Friday, February 10, 2012

Financings of the Fortnight Looks For the IPO Insiders

We've got windows on the brain this fortnight after seeing Verastem, a wee cancer stem cell company that says its first drug might be ready for clinical trials later this year, convince the public markets to buy its stock. The Cambridge, Mass. firm, which is targeting cancer stem cells that drive aggressive disease such as triple negative breast cancer, raised $63 million starting January 26 by selling 6.3 million shares at the midpoint of its targeted range of $9 to $11 per share. One caveat: Verastem insiders, including Advanced Technology Ventures, Bessemer Venture Partners, CHP, Longwood Fund, and MPM Bioventures, bought nearly $15 million of the offering, leaving the underwriters a little less work to do. (Interesting to note that the bankers received the same commission -- 70 cents a share -- on all shares sold. In some cases, as we'll see soon, underwriters get a smaller commission for the shares insiders purchase.)

But that's all wonky deal stuff. The larger point is that biotech IPOs can get done, especially when the folks who've been pumping cash into the company promise to keep doing so. Insider participation in IPOs can be tough to measure -- lack of mention in regulatory filings doesn't mean it's not happening -- but if it is happening, and the company thinks the purchases are material, they let us know. At FOTF HQ, we've been debating whether insider participation is a sign of desperation to get a deal done or a sign of long-time owners who simply love their portfolio companies and want to smother them with more hugs. Most people we talk to, be they entrepreneurs, lawyers, or VCs, say it's desperation. But all agree that there can be exceptions. (People at Ironwood Pharmaceuticals, whose follow-on fundraising we detail in this week's round-up, have long insisted that insider purchases in their 2010 IPO came from their long-term bullishness, an attitude the company is careful to cultivate in documents such as the prospectus for its latest offering.)

Deals also get done when those involved have a long track record of bringing companies to Wall Street. Verastem and its technology might be young in years -- it was founded in 2010 around research published in 2008 and 2009 -- but the co-founder and CEO is Christoph Westphal, whose previous companies include IPOs (Alnylam Pharmaceuticals, Momenta Pharmaceuticals) and acquisitions (Sirtris Pharmaceuticals, Alnara Pharmaceuticals). "Later stage is better, sure," says investor relations specialist Lilian Stern, who connects venture-backed biotechs with public buyers, "but people are happy to bet on the jockey."

Let's shift the metaphor to a different sport: As soon as Verastem cleared the lane, antibiotic developer Cempra and cancer specialist ChemoCentryx took the ball to the hoop. Mind you, the former was no slam dunk. Half of Cempra's $50 million IPO came from insider purchases. You hear the mantra all the time -- "the IPO is just another round of funding" -- but Cempra is a particularly acute example. There's been a lot of insider participation in IPOs since late 2009, and among those with publicly available details, Cempra's insider crutch is among the largest. (More on Cempra below.)

ChemoCentryx sold 4.5 million shares for $45 million, below the terms of 4 million shares at $14 to $16 per share it first expected. In a side deal, its two largest shareholders, GlaxoSmithKline and Techne Corp., bought $7 million and $5 million respectively at the IPO price of $10 a share in separate private placements.

One firm that had no mention of insider participation in its regulatory filings was Merrimack Pharmaceuticals. (Perhaps because investors have pumped nearly $270 million into the company over nearly two decades, most recently with a $77 million Series G round, at an average share price of $3.92.) Guess who had to postpone their IPO? We should have seen it coming. There were hints as early as last October, if you knew where to look. But seriously, the only reason Merrimack gave for the delay was unfavorable market conditions, which is odd, because the conditions are as favorable as they've been for months. In its last terms before withdrawing its IPO, the firm set a goal of raising $150 million through the sale of 16.7 million shares. It's possible that some Merrimack investors were poised to buy at IPO. As noted above, no mention of it could simply mean the firm didn't feel the information was material. But in such a large IPO, even a small percentage of insider purchase would add up to big dollars, and lawyers who work on IPOs told FOTF it's unlikely that kind of activity would go unmentioned. (Look for more on IPO insiders in the next issue of START-UP.)

Who's next? As of this writing, TVAX Biomedical is scheduled to debut any day now, shooting for a miniscule offering of $20 million. Radius Health is the latest to file (see below). It's an odd case, however, as the firm has technically been public for several months after maneuvering onto the bulletin boards via a reverse merger. Otherwise there's not much raring to go. Last year from March through August an average of 29 U.S. firms per month filed paperwork, according to IPO research firm Renaissance Capital. Since then, the monthly count hasn't topped 20, and biotech companies have been few and far between.

IPOs might be rare; we don't care. Every two weeks, you'll always have...

