Friday, May 31, 2013

Deals Of The Week Watches Crowdfunders Multiply Like Rabbits

That giant sucking sound you hear is investors pulling their money out of early-stage drug and device research. As we’ve chronicled here and in our other publications, big pharma has valiantly stepped in to fill the breach, whether through corporate venture or academic tie-ups, but that won’t be enough to budge the gathering volume of biomedical discoveries stalled between lab and clinic.

Some investors, thinking the JOBS Act and its provisions governing general solicitation will usher in a sea change in how biomedical ideas get funded, have pointed to crowdfunding as a solution. We’ve written about a number of these entities, including MedStartr Inc., Poliwogg LLC, and most recently, HealthiosXchange.

On May 17, VentureHealth LLC threw its hat into the ring. VentureHealth is the creation of Mir Imran, who founded and manages its sibling companies InCube Ventures LLC and InCube Labs LLC, an incubator and collaborative research lab that spins out one or two companies each year. InCube Ventures typically invests in start-ups out of InCube Labs as well as in external companies. Mir himself holds more than 200 issued patents, is the inventor of numerous devices, and has founded more than 20 medical device companies, 15 of which have had successful exits via trade sale or IPO.

There is some debate about whether crowdfunding threatens VC by accessing a new and better idea flow and a broader base of investors. Greg Simon, CEO of Poliwogg, sees it as potentially disrupting the traditional investment supply chain, knocking out investment banks and venture, along with their bloated fees.

Simon told us that venture would probably not be interested in crowdfunding because the numbers are too small and, besides, venture’s business model is based on investing other people’s money.

Mir and his colleagues at InCube think otherwise. VentureHealth embodies the idea that the best of venture can be blended with the best of crowdfunding, to the benefit of venture investors, citizen LPs, entrepreneurs, and biomedical technology.

The potential of linking venture to crowdfunding was unwittingly demonstrated by an early pioneer. MedStartr, a crowdfunder of low-tech health and wellness products to non-accredited investors, operates on what amounts to a donation model. Investors see no return except for the warm glow that comes with contributing to a good cause. But an interesting thing about its crowdfunding model is that venture, angel, and other kinds of investors are on the sidelines watching. And every so often, when they see a good idea, they swoop in and fund it. MedStartr, sadly, is unable to participate in those exits.

But VentureHealth is.

For starters, VentureHealth takes a carried interest fee on what it earns in a sale or other liquidity event, much like a VC would. Mir’s partner, Andrew Farquharson, claims that this model aligns the interests of VentureHealth with its investors. Unlike some other crowdfunding portals, VentureHealth has no plan to become a registered broker-dealer.

VentureHealth’s plan is to only go out to accredited investors. In fact, it will be quite selective in the investors it brings in – physicians, researchers, individuals who understand the technology being offered and the market it’s targeting. As long as they meet those criteria, they can be experienced accredited investors or novice accredited investors who meet the minimum financial requirements set by the SEC but have traditionally been excluded from investing in private companies. Mir told us that VentureHealth is not interested in going out to non-accredited investors. It can raise all the money it needs from its accredited base, with additional support from InCube Ventures and, where warranted, from other venture co-investors.

It’s refreshing to find a crowdfunder who rejects the populist cant that many of its peers go in for. That’s not to say that VentureHealth isn’t opening up ground floor investment opportunities for investors who would otherwise be excluded. But it’s not exactly democratizing the process for all comers.

VentureHealth will focus on devices, drugs, diagnostics, and mobile health. In many cases, says Mir, InCube Ventures will co-invest alongside VentureHealth. The crowdfunding entity will likely have broader a remit for the deals it pursues than its venture sibling, but where they intersect, there will be co-investment. Venture health will be able to draw on the traditional venture strengths of screening deals, doing the diligence, managing companies, and providing follow-on funding.

The two exits listed on VentureHealth’s website illustrate the flexibility and potential of the venture/crowdfunding model especially when managed by industry insiders with extensive relationships and know-how.

Nfocus Neuromedical Inc. is a developer of a neurovascular device with an initial indication in brain aneurysms. The company was founded by Mir and co-inventor Martin Dieck. It was acquired in February by Covidien PLC in a structured acquisition for $51 million upfront and a $21 million earn-out payment. VentureHealth raised $1.49 million. Oxford Bioscience, DFJ e-Planet Ventures and others participated in financing rounds.

In the other exit, BodyMedia Inc., a developer and marketer of wearable body monitors that communicate with mobile devices, was acquired by Jawbone for $100 million in May 2013. VentureHealth raised $469,000. InCube Ventures, Comcast Ventures, and others participated in financing rounds.

Mir acknowledges that there’s an incestuous element to these early exits in which he wears the hats of company founder, venture co-investor, and crowdfunder. That might change over time. But he underscores another advantage of VentureHealth’s tight association with its VC sibling: “When Incube Ventures makes an investment from our fund, we keep a sizeable amount of dry powder on hand for follow-on rounds.” His point is that most angel investors – Mir says crowdfunding is organized angel investing – can’t look that far into the future and reserve capital for follow on fundings.

VentureHealth’s raises currently range between $500,000 and $1.5 million. Mir expects that number to rise as his accredited investor base gains experience. VentureHealth lists one “active investment” on its site: Channel Medsystems Inc. is developing an office-based, cryoablative technology to treat excessive menstrual bleeding. It raised $9.7 in an April B round led by Boston Scientific, toward which VentureHealth contributed $875,000.--Mike Goodman

While the crowdfunding space gets more crowded, deals and acquisitions this week continued their torrid pace.

