Thursday, January 26, 2012

Financings of the Fortnight Puts Its Own Lens on Early-Stage Investments

Since we last gathered, dear FOTFriends, end-of-year venture numbers came out. According to the National Venture Capital Association and PriceWaterhouse Coopers, venture cash into biotech was up 22% from 2010, but "first-round" funding volume took a dive to its lowest level in 15 years, with only 153 drug and device companies getting seeded.

Ryan Flinn of Bloomberg News and Luke Timmerman of Xconomy translated that figure into grim news for industry start-ups, with Timmerman enumerating the fears that neither a chastened and constrained federal government, nor Big Pharma, nor other investors have the wherewithal -- or the "guts" -- to fill the early-stage venture void and turn innovation into products.

It's worth noting that the other big VC data shop, DowJones VentureWire, also released its own year-end totes and came to slightly different top-line conclusions: Total biotech funding (biopharma plus devices), for example, came to $7.2 billion in 2011 compared to $6.5 billion in 2010, an 11% rise (compared to NVCA's reported 22% rise). There are other oddities, such as DJVW attributing the entire 11% difference between 2010 and 2011 to a jump on the device side -- albeit with nine fewer companies funded.

We've pointed out before in this column how hard it is to square the two groups' data sets and sometimes divergent attitudes, so we won't try to figure out who's more accurate this time. But there's one number we'd like to circle: the 153 newly-funded companies tallied by NVCA/PWC and cited by Bloomberg as evidence for an early-stage funding crisis.

We don't have access to their raw data, but we can lean on our own database and legwork and turn to our annual The A-List, in which we count Series A rounds for drug, device and diagnostic companies. (We leave out rounds expressly called "seed" rounds, which you're welcome to take issue with, but we feel that seeded ideas worth their salt will progress to an A round.) And we found that in 2011, Series A rounds were slightly up from 2010, 97 to 88, as were the dollars committed ($1.1 billion to $876 million). It's not sunshine and donuts by any means -- it's the third lowest dollar total we've recorded since we began the A-List in 2004 -- and everyday we hear biotech people, from scientists to investors to executives, worry where funding for innovation will come from in the next decade.

But by our one small measure, we note that some of the downward trends stopped trending downward in 2011. Is it a significant shift, or a momentary upward blip in an otherwise inexorable fade? We won't go nearly as far or as fiercely as Atlas Venture partner/blogger Bruce Booth, who took to task both the above-mentioned reporters for turning positive data into negative headlines. (He also complained in a tweet that the VC quoted about the early-stage crisis was from Warburg Pincus, which isn't down in the company-formation trenches.)

Booth, who of course has much at stake in calming fears that early-stage biotech investing is a dying art, digs into the NVCA data strictly from the biopharma side (a mild case of cherry-picking, perhaps). And he finds a few trends that, in shape if not in precise number, mirror what we found in our Series A analysis: Early-stage investments made a modest recovery last year. (We should also mention that two of Atlas' A-round investments made our A-List, in large part to show how Booth and his colleagues, by experimenting with new models of company formation, have acknowledged the serious problems with traditional biotech venture.)

Your friendly FOTF correspondent is a Libra, so you astrologers out there won't be surprised to find we come down somewhere in the middle. The data show some signs of life for new companies, but those chronicling the industry from the outside can't ignore the actions that speak louder than -- or at least alongside -- the numbers: The venture firms shutting down; the titan LPs like CalPERS reducing their VC allotment; the early-stage survivors trying asset financing (Atlas) or option deals (Third Rock, Versant) to gain some down-side protection.

We were hoping that by the time you read this, we'd have an intriguing gauge of public-market sentiment: the reception of Verastem's planned IPO. But as of this writing, the pricing isn't due for another day. If investors shrug off caveats like the one we found in Verastem's S-1 a couple months ago...
"Research on CSCs [cancer stem cells] is an emerging field and, consequently, there is ongoing debate regarding the existence of CSCs."
...we'll certainly have a lot to discuss in the next column. But let's not get ahead of ourselves. We've barely even scratched the surface of our latest...

