Thursday, July 26, 2012

Financings of the Fortnight Has Its Eyes On the A's

Our sister publication START-UP starts up every new year with The A-List, a review of the previous year’s Series A life-science financings, which we feel are an excellent proxy for gauging investor enthusiasm for new biomedical ventures and measuring the shifts in what’s getting funded, and who’s doing the funding. 

But we can’t wait for the end of the year to peek, so we’ve tallied year-to-date Series A financings using Elsevier’s Strategic Transactions. (Two weeks ago, we did the same with follow-on public financing.) The top-line result: In dollar terms, we’re on pace to equal 2010, a particularly glum year with $876 million total raised in Series A money. To match last year’s modest rebound of $1.1 billion raised, Series A funding must pick up with alacrity, a trend that’s hard to imagine as the Euro crisis continues to bubble and the U.S. loses its economic momentum from the spring. 

Here are the numbers: In the first half of 2012, 33 Series As across the biopharma, device, and diagnostic industries totaled $423 million. The majority of the first half’s total comes from the biopharma sector, mainly US and European companies. (24 financings, $345 million.) That’s just $30 million fewer raised than in the first six months of 2011 from the exact same number of transactions. So it’s fair to say biopharma isn’t lagging as much as the device sector. Still, biopharma numbers to date are not on track to reach the full-year 2011 biopharma figure of $887 million from 63 deals.

The average fundraise in the first half is $15.1 million, slightly higher than 2011’s full year tally of $14.1 million. But wait: the higher total is, ahem, warped by Warp Drive Bio’s $125 million investment from Third Rock Ventures, Sanofi, and Greylock Partners in January. Warp Drive is researching the medicinal properties of naturally occurring microbes with R&D support from Sanofi through a separate collaboration. It’s one of the most intriguing deals of the year so far, not just for the cash considerations, but for the unusual structure that gives Sanofi a nonexclusive option to acquire Warp Drive if certain milestones are achieved. At the same time, Warp Drive has the right to force a sale of the company if other milestones are met. It’s a brave new world when Series A-funded companies and their investors are locking in future acquirers. 

We’re also seeing a lot of solo Series As, a sign that the VC shakeout has left fewer viable syndicate partners for early-stage deals. Ten Series As were solo-backed, and the largest was Third Rock’s $41 million infusion into Global Blood Therapeutics, a firm developing candidates that alter key blood proteins, with an initial target in sickle cell disease. Third Rock is no stranger to solo A-rounds, notching SAGE Therapeutics, Blueprint Medicines, and Lotus Tissue Repair in 2011.

But the Boston and San Francisco firm also knows that good syndicates are hard to find: it joined Bessemer Venture Partners and Frazier Healthcare in a $10 million financing for Alcresta, which is working on a nutritional supplement that contains more digestible and absorbable forms of long-chain polyunsaturated fatty acids. Alcresta was the syndicate’s third go-round together, all with the same management team. The same phenomenon cropped up this year with the investment trio of Astellas Venture Management, InterWest Partners and Sutter Hill Ventures, who are now on their fourth venture together. It’s not rocket science for people who’ve made money together to revisit the formula, but the reduced pool of investors makes it all the more likely.

While oncology and peripheral vascular disease start-ups dominated the 2011 biopharma Series As, Series As the past six months were focused mainly on neurology, gastrointestinal, musculoskeletal, and metabolic disorder companies, which together made up 40% of the financing. Neurology led with seven financings bringing in $64 million, or 17% of the first-half dollar total and nearly a third of the deals. Four GI-related financings followed, while metabolic and musculoskeletal players had three deals apiece.

Biopharma Series A's By Therapeutic Category, January-June 2012
Note: The total number of deals is greater than 24 as several financings involve companies in multiple therapeutic areas.
SOURCE: Elsevier’s Strategic Transactions

Even though CNS start-up Cerecor’s $22.5 million round was shy of the $30 million raise the company had forecasted a year ago, the transaction topped the list as highest raise in CNS and third-largest Series A in the first half of 2012. Counting the second half of 2011, we’ve now seen 16 A-round neurology deals the past year, which perhaps holds counterbalance to Big Pharma’s well-documented exit from the CNS space.