Valeant/Bausch & Lomb: M&A-focused Valeant Pharmaceuticals International Inc. announced its biggest acquisition yet on May 27, agreeing to pay $8.7 billion to acquire privately held eye care company Bausch & Lomb Inc.  The transaction will increase Valeant’s eye care portfolio substantially: B&L offers a suite of prescription and over-the-counter drugs, contact lenses and lens-care products, as well as ophthalmologic surgical devices and instruments.

CEO Michael Pearson said the deal would create a global eye care platform within Valeant, retaining the B&L brand name,that will provide pro forma net 2013 revenue of roughly $3.5 billion. Of the $8.7 billion price tag, $4.5 billion will go to B&L’s owners at Warburg Pincus, while the remainder will retire B&L’s outstanding debt. Valeant, which had $414 million cash on hand at the end of the first quarter, said it will finance the transaction mainly through debt, while also raising between $1.5 billion and $2 billion in new equity. The Canadian specialty pharma projects $800 million in cost synergies from the transaction by the end of 2014.

The deal, unanimously agreed upon by both companies’ boards and expected to close during the third quarter, follows Valeant’s recent and apparently unsuccessful courtship of Actavis Inc. Acquiring B&L will enable Valeant to balance its revenue mix from both a geographic and therapeutic perspective. After closing, about 50% of Valeant revenue will stem from the U.S., with Eastern and Central Europe comprising 15%, Western Europe and Japan 13%, and Latin America, Canada, Australia, Southeast Asia and South Africa rounding out sales. In terms of therapeutic areas, dermatology and aesthetics will contribute about 34%, eye health about 32%, neurology and “other” about 12%, and consumer and oral health about 11%.--Joe Haas

GlaxoSmithKline PLC has done the biggest takeout of a private, clinical-stage European biotech so far this year with the acquisition of Okairos SRL for that company’s Phase I RSV vaccine and T-cell stimulating technology. for the biotech’s VCs nabbed roughly a 10x return on their €23.2 million invested capital.

Vaccines are a core therapeutic area for GSK. With Okairos, it hopes to have the basis of a first-in-class blockbuster. RSV is a common virus that presents with cold-like symptoms. In infants under one year old in the U.S., the disease is the most common cause of bronchitis and pneumonia and can require hospitalization or occasionally be fatal. Okairos’ vaccine provided “complete protection” against RSV in preclinical testing on rats and calves; the biotech started a Phase I trial in 40 healthy volunteers in February. MedImmune Inc.’s Synagis (TK) is a monoclonal antibody used as a preventative in premature and other high risk infants, but there is no RSV vaccine or post-infection therapy on the market.

In addition to RSV, Okairos has four clinical stage vaccine programs for malaria, HIV and hepatitis C (prophylactic and therapeutic). The Okairos platform and much of the management came out of Merck & Co. Inc. Okairos co-founder and CEO Riccardo Cortese was the founder and head of the Istituto di Ricerche di Biologia Molecolare (IRBM) in Rome, which later became a subsidiary of Merck. He departed Merck, taking much of his original IRBM team with him, and in-licensed the technology from the pharma in 2007.--Stacy Lawrence

AstraZeneca/Omthera: In its quest to reshape its cardiovascular pipeline, AstraZeneca PLC bypassed commercial-stage fish oil pill maker Amarin Pharmaceuticals Inc. announcing plans May 28 to acquire Amarin’s rival Omthera Pharmaceuticals Inc. instead. By acquiring Omthera, AstraZeneca accepts more risk, but gains an NDA-ready asset for dyslipidemia for considerably less than it would have cost to acquire Amarin ([A#14130528004]). AstraZeneca will pay Omthera $12.70 per share, or approximately $323 million, an 88% premium over Omthera’s closing price on May 24. The enterprise value of the deal is lower, about $260 million after incorporating Omthera’s cash balances of roughly $63 million, the company said.

In addition to the upfront cash from AstraZeneca, Omthera shareholders will receive contingent value rights of up to $4.70 per share, about $120 million, tied to milestones for Omthera’s lead product Epanova. The product, a mixture of polyunsaturated free fatty acids derived from fish oils, namely EHA and DHA, has demonstrated efficacy in Phase III studies for reducing triglyceride levels, as well as non-HDL cholesterol in combination with a statin, in patients with hypertriglyceridemia.

It is an indication for mixed dyslipidemia, a broader patient population, that both AstraZeneca and Amarin hope to pursue, and there, Amarin is ahead. Its product, Vascepa, is already on the market, and the company is awaiting action from FDA on an sNDA for mixed dyslipidemia. But, with a market capitalization of close to $1 billion, Amarin would have been a more expensive takeout.--Jess Merrill

ThromboGenics/Eleven Biotherapeutics: Following the recent U.S. and European launches of its first product, the macular adhesion therapy Jetrea (ocriplasmin), Belgian biotech ThromboGenics NV now wants to build on that success by developing a range of ophthalmic products. As part of that strategy, it has licensed technology from U.S. company Eleven Biotherapeutics to design a new protein therapeutic targeted at diabetic eye diseases such as diabetic macular edema.

ThromboGenics has identified a biologic target involved in diabetic eye diseases, and will use Eleven's AMP-Rx protein design technology to create a novel product, the companies announced May 28. Eleven has received an undisclosed upfront payment, and will receive development, regulatory and sales milestones plus royalties on any protein developed using the technology. Eleven argues it has already validated the technology by developing its own lead protein therapeutic, EBI-005. The product is being evaluated in a Phase Ib study for the treatment of dry eye disease.

