European Union sources.

Keep an eye out, too, for those looking to pick up the pieces others leave behind. Accountants at Ernst & Young told the FT in the story linked above that they're fielding questions about a possible euro-zone breakup from private equity financiers who see the disruption as a time to buy. There have already been glimmers of secondary activity in life-science venture, but nothing akin to the high-tech side, where private shares of Facebook and the like have spurred new exchanges.

Whether it's picking up pieces, spinning new cloth or folding up tents, you can find all the latest life-science VC moves in...

TopiVert: In straitened times, you have to use a tea bag twice. That, or something like it, is what Imperial Innovations and SV Life Sciences are doing by investing £8 million ($12.5 million) in TopiVert, a start-up created within Imperial College, London, that’s developing topical medicines for inflammatory diseases of the eye and gut. TopiVert has licensed IP developed at RespiVert, another of Imperial Innovation’s spin out companies, acquired by Johnson & Johnson in 2010. Imperial Innovations made nearly five times its money in three years from RespiVert, and hopes to do the same again this second time around. TopiVert will build on RespiVert's chemistry and clinical work on narrow spectrum kinase inhibitors (NSKIs), but seek to leverage these compounds’ potential in treating new therapeutic areas, allowing RespiVert to concentrate on respiratory and pulmonary disease. “It keeps the start-up atmosphere, and allows faster progress than in a larger organization,” noted Maina Bhaman, Director of Healthcare Investments at Innovations and a non-exec board director at TopiVert. RespiVert (and thus J&J) gets an undisclosed, uncontrolling stake in the new seedling in exchange for the IP. Innovations and SV Life Sciences have each committed £4m to TopiVert, tranched against undisclosed milestones. Innovations is among the ‘haves’ in Europe’s austere funding landscape, after raising £140 million in December 2010. It invested £35 million during 2010 and expects 2011’s total to be similar. As such, “we have another couple of years [of investment runway] at least,” noted CEO Susan Searle. But that, it seems, is no reason not to squeeze the most out of existing assets. -- Melanie Senior

Dendreon: After its launch flub, the maker of the prostate cancer immunotherapy Provenge said Dec. 6 it sold for $125 million the royalty rights to Hepatitis C drug Victrelis (boceprivir). CPPIB Credit Investments, a fund related to Canada's national pension plan, bought the rights, which stem from intellectual property Dendreon acquired in 2003 and later licensed to Schering-Plough. Merck & Co. bought Schering-Plough in 2009 and brought Victrelis to market, with FDA approval in May 2011. The royalty rate was not disclosed, but in a Dec. 6 note, ISI Group analyst Mark Schoenebaum estimated it to be 5.5%. The extra $125 million in Dendreon's coffers helps bridge the revenue gap the company revealed in its second-quarter earnings, which showed sales of $51 million and sparked a massive sell-off of shares. Third-quarter results were 30% higher, at $66 million, although $3 million of those came from the Victrelis royalties. Dendreon plans to submit a marketing application for Provenge in Europe early next year and contract out sales, though not necessarily strike a third-party deal for marketing rights. If Dendreon goes it alone in Europe, it remains to be seen if it will need to raise new funds for that effort. -- Alex Lash

Inhibitex: One of the more eagerly watched biotechs of the moment is Inhibitex, which has unveiled impressive Phase II efficacy data for its nucleoside polymerase inhibitor INX-189 in hepatitis C. With Gilead Sciences paying $11 billion last month to acquire Pharmasset, another clinical-stage virology biotech posting impressive mid-stage data with a “nuc” in HCV, market analysts have speculated that Inhibitex is a promising and lucrative buyout target. Investment house Brean Murray, Carret & Co. recently increased its target price for the stock from $4 to $10. On Nov. 29, the biotech announced it had raised just under $20 million in an “at-the-market” financing – a vehicle more common in the real estate arena, but which is seeing modest use by life sciences companies. In April, Inhibitex had raised $44 million in a follow-on public offering, moving 11.5 million shares at a price of $4.10. In its more recent ATM deal, it managed to sell 1.95 million shares at $10.25 each, under an arrangement with McNicoll, Lewis & Vlak LLC to sell registered shares into the open market from time to time under an effective shelf registration. ATM deals offer companies advantages such as a low distribution cost ranging between 1% and 3%, much lower than a typical follow-on financing. -- Joseph A. Haas

Celsion: Celsion, a cancer-focused biotech that recently moved its corporate headquarters from Maryland to New Jersey, raised $13.9 million in a private placement that closed on Dec. 6. But the offering pointedly did not include Celsion's largest shareholder, who has been agitating against the company in public filings. The additional funding is needed to continue Celsion's Phase III trial for Thermodox (a heat-activated liposomal encapsulation of chemotherapeutic doxorubicin) to a final analysis of 380 progression-free survival events in patients with primary liver cancer. Celsion, which had about $21 million in cash on hand at the end of the third quarter, had hoped mid-stage data would be sufficient to wrap up the trial early, but the Data Monitoring Committee could not halt the trial for efficacy based on 219 PFS events at an interim look. This led Celsion to announce the private placement Dec. 1 that would sell nearly 6.5 million new shares at $2.3125 a share, plus provide five-year warrants for another 3.24 million shares at an exercise price of $2.36 per share. The placement closed without the participation of Mangrove Partners, run by Nathaniel August. The day after it announced the placement, Celsion in a regulatory filing cited Mangrove's negative attitude and opinions of Celsion's performance. Celsion said it had offered to let Mangrove participate if it would sign a standstill agreement, but the parties "were unable to agree to terms," according to Celsion's filing. Celsion also said Mangrove had sought two seats on its board but said “it is in the best interests of the company and its stockholders at this time to maintain the current composition of the board and continue the company’s current strategic plan and direction.”-- JAH

Many thanks to Melanie Senior and John Davis for their help with this week's introduction.

Image under Creative Commons license, courtesy of flickrer Images_of_Money.

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