Neurocrine Biosciences: In its first financing since 2010, Neurocrine Biosciences grossed $77 million in a follow-on public offering of 9.5 million shares for $8.10, slightly lower than the stock has been trading for the past month (at its highest, shares closed at $8.66 just a couple weeks ago). Neurocrine--which was founded in 1992 and has a broad pipeline covering CNS disorders, women and men’s health, and cardiometabolic diseases--had previously focused on the insomnia treatment indiplon. Since that compound's flame out, Neurocrine has bounced back. The company is now pursuing four Phase II projects, two of them in partnerships with Big Pharma. Abbott has exclusive worldwide rights to Neurocrine’s lead candidate elagolix for endometriosis pain and uterine fibroids. This past October, Neurocrine collected a $20 million milestone payment from Abbott for holding a pre-Phase III meeting with the FDA. And GSK holds an exclusive license to the CRF1 antagonist 561679 for stress-related disorders. Earlier in the pipeline, Neurocrine has also secured another partner in Boehringer Ingelheim, for its GPR119 agonist Type II diabetes program. -- Amanda Micklus

Prosensa: The Dutch rare disease firm said January 25 it has raised €23 million ($30 million) in new venture funding, its first since a €18 million Series B round in late 2008. New investor New Enterprise Associates (NEA) led the round with participation from existing investors Abingworth, Life Sciences Partners, Gimv, Idinvest Partners and MedSciences Capital. Prosensa is cashing in on the popularity of rare disease projects among Big Pharma, which fueled big rounds for new firms Ultragenyx Pharmaceutical and Orphazyme last year, as START-UP notes in the new A-List. The Prosensa round also comes as European biotech waits for more debt-crisis shoes to drop. Despite signs of a revival in early 2011, funding deteriorated as the year went on, even more so for follow-on rounds than for Series A rounds, to add up to a particularly grim year, as our colleagues at "The Pink Sheet" report here. In that context, Prosensa did well to attract such a large round; lead investor NEA says that Prosensa is its first European biopharma investment. A Prosensa spokesman declined to say whether the latest cash is tranched. It will help the firm bring its first unencumbered compound not just into the clinic later this year but also all the way through clinical trials without a partner. Both that compound and Prosensa's lead compound, which is partnered with GlaxoSmithKline, aim to treat variants of Duchenne's muscular dystrophy. -- Alex Lash

RaNA Therapeutics: The Atlas Venture portfolio got a new addition January 18, as RaNA Therapeutics announced a $20.7 million Series A financing that should see it through IND-enabling studies for the first candidate from its long non-coding RNA (lncRNA) technology platform. RaNA's backers believe long non-coding RNA offers several advantages over earlier RNA-interference technologies. It is expected to enable selective activation of single target genes and the expression of therapeutic factors, and its therapeutics should not require a delivery vehicle. While most RNAi therapeutics in development require intravenous infusion, most lncRNA drugs should work through simple subcutaneous injection, said RaNA CEO Arthur Krieg. Atlas led the Series A, joined by SR One, the venture capital arm of GlaxoSmithKline, Monsanto and Partners Innovation Fund. Monsanto will do unspecified early preclinical work for the start-up, which says it is considering 20 indications as it works toward a first clinical candidate. Krieg comes from Coley Pharmaceutical, which was bought by Pfizer for $164 million in 2007. Atlas partner Jean-Francois Formela, who will take a seat on RaNA’s board, says GSK's involvement should give the Big Pharma, which has a significant investment in epigenetics, a better sense of the feasibility of RaNA's science. -- Joseph Haas

Trius Therapeutics: The San Diego antibiotic developer said Thursday, January 26 it has priced a public offering of its stock that should raise about $45 million. It is selling 8.6 million shares at $5.25 a share, a 9% discount to its closing price the previous day, and well off the six-month high of $8.74 from July. Shares were off an additional 7% Thursday, down to $5.39, which could also be a reaction to the company's announcement that the Securities and Exchange Commission is looking into earnings statements concerning Trius's collaboration with Bayer Pharma. The company has hit bumps before. It was planning its IPO in March 2010 when it the FDA said it had to revise its Phase III trial for skin and soft tissue infection caused by drug-resistant Stapholoccocus aurueau. Executives including CEO Jeffrey Stein learned of the FDA ruling soon after they boarded a flight to Switzerland, where they were slated to start the road show. They landed in Geneva, had dinner, and turned right around to fly back to the US. Trius finally went public in August 2010 and raised $50 million. With the new offering, underwriters have the option to buy up to 1.29 million additional shares. The deal is underwritten by Citigroup and Piper Jaffray, with help from Canaccord Genuity and Ladenburg Thalmann. -- A.L.

Self-portrait courtesy of flickr user Jen and a Camera

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