ThromboGenics is a European biotech success story. In addition to launching Jetrea in the U.S. on its own at the beginning of 2013, it has also received a total of €90 million ($117 million) in milestone payments from ex-U.S. Jetrea licensee Alcon (a division of Novartis AG), after that company gained EU approval and subsequently launched the product in the U.K. and Germany. The biotech expects "significant" royalties from Alcon's net sales of Jetrea.--John Davis

Amgen Inc. took a second stab at the Japanese market with an alliance and joint venture with Astellas Pharma Inc., five years after selling off its Japanese affiliate and portfolio to Takeda Pharmaceutical Co. Ltd.

The alliance with Astellas, announced May 29, provides Amgen a co-development and co-commercialization partner for five products. The furthest in development are AMG 145, a PCSK9 monoclonal antibody  in global Phase III trials and in Phase II in Japan with a lead indication of hyperlipidemia; and romosozumab, a sclerostin mAb in global Phase III and Phase II/III in Japan for osteoporosis. Anti-HGF mAB rilotumumab is in Phase I in Japan for gastric cancer, and MET inhibitor AMG 337 for gastric cancer and blinatumomab for hematological tumors are still in preclinical.
The alliance for the five products will last through 2032 at the latest. Astellas would pay undisclosed royalties to Amgen for any products that reach market, but the companies will otherwise share development costs and profits 50-50.

Astellas and Amgen also formed a joint venture, Amgen Astellas BioPharma KK, which is structured to allow Amgen to turn the operations into a wholly owned Japanese affiliate as soon as 2020. The JV, 51% owned by Amgen, 49% by Astellas, will open Oct. 1 in Tokyo and will comprise seconded employees from Astellas, transferred employees from Amgen and new hires. However, a source close to Amgen’s previous Japan operations said Amgen may have trouble with recruitment after exiting the country.

At a May 29 press conference in Tokyo, Amgen CEO Robert Bradway said, “This is the alliance we expect to create a platform for Amgen to have its own operations in Japan.”--Dan Poppy

Pfizer CTI/UCSF:
Pfizer Inc.’s Centers for Therapeutic Innovation (CTI) has broadened its scope through a deal with the University of California San Francisco that will focus on small molecule research – a first for CTI. Until now, the Pfizer initiative had focused only on biologic projects. Under the new collaboration, CTI will provide UCSF with funding and scientific expertise to support preclinical and clinical development of the compounds. The therapeutic areas and number of compounds included in the collaboration were not disclosed, but UCSF is eligible for milestone payments and royalties should any of the compounds advance through commercialization. CTI is expected to engage some of its other partners in small molecule research.

CTI was set up by Pfizer in late 2010 to allow the Big Pharma to better engage scientists on medical campuses and in research institutions. Pfizer set up hubs in San Francisco, New York, and Boston and has committed hundreds of millions to the projects. CTI is expected to expand to as many as eight cities.
The first initiative under the CTI banner was a collaboration set up between CTI and UCSF in November 2010. At the time, Pfizer committed $85 million of funding over a five-year period.--Lisa Lamotta

Financings of the Fortnight Battles the Bull Run

Since when did biotech’s epicenter move to Pamplona? The bull run has lasted quite a while now, after having gotten an extra goose, if you don’t mind mixing barnyard metaphors, around the time hepatitis C treatment developer Pharmasset became the $11 billion target of Gilead Sciences in November 2011.

Once they scraped their jaws off the floor, analysts decided the deal wasn’t really so shocking despite the price tag. We’ll soon find out how well it pays off for Gilead. The HIV leader has put the main compound it acquired in that deal, sofosbuvir, through a battery of Phase III tests and applied for a marketing license.     

One could argue that the acquisition has already paid dividends not just to Gilead but to nearly every other biotech company with a pulse. Since the deal was announced in November 2011 the two major biotech indices from NASDAQ (NBI) and the NYSE (BTK) are up 97% and 93%, respectively. That's vastly outstripped the tech-heavy  NASDAQ Index, which is up a tidy 35%. You could slice and dice the good times in other ways, too: In the last five years, the NBI is up 138% and the BTK 170%, compared to 37% for the Nasdaq writ large.

Or, microcosmically, you could point to this morning's Epizyme activity. The epigenetics company, which our In Vivo colleagues profiled a year ago, sold IPO shares at $15 each, raising $77 million, and the stock began trading this morning at $20. (As of this writing it's up to $21.02.) That's a lot of enthusiasm for a company in a cutting-edge area of biomedical R&D with just a few months of a Phase I trial as the sum of its clinical experience (and the drug in that trial, to boot, is partnered to Celgene).  

The majority of the gains have come in the past year and a half. Whichever cut of the steak you prefer, it’s been an unusually long run for the sector, which tends to see run-ups for six months, perhaps a year, then lose much of the ground it has gained. Much of the fervor is driven by large-cap biotechs: Since November 2011, Biogen Idec, Vertex Pharmaceuticals, Celgene, Gilead Sciences, and Amgen have all outperformed the biotech indices (Gilead by a ton, the rest by a few percentage points). As ISI Group analyst Mark Schoenebaum pointed out recently,  the NBI has soared (and even surpassed in March the high water mark that the genomics bubble left in March 2000), all while the median price-to-earnings ratio of large cap biotech has deflated like a forgotten balloon for years.

Many mid-cap biotechs are making hay, too. Onyx Pharmaceuticals is up 125%, Isis Pharmaceuticals 156%, Clovis 166%, Alnylam Pharmaceuticals 249% -- yeah, Alnylam, whose partners abandoned its RNAi platform a few years ago, and which made a sharp right turn as a slimmed-down clinical-stage company in 2010 – and speaking of rising from the ashes, Medivation, they of Dimebon infamy, are up 451%, all since November 2011.