Radius Health: Osteoporosis and women’s health-focused Radius filed an S-1 with the Securities and Exchange Commission Feb. 7 to seek an initial public offering. Pricing and amount of shares have not been determined. Based in Cambridge, Mass., the company’s lead candidate is BA058, an analogue human parathyroid hormone-related protein (hPTHrP) for postmenopausal osteoporosis being developed in both injectable (Phase III) and transdermal (Phase II) formulations. To lead the late-stage clinical charge, the firm hired former Genzyme CFO Michael Wyzga as its president and CEO in December 2011. A month earlier, the biotech drew down the second portion - $27.65 million – of a three-tranche $91 million venture round to fund the Phase III study of the injectable formulation and launch a Phase II trial of the transdermal version. The company hopes to position ‘058 as a direct competitor to Lilly’s Forteo (teriparitide), the only current osteoporosis therapy that builds bone, rather than slow the rate of bone resorption. Radius laid the groundwork for its listing on the NASDAQ through a reverse-merger in May 2011 with shell company MPM Acquisition Corp, which created a recapitalized entity currently traded on an over-the-counter basis. MPM Capital emerged as the largest shareholder with 39% of Radius, followed by the Wellcome Trust (13.4%), HealthCare Ventures (10.7%) and BB Biotech Ventures (8.9%). -- Joseph Haas

Cempra: Apparently the antibiotic maker didn't manage to get all the bugs out of its February 2 initial public offering, which required heavy participation from pre-IPO shareholders. Cempra, whose lead program CEM-101 (solithromycin) just completed Phase II in an oral dose to treat community-acquired bacterial pneumonia, raised $50 million by selling 8.4 million shares at $6 a piece, a sharp drop from its goal of selling 6 million shares between $11 and $13 each. Cempra says it will use about half the proceeds to start a Phase III pivotal trial of CEM-101 this year, but it cautions that it will need to raise more cash to pay for materials and testing to support its marketing application for CEM-101. Existing shareholders bought 4.2 million shares, which couldn't have pleased Cempra's bankers. Their commission on the shares sold to insiders was 21 cents per share, half the commission they earned on sales of shares to new investors. Which insiders bought IPO shares wasn't immediately available; the top owner pre-IPO with 19.3% was Wistar Morris, an angel investor and scion of a famous Philadelphia family quite familiar with biomedical research, followed by Intersouth Partners (18.7%), Aisling Capital (18.6%), and Quaker BioVentures (18.5%). The firm underwent a 1-for-9.5 reverse stock split on January 29. Stifel, Nicolaus and Leerink Swann led the underwriters, which also included Cowen & Co. and Needham & Co. They have an option to buy up to 1.26 million shares in the over-allotment period. -- Alex Lash

Ironwood Pharmaceuticals: The Cambridge, Mass. developer of the late-stage gastrointestinal treatment linaclotide has begun selling 5.25 million shares of common stock with an eye toward raising at least $73 million at the Feb. 6 closing price of $14.85 a share. Underwriters J.P. Morgan and BofA Merrill Lynch have 30 days to buy an additional 787,500 shares at the public offering price. The firm also said that the FDA won't schedule an advisory committee meeting for linaclotide, which Ironwood has partnered in the US with Forest Laboratories and submitted for FDA review in August 2011. Company shares dropped then regained most of the temporary loss, closing Feb. 9 at $15.09 to approach the six-month high of $15.67. It's the first time Ironwood has tapped the public markets since its 2010 initial public offering, which raised $203 million for the company. Known most of its life as Microbia, Ironwood took in more than $330 million in venture capital over 12 years. Since 2008, the firm has had a dual-class share structure designed to discourage takeovers by placing change-of-control decision-making with long-term shareholders. There's another company creating a bit of IPO buzz lately that also has a dual-class structure in place. Bookface, or something. (Its debut promises to be a wee bit pricier than Ironwood's.) And it's interesting to note that Facebook CFO David Ebersman is also on the Ironwood board. (It's his only public board seat*.) The former Genentech wunderkind, who in his 15 years there rose to become CFO, joined the Ironwood board in July 2009, and he signed on at Facebook two months later. In November of that year, Facebook announced it would adopt a dual-class stock structure. -- A.L.

* A previous version of this post incorrectly stated that Ironwood was David Ebersman's only board membership. He is also on the board of at least one private company. We regret the error.

Acetylon Pharmaceuticals: The Boston biotech, working on an HDAC inhibitor to treat multiple myeloma, announced a $15 million investment from Celgene on February 9. The cash comes with no apparent strings attached: Acetylon says Celgene's chief commercial officer will be a board observer, but the big biotech isn't taking a board seat or receiving rights or options to Acetylon assets. The cash, Celgene's first investment in Acetylon, is untranched and brings Acetylon's total cash raised from equity to $50 million, CEO Walter Ogier told FOTF. The Celgene cash is also independent of the $28 million Series B the firm closed in 2011. Three HDAC (histone deacetylase) inhibitors have been approved in the US, one of which is Celgene's Istodax (romidepsin) for cutaneous T-cell lymphoma and peripheral T-cell lymphoma, both in second-line settings. Celgene bought Istodax's sponsor, Gloucester Pharmaceuticals, as soon as it was approved for CTCL in 2009, and Celgene has since expanded the label to PTCL. Acetylon's lead program ACY-1215 is a second-generation, more selective HDAC inhibitor that it hopes will avoid the harsh side effects of some of the first-generation pan-inhibition drugs, particularly Merck & Co.'s Zolinza (vorinostat), as the field becomes more crowded. Acetylon says ACY-1215 could be tested in combination with Celgene's franchise leader Revlimid (lenalidomide) for progressive multiple myeloma. The firm has not yet published results of preclinical tests of the drugs together. -- A.L.

Photo courtesy of flickr user orijinal via a Creative Commons license. Thanks, orijinal!


Anonymous said...

Why do you call ChemoCentryx a cancer specialist? The company focuses on chemokines as you might have guessed from the name. A visit to their website shows that cancer is only one of many indications they are working on.

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