On the device side, six Series A rounds raised $49 million. The dollars and number of deals lag the full-year 2011 total of $151 million raised in 24 transactions. In vitro diagnostics have tallied $27 million in three deals, slightly better than the 2011 pace, which finished with $48 million from 10 transactions. It’s worth noting that corporate venture played a role in three of the  biggest device and diagnostic Series As. Merck Serono Ventures along with KPCB and TPG took part in the first tranche of the Series A raise for Auxogyn, a company focused on infertility assessment using noninvasive devices that determine embryo viability. Novartis Ventures Fund led a $12.5 million first round for ImaginAb, with participation from Merieux Developpement (bioMerieux’s venture arm) and other investors. ImaginAb is developing engineered antibody fragments for diagnostic imaging, initially in cardiovascular diseases. And the molecular diagnostics company Xagenic pulled in $10 million in a  January round that included Dutch diagnostic giant Qiagen.

Now if you'll excuse us, we're shifting our attention away from data dives and toward springboard and platform dives. But first, many thanks to the Olympian effort of Amanda Micklus and Maureen Riordan for this week's column. It's time to raise the torch for another edition of...

California Institute for Regenerative Medicine: California's state agency that funds stem-cell and other regenerative medicine R&D announced July 26 $150 million in grants for translational projects that are expected to file an IND or complete an early-stage clinical trial within four years. Only one of the awards goes to a for-profit entity, the San Francisco Bay Area firm StemCells Inc., which wants to use stem cells to treat spinal cord injuries in the neck both in patients with new injuries and in patients who have been paralyzed for months or years. The other six awards are going to academic or institutional researchers and range from $14 million to $20 million per project. The lack of private sector recipients underscores the challenges of turning stem-cell-related research into product candidates. Three years ago, CIRM handed out $225 million in grants to move 14 preclinical projects toward the clinic; only one of the 14 was based at a for-profit company. -- Alex Lash

Bluebird Bio: Once an area that drew great skepticism, gene therapy is now drawing big money. Cambridge, Mass.-based start-up Bluebird Bio raised its third big round of funding since the beginning of 2010, tapping a diverse syndicate of investors for $60 million in Series D money that will support ongoing trials of gene therapies for rare diseases. It comes just as European regulators have approved the first gene therapy product in Europe, another strong sign of the advances the field has made the past decade. The Bluebird deal includes contributions from public and private growth investors Deerfield Partners and RA Capital, hedge fund operator Ramius Capital Group, and two unnamed public investment funds, as well as strategic backer Shire. They join returning venture firms ARCH Venture Partners, Third Rock Ventures, TVM Capital, and Forbion Capital Partners. Bluebird Bio raised $35 million in a Series B round in early 2010, then was slated to take $30 million in two tranches of Series C capital in an April 2011 agreement. The startup, however, held a call option which it never exercised on the second tranche; its VCs instead put that $15 million into the Series D round at a higher price, according to Bluebird CEO Nick Leschly. The firm plans to conduct a Phase II/III study of a treatment for childhood cerebral adrenoleukodystrophy and a Phase I/II study of a beta-thalassemia and sickle-cell disease therapy. Both are built on Bluebird’s lentiviral technology, in which a patient’s own bone marrow stem cells are genetically modified and returned to the patient, potentially obviating the need for a transplant. – Paul Bonanos