There are others, and the list of billion-dollar market caps is getting a little heavy. We’re not saying that Sarepta Therapeutics, which has been grinding away at a novel approach to treating Duchenne’s muscular dystrophy for several years after shifts in focus, top management, and company name, is the life sciences equivalent to; or that Acadia Pharmaceuticals, a 20-year-old firm working toward approval of its Parkinson’s psychosis treatment, is this year’s Webvan. But talk of a bubble is, well, bubbling up, and one wonders if it will pop in the summer heat. It’s conventional wisdom that the down time after the annual American Society for Clinical Oncology (ASCO) conference, gearing up right now in Chicago, is also profit-taking time.

Until now, though, it’s been a seller’s market. To date, biotech follow-on sales have raised $4 billion this year. That’s nearly two-thirds of last year’s $6.5 billion total in just under five months, according to Elsevier’s Strategic Transactions database.

Put another way, there have been 18 follow-on sales of $75 million or more so far in 2013. That nearly equals last year’s total of 21. And it’s not just the high flyers raising barrels-full. As we describe below in our round-up, Ironwood Pharmaceuticals ginned up a cool $136 million by selling 10.5 million shares. Shares of the constipation-relief developer have appreciated only modestly while the male bovines have cavorted. Starting at the November 2011 "goose" mark, Ironwood has only risen 7%. Or, if you prefer a somewhat less arbitrary start date, Ironwood is up 23% since its February 2010 IPO, while the Nasdaq has risen 63% and the biotech indices have more than doubled.

So with the likes of Ironwood raising more than $200 million in equity and another $175 million in debt since the market’s gone nuts, we’re going to speculate that companies below the large-cap range are having little problem getting the cash they need. (In Ironwood’s case, it’s to help with the launch of their first commercial product, Linzess, aka linaclotide, which the FDA approved last August.)

According to Strategic Transactions, since November 2011 biotechs with market caps of $1 billion or more have raised $3.89 billion over 24 sales, an average of $162 million. Companies with market caps between $500 million and $1 billion have raised $2.59 billion over 26 sales, an average just under $100 million. And sub-$500 million cap companies have raised $4.67 billion over 142 sales, an average of $34 million.

It all reinforces the urgency for private firms to get through the IPO window, because the grass really is greener on the other side of the fence. And for now, there's plenty of pasture to graze. The upcoming Start-Up will have fewer bovine puns and more on the current IPO landscape – who’s getting to exits might surprise you -- so stay tuned. And before you exit, make sure you profit from the rest of our column. Sharpen your horns, it’s time for…

Ophthotech: The legacy of Eyetech continues. Its successor Ophthotech has raised $175 million to fund a huge Phase III trial for its wet age-related macular degeneration (AMD) candidate, Fovista. Announced May 29, the transaction comprises a $50 million Series C round for the privately held biotech, plus $125 million from long-time investor Novo AS in exchange for royalty rights to Fovista. The financing is the latest in a web of transactions involving the now-defunct Eyetech, Novo AS and other players in the ophthalmology space, including venture firm SV Life Sciences. New York-based Ophthotech was created and is led by Eyetech co-founders David Guyer and Samir Patel. Following the sale of Eyetech to OSI Pharmaceuticals, Guyer was a principal at SV Life Sciences, which focuses much of its investment on eye care companies. The Series C investors were Novo AS and Ophthotech’s other prior investors: SV, Clarus Ventures and HBM BioVentures. The same four participated in Ophthotech’s $30 million Series B round in 2009, and Novo, SV and HBM were the investors in the biotech’s $36 million Series A in 2007. But Novo AS also is ponying up $125 million against future royalties on the sale of Fovista, an anti-platelet-derived growth factor (PDGF) drug slated to start a 1,900-patient, 200-site Phase III study during the third quarter. The company declined to provide specifics on the royalty agreement, such as percentage of sales or whether the royalties would be capped by dollar amount or a certain date. – Joseph Haas

Effector Therapeutics: Effector closed a $45 million Series A round of funding, announced May 20, with commitments from seven venture firms including three tied to Big Pharma. The backers are GlaxoSmithKline’s venture firm SR One, Novartis Venture Funds, and Astellas Venture Management, as well as Abingworth, Osage University Partners, U.S. Venture Partners and Mission Bay Capital. The company plans to develop and commercialize new drugs based on discoveries at the University of California, San Francisco, concerning the process of translation, or protein synthesis. Effector believes it can create compounds that affect multiple oncogenes simultaneously, halting a key mechanism that leads to tumor growth. The company will target so-called “effector mechanisms” selectively, aiming for an upstream process that can activate more than one cancer gene at the same time. San Diego-based Effector believes that newly-discovered methods of disrupting certain malfunctioning effector mechanisms can sever a key lifeline upon which cancer cells depend. For CEO Steve Worland, Effector is a chance to build a new company from the ground up. He was CEO of publicly traded hepatitis C specialist Anadys until its sale to Roche for $230 million in October 2011.  Worland told our Pink Sheet colleagues that his involvement with Effector’s VCs “was like being an entrepreneur-in-residence at three or four firms simultaneously” as he built the syndicate. The corporate investors’ parent firms received no special rights, options, or ties to the programs Effector has underway. According to U.S. Venture Partners’ Larry Lasky, the four firms with board seats – USVP, Abingworth, SR One, and Novartis -- were the “main investors,” while the other firms contributed smaller amounts. – Paul Bonanos

Karyopharm Therapeutics
: After raising more than $30 million in its initial financing, oncology biotech Karyopharm is adding to its cash runway with a $48 million Series B. The Natick, Mass. company will use the new funds to push its lead cancer asset forward in multiple indications. Karyopharm, which was founded in 2008, has been financed largely by a private investor until now. In November 2010, the biotech attracted the attention of deep-pocketed Chione, an investment vehicle that is backed by Polish oil and gas baron Slava Smolokowski, who has also put some of his considerable fortune into Broadway. With Smolokowski’s backing, Karyopharm raised $20 million in its initial round and then added another $10 million during a follow-up offering in 2011. Chione once again has contributed to the most recent round of financing and been joined by a group of private investors, as well as one venture capital firm. Delphi Ventures now has joined the company’s investment syndicate in the latest round of financing and Deepa Pakianathan will join its board to represent Delphi’s interests. Karyopharm also has received $1 million in funding from the Multiple Myeloma Research Foundation and the founders brought in $1 million from other angel investors prior to the Series A. CEO Michael Kauffman said the company largely has avoided including venture capital investors due to the constraints that often come with VC money – particularly more rigid timelines. He said the leeway afforded by private investors was a better fit for the company. – P.B.

Ironwood Pharmaceuticals: The developer of constipation treatment Linzess (linaclotide) netted nearly $130 million in a secondary sale of 10.5 million shares of its Class A common shares at $13 a piece, a 6% discount to the previous day’s closing price. The firm could boost its proceeds if underwriters led by JP Morgan and BofA Merrill Lynch sell an additional 1.575 million shares, cash that will help the company build the recent launch of Linzess, which FDA approved in August 2012 and the EU in November 2012.  Ironwood shares US marketing duties with Forest Laboratories, a deal that was inked in 2007, and Laboratorios Almirall has exclusive European rights. It’s also brought on AstraZeneca to help sell Linzess in China and Astellas Pharma in Japan and other Asian countries. Using both debt and equity sales, the firm has raised nearly $400 million since the start of 2012. The secondary share sale is for Class A stock, notable because Ironwood long ago instituted a dual-class share structure to ensure that pre-IPO shareholders have a disproportionately large say in potential change-of-control scenarios. Holders of Class B stock get 10 votes per share in such matters. Class A holders get 1 vote per share. Starting in 2019, the dual-class structure could disappear if Class B shares total less than 25% of all outstanding Ironwood shares. According to the firm’s regulatory filings, the recent stock sales put the Class A share count at 92.9 million and Class B at 26.4 million.  – Alex Lash

All The Rest: Cardeas Pharma raised $34M in Series B to fund work on inhaled antibiotics for hospital-acquired infections… Jennerex Biotherapeutics closed on $21.6M to support lead oncolytic immunotherapy Pexa-Vec…Trinity College spin-off Trino Therapeutics raised an €9M Series ATheraCoat, focused on bladder infections, completed a $7M round led by Pontifax…neurodegenerative disease drug developer Oligomerix raised $2.6M in a Series B…concurrent with an $850k grant from Austria’s Research Promotion Agency FFG, antisense company ugichem raised €1.4M…Sofinnova led an undisclosed Series A for First Aid Shot Therapy (FAST), which is developing OTC single-serve liquid products…autoimmune and viral disease firm Kineta received funding from Hydra, an LP formed by retired oil traders…BTG completed a £106M private placement to help pay for acquisitions of interventional device companies Ekos and Nordion’s Targeted Therapies…for a total of $4.6M, Aeterna Zentaris may sell MLV & Co. up to 2.5M shares  in an "at-the-market issuance"…in a convertible preferred stock and warrants offering, Guided Therapeutics raised $2.6M…Rare disease-focused NPS Pharmaceuticals closed on an $87M secondary offeringStemline Therapeutics, which is investigating oncology therapeutics that target cancer stem cells and tumor bulk, publicly raised $60M…in a follow-on, Cyclacel Pharma grossed $20.5M to fund completion of the Phase III SEAMLESS trial for AML candidate sapacitabine…male and female sexual health company Apricus Biosciences closed a $17.1M FOPO…in the second-highest grossing IPO so far in 2012 behind Quintiles, Portola went public raising $140M... Israeli firm Alcobra completed a $25M US IPORegado set terms for their IPOs…PTC Therapeutics, Prosensa, and Evoke Pharma all joined the IPO queue and filed S-1s...Speranza Therapeutics raised $90M in funding and concurrently spun off from Elan to continue work on Phase II ELND005 for CNS indications… ElsaLys Biotech spun off from Transgene with a €2.1M Series A to support development of antibodies for cancer and infectious…Pfizer raised $4B in a five-tranche notes sale…to fund several acquisitions, Elan completed an $800M debt offeringImmuPharma received a £50M loan from Darwin Strategic to support Phase III studies of lupus candidate Lupuzor…and VentureHealth set up an equity crowdfunding portal to improve clinical outcomes. -- Amanda Micklus

Many thanks to Stacy Lawrence for help with this week's column. 

Photo courtesy of Flickr user Stephan Andrej Shambora

Friday, May 24, 2013

Deals Of The Week Ponders When $2.1 Billion Is A Steal

With the oncology high season upon us and just about everyone in the industry scrambling to decode the secrets hidden in ASCO’s abstracts, we couldn’t help but stop and reflect on how at least one company got where it is in oncology today through stellar deal-making. Bristol-Myers Squibb Co.’s $2.1 billion acquisition of Medarex in 2009, which seemed to some like a fortune at the time, catapulted Bristol into the leading position in the field of immune-oncology, an area of cancer drug development that some analysts are now calling a potential $10 billion to $20 billion market.