Alimera Sciences: The publicly-traded ophthalmic company said July 18 it has grossed $40 million in a sale of preferred shares to Palo Alto Investors, Sofinnova Ventures, and New Enterprise Associates. The trio gets 1 million preferred shares and warrants to buy 300,000 more, with each preferred share convertible into 13.75 common shares. Investors can trigger a conversion at will, outside of a lockup period and other constraints. The preferred shares entitle their holders to dividends and other distributions pro rata with the common stock, as well as unspecified downside protection. The shares can also convert to common if Alimera’s lead product gains regulatory approval or if Alimera raises additional equity at predefined share prices, Sofinnova partner Garheng Kong told the IN VIVO Blog. Kong was among Alimera’s original investors at Intersouth Partners and is now one of the partners investing Sofinnova’s new $440 million life-sciences-only fund, up to 25% of which could go toward positions in public biotech companies, Kong said. (Alimera is the fourth investment from the fund.) Alimera’s lead product is Iluvien, an eye implant that delivers drug up to 36 months to treat vision loss associated with diabetic retinopathy. It is approved in France, Austria, Portugal, the U.K., and of this week, Germany. The US FDA asked for more clinical data last November, the second time it has issued a complete response letter for Iluvien. No new PDUFA date has been disclosed. The private stock sale must be approved by a majority of common stockholders; as of July 17, holders with 56% of the common stock had agreed to vote in favor, according to Alimera. – A.L.

Durata Therapeutics: With a handful of biotechs knocking on the IPO window this fortnight, only one as of this writing has gotten through. Antibiotic developer Durata on July 18 raised $68 million by selling 7.5 million shares at $9 each. The firm missed its original goal of $75 million by pricing below the intended $11 to $13 per share range, but it sold more shares to bridge part of the gap. Existing investors Domain Associates, New Leaf Ventures, Aisling Capital, Sofinnova Ventures and Canaan Partners agreed to buy 3.8 million shares, more than 50% of the offering, to get the deal done. That’s par for the course these days. It’s rare for a biotech to go public without insider participation, as we detailed in February. Nothing’s changed since then. If biotech backers want to reach liquidity, they’ll more than likely need to help get the glass half-full. Investors are adding not subtracting Durata shares, but their holding times to date have been relatively short. Durata was founded less than three years ago from the ashes of Pfizer’s nearly $2 billion acquisition of Vicuron Pharmaceuticals. In Pfizer’s hands, one of Vicuron’s main products, the antibiotic dalbavancin for skin and soft-tissue infections, received three rejections from the FDA. But with the agency rolling out new regulatory guidelines for certain antibiotics, Durata feels it can do it right this time and recoup the rewards of bringing a once-weekly intravenous gram-positive antibiotic to market. It is currently conducting two Phase III trials. BofA Merrill Lynch and Credit Suisse led the underwriting team, which has the option to buy 1.1 million additional shares for 30 days following the IPO. – A.L.

CoDa Therapeutics: The San Diego wound-healing firm is the first to benefit from venture firm Domain Associates’ new strategic alliance with the Russian sovereign fund Rusnano. On July 24, Domain said CoDa has completed a $40 million Series B financing, with contributions split equally between Rusnano and a Domain-led syndicate of CoDa’s current investors. These include the Australian VC firm GBS Ventures and the New Zealand firm BioPacific Ventures. Domain and Rusnano said in March they were each committing up to $330 million over the next three to five years to fund Domain portfolio companies. CoDa came first because it needed financing, according to Domain partner Brian Dovey. It is in Phase IIb trials for a wound-healing compound aimed at venous leg ulcers and in Phase II trials for the same compound for treatment of diabetic foot ulcers. Domain companies that receive Rusnano funds are obligated to license exclusive rights to sell their products in Russia and the CIS regions to NovaMedica, a new Russian company that Rusnano and Domain are spending up to $190 million to create. The partners claim it will be Russia’s first fully integrated, innovative domestic drug firm, and will be structured as a joint venture between Rusnano and Domain. As a condition of its Series B financing, CoDa has licensed exclusive rights to its lead product and related technologies in Russia and the CIS to the new company, in exchange for undisclosed royalties on sales. Domain is one of several U.S. life sciences venture capital firms that are working with Rusnano, a five-year-old $10 billion sovereign fund charged with helping Russia jumpstart domestic high-tech industries, and as profiled this spring in START-UP's Capital Matters column, it has been aggressive making investments in Western biotech, both directly and through other funds such as Domain and Burrill & Co.  – Wendy Diller

Photo courtesy of the International Olympic Committee.

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