When the two companies, already partners, announced the acquisition in July 2009, “The Pink Sheet” called the offer “a coup for the biotech,” which got nearly double its stock price from Bristol. Fast forward four years later and it is Bristol that made out like a bandit.

There is still a lot to learn about how the immune system can be used to fight cancer, but it is increasingly evident that the immune system can indeed be directed to turn against tumors, potentially resulting in long, durable responses. Thanks to Medarex, Bristol has become one of the experts at the forefront of the research. Yervoy (ipilimumab), the immunotherapeutic targeting CTLA4 Bristol developed with Medarex, is already on the market for metastatic melanoma and could achieve blockbuster level sales this year. A second drug, nivolumab, which targets a different immune checkpoint, PD-1, has already moved into pivotal trials.

In about one week at ASCO, Bristol will release data on Yervoy and nivolumab used in combination, where the potential of immunotherapeutics is believed to be greatest. And those are just two of the immunotherapeutics Bristol has in development. The company is studying multiple immune system targets in earlier trials, some gained through Medarex and some gained through other deals. For example, the company gained a KIR receptor blocker through a licensing deal with Innate Pharma SA in 2011, and a monoclonal antibody against another target, CD-137, was developed internally. Bristol believes these drugs will ultimately be used together in different combinations to turn cancer into a potentially chronic disease.

It’s never easy to quantify the value of an acquisition years after a portfolio is integrated into big pharma, but it is safe to say Medarex turned out to be a smart buy. Investors and analysts have certainly taken note. Citi Research managing director for global pharmaceuticals Andrew Baum upgraded the company May 22 and raised the stock’s price target to $55 from $33 on the strength of the immunotherapeutics portfolio, which he said “will likely exceed $10 billion [in sales] by 2022.”

The company’s stock is up more than 11% since May 15, when the ASCO abstracts were released and Bristol’s data was highlighted in a press preview; it closed May 23 at $47. How is Wall Street valuing Medarex in the share price? “It’s at least $10. Perhaps as much as $15,” speculated ISI Group analyst Mark Schoenebaum.

All that’s not to say Bristol didn’t pay handsomely to be in the position it’s in. The company’s then-CEO James Cornelius took a big gamble on immuno-oncology when he put $2.1 billion down on Medarex as part of his “string of pearls” acquisition strategy before the Phase III data on ipilimumab read out.

The deal was one of the most expensive in oncology in the last five years, trumped only by mega acquisitions like Roche’s $43.7 billion buyout out of Genentech Inc. and Takeda Pharmaceutical Co. Ltd.’s $8.2 billion buyout of Millennium Pharmaceuticals, both in 2008, and by a couple of mid-sized acquisitions including Astellas Pharma Inc.’s acquisition of OSI Pharmaceuticals Ltd. for $3 billion and Celgene Corp.’s purchase of Abraxis BioScience Inc. for $2.9 billion.

Also, weighing in as more expensive is Eli Lilly & Co.’s $6.5 billion acquisition of ImClone Systems Inc. in 2008; ironically, Bristol was outbid by Lilly that time. Months later, Bristol turned around and acquired Medarex instead, a decision it probably doesn’t regret. Even though Medarex was expensive, the value it has brought to Bristol appears to be clear cut. Even a great deal can cost a fortune after all. -- Jessica Merrill

Which one of the deals below will pay dividends?  Check back in a few years, but for now content yourself with the latest edition of ...

Pfizer/Zoetis: Pfizer said May 22 that it will shed its remaining 80% ownership of the Zoetis animal health business that it began spinning out via IPO in February. The timing was earlier than expected. Analysts had anticipated that Pfizer would wait at least 180 days before divesting the remaining portion of the company, partly to help Zoetis establish its footing and also due to a lock-out period by underwriters. Yet, that waiting period could be waived if Zoetis established itself as standalone company, and apparently it has. Pfizer’s former animal health business seems to be adjusting to independence well; Zoetis reported first quarter earnings per share on April 30 of $0.36 per share, up 20% from what the unit reported a year earlier and three cents ahead of analysts’ expectations. The Madison, NJ-based company brought in sales of $1.09 billion, up 4% from the year-prior period. News of the swap didn’t impair Zoetis’ market performance; shares added about 1.5% to $33.55 on the day of the announcement. The Zoetis IPO, which brought in $2.2 billion for Pfizer, was a success. The offer price was above the anticipated range of $22 to $25 per share; the company sold 86.1 million shares at $26 each on Jan. 31. The stock opened at $30.74 on Feb. 1 and was up 20% on the first day. Now, Pfizer shareholders will be given the option to exchange all, some or none of their shares of Pfizer stock for Class A shares of Zoetis stock, which will be issued at a 7% discount to market price, meaning $100 of Pfizer stock would be worth $107.52 of Zoetis shares, according to the company. Though this time Pfizer won’t see any cash, the tax free swap will reduce the Big Pharma’s share count and thus be accretive to earnings per share. – Lisa LaMotta

Elan/AOP Ophan/NewBridge/Speranza: In its continuing effort to spend its way to diversification, Elan Corp. PLC announced a trio of deals this week. It acquired profitable, Central and Eastern Europe-focused orphan disease company AOP Orphan Pharmaceuticals; it invested in Middle Eastern specialty pharma NewBridge Pharmaceuticals; and it spun out its only clinical candidate into Speranza Therapeutics.
These deals come on the heels of its royalty deal with respiratory company Theravance and Elan’s struggle to remain independent. Also this week, Royalty Pharma increased its hostile bid to acquire Elan to $12.50 per share for the company, which it said is the equivalent of $4.6 billion for Elan’s remaining half of its royalties for multiple sclerosis drug Tysabri (natalizumab). That’s a 42% premium to the $3.25 billion for which Elan sold the other half of its Tysabri royalty to partner Biogen Idec Inc. in March. Elan shareholders previously rejected an $11.25 per share offer from Royalty Pharma earlier this year. Elan is acquiring AOP for €263.5 million ($339.8 million) in cash and stock, plus a potential €270 million in regulatory milestones. The Austrian company markets orphan disease products in Central and Eastern Europe and the Middle East. Elan also made a $40 million investment in specialty pharma NewBridge. Elan received a 48% equity stake and has the option to buy the remainder by 2015 for $244 million. Finally, Elan is divesting ELND005 (scyllo-inositol), which did not meet the primary endpoints in a Phase II trial to treat Alzheimer’s disease, into newco Speranza. Elan will invest $70 million for an 18% position in the company, plus royalties or commercial rights in undisclosed markets. A second undisclosed investor will invest $20 million for a 62% equity position, with the remaining 20% distributed among the management. Elan has committed to an additional potential $8 million, while the other investor may invest another $2 million. Elan CMO Menghis Bairu takes the reins at the new biotech as CEO. – Stacy Lawrence

Actavis/Warner Chilcott: Following more than a week of speculation, generics giant Actavis Group agreed to purchase specialty pharma Warner Chilcott PLC on May 20 in an all-stock transaction under which Warner shareholders will end up with a 23% interest in the combined company, to be called Actavis PLC. The deal gains Actavis a favorable tax environment in Ireland and puts to rest for now further talk of a potential Actavis/Valeant Pharmaceuticals International Inc. merger. Valued at about $8.5 billion including the assumption of $3.4 billion in debt, the merger will require approval from 75% of Warner shareholders under Irish law and is likely to close in the fourth quarter, the two companies said. Warner shareholders will receive 0.16 shares in the new company for each full share they hold in Warner, equating to a valuation of $20.08 for each existing share. That’s a 34% premium over the stock’s closing price on May 9. Aside from its core generics business, Actavis PLC will have eight women’s health products including contraceptives, infertility treatments and hormone therapies; six urology drugs across indications such as overactive bladder, testosterone replacement, prostate cancer and benign prostatic hyperplasia; two gastrointestinal drugs, both for ulcerative colitis; and one marketed dermatology product with a second slated for launch this July. It also would boast a pipeline of 25 compounds, 15 of which in the women’s health area. Actavis CEO Paul Bisaro said the merger would result in Actavis deriving about 25% of revenues from specialty branded product sales, compared with about 7% currently.– Joseph Haas

Novo/Xellia: Novo AS added the business-to-business generic anti-infectives manufacturer Xellia Pharmaceuticals AS to its portfolio of health care companies on May 21, building up a life sciences cluster in Denmark that may well be the envy of larger countries. Novo, a life sciences investor and the holding company for the Novo Group, is already the majority shareholder of three Denmark-based companies, Novo Nordisk AS, Novozymes AS and Chr. Hansen Holding AS, and said it was pleased to bring Xellia ownership back to Scandinavia. Xellia specializes in difficult-to-manufacture generic antibiotics and anti-infectives like vancomycin and colistimethate sodium, with fermentation technology not routinely available to bulk manufacturers of other antibiotics like penicillins and cephalosporins. Novo is owned by the Novo Nordisk Foundation, and like the Wellcome Trust in the U.K., the foundation is a major supporter of academic research through grants and other funding. Novo paid the U.K. private equity company 3i and minority shareholders $700 million for Xellia, a company 3i and its management bought from U.S.-based Alpharma Inc. back in 2008. Alpharma was itself created through the merger of companies based in Norway, Denmark and the U.S. 3i made a 2.3 times return on its investment in Xellia, not bad during the past five years of slow economic growth. – John Davis

BTG/Ekos/Nordion: Britain's BTG PLC announced two planned acquisitions this week, one extending its abilities in liver cancer and the other an ultrasound treatment for dissolving severe blood clots, to create an interventional medicine business with potential sales of $1 billion. BTG agreed to pay $180 million in cash and up to $40 million in milestones for Seattle-based Ekos Corp., which will provide control of EkoSonic, a new technology approved in the U.S. and Europe for treating blood clots which is enjoying 29% annual compound growth rate over the past three years. The specialty pharmaceutical group also agreed to buy the targeted therapies division of Nordion Inc., for about $200 million in a deal that adds that company’s Therasphere radioactive glass beads treatment for liver cancer. BTG believes Therasphere will complement its existing chemotherapy beads unit and wants to expand the indications of use for that product and its geographic footprint beyond Europe and the U.S. to Asia, where the prevalence of Hepatitis B – a precursor for liver cancer – is very widespread compared with the West. For example, 5% of primary liver cancers occur in China. BTG thus sees a huge market opportunity there and aims to build on the chemo bead partnerships and regulatory track record it already has in China, Japan and South Korea for promoting Therasphere. Some of the cost of buying the Nordion unit will be met from a May 23 private placement that raised $160.7 million. BTG sold 32.2 million new shares, representing just below 10% of its share capital. -- Sten Stovall

GSK/BARDA: Biopharmaceutical business development executives are oft heard claiming that every deal is different – and so breathless PR claims of “first of its kind” and uniqueness usually tend to be simultaneously overheated and paradoxically unnecessary. But this week’s deal between GlaxoSmithKline PLC and the U.S. Biomedical Advanced Research and Development Authority might fit the bill. The collaboration is essentially a grant over which BARDA exercises an unusual amount of control and will focus on developing antibiotics against resistant bugs and potential bioterror agents. BARDA retains flexibility in which GSK projects it chooses to fund over the life of the deal; it will contribute $40 million over an initial 18 month period and up to $200 million if the deal gets renewed over five years. The only specific GSK asset cited in the award contract is GSK 2140944, an antibiotic against respiratory and skin and soft tissue infections currently in Phase I studies for conventional and biothreat applications. A joint BARDA-GSK committee will determine funding allocations and select or eliminate projects for the team’s portfolio. BARDA doesn’t receive any traditional ownership or return rights (no milestones or royalties to reward its risk taking). Nor will it acquire any rights to GSK’s pre-existing IP, according to a GSK spokesperson. For IP that comes out of the relationship, the spokesperson notes that “GSK may obtain title to any patents for inventions GSK makes as part of the contract, with BARDA reserving certain government rights to such inventions.” The deal underscores the need for new models to fund R&D in a space largely underfunded by traditional means thanks to scientific difficulties and poor return on investment. GSK isn’t alone in its pursuit of new antibiotics, but it’s an increasingly small club.--CM

Friday, May 17, 2013

Deals Of The Week Is Keeping Score – Valeant Wants Actavis, Which Covets Warner Chilcott …

Whether the pastime is baseball, Broadway or the daytime soaps, the old adage is that you can’t keep track of the players without a scorecard. The M&A front involving specialty pharma and generic drug makers has become similarly frenzied, as Canada’s acquisition-driven Valeant Pharmaceuticals sought after the newly minted Actavis, with Actavis then turning to a pursuit of Warner Chilcott once negotiations with Valeant broke down.

What, exactly, is going on here? And just as vitally, why?

Recall that the dust only recently settled on Actavis, the re-branded Watson Pharma, following the merger of those two firms last year. At an investor day presentation Jan. 25, CEO Paul Bisaro proclaimed that the new Actavis could boast a widened geographic footprint and a diversified portfolio comprising regular and branded generics, brand-name pharmaceuticals and over-the-counter products.

With the Watson/Actavis combination, the resulting company merely was trying to keep pace in a consolidating generics industry that had seen sector-leader Teva continually branching out into branded drugs and perhaps biosimilars and Mylan increasing its capabilities and geographic reach via a run of targeted deal-making.

In late April, reports surfaced that talks of a merger between Valeant and Actavis had collapsed, apparently due to Actavis shareholder concerns over valuation. Actavis has been a centerpiece of Wall Street discussion in recent months, due to a consistently rising share price. (Or has the conversation lifted the share price? A chicken vs. egg conundrum, to be sure.) The stock opened trading March 1 at $85.17, and rose to $92.33 on April 1 and to $105.24 on May 1. At the close of trading on May 16, Actavis’ stock price stood at $123.61.

Meanwhile, it was not necessarily clear who was the suitor in the Valeant/Actavis talks, although the safer bet seemed to be Valeant, helmed by acquisition-hungry CEO Michael Pearson. A Wall Street investment analyst said that the Valeant/Actavis talks seemed to be the catalyst for the resulting Actavis/Warner Chilcott rumors as well as possibly emerging interest in buying out Actavis from Mylan and from Novartis.

“We know that Valeant is an aggressive negotiator in terms of valuation,” the analyst said. “Going by their track record, they’re not going to pay some kind of excessive premium. The question we had was if nothing happened, did Valeant learn something really negative about Actavis during its due diligence?”
The analyst opined that the talks might have been a power-play by Bisaro himself, with the Actavis CEO picturing himself as the leader of a combined company with Valeant. “If Bisaro is talking with Pearson and trying to sell the business for $120 a share, isn’t he sending a signal that the game is up?,” asked our source. “Now, Bisaro might be saying Actavis is undervalued and going to do all these things, but his wallet is doing the talking. Actions speak louder than words, and they’re saying now is the time to pull the ripcord on the parachute.”

But if Valeant was the pursuer, Actavis’ current gambit for Warner Chilcott might have a “poison pill” element, an effort to make Actavis too rich for the Canadian specialty pharma to swallow. “It seems too coincidental that this happened so quickly after the Valeant story,” the analyst said.

In any event, the analyst perceives an Actavis/Warner Chilcott merger as highly likely, given how much the Irish firm has to lose if it puts itself up for sale and fails for a second year in a row. It would broaden Actavis’ portfolio in women’s health and dermatology and a strong sales force that could bolster Actavis’ commercial capabilities. What’s more, a reverse merger would domicile the resulting business in Ireland, providing tax advantages.

More elements were added to the story mid-week: Pittsburgh-based Mylan was reported to have made a roughly $15 billion offer to acquire Actavis, and then multinational pharma Novartis was said to be weighing its own bid. Novartis later publicly denied interest in Actavis, however. - Joseph Haas

The final chapters of that story remain to be written, but other biopharma deal-making has come to fruition in the latest installment of …

Elan/Theravance: In one of the more interesting deals of the past week, or for that matter the year, Elan announced a deal May 13 in which it agreed to pay Theravance $1 billion upfront in exchange for a portion of the potential future royalty payments it will receive from four respiratory programs partnered with Theravance. It’s a hefty up-front that many analysts believe exceeds the value of the interest Elan would acquire. The deal is the first of several Elan plans to make as it looks to reinvent the company through licensing and acquisitions. The announcement also comes as Elan looks to push back a hostile takeover bid from Royalty Pharma. Under Irish takeover law, the Theravance deal will require approval from investors, who already are considering an $11.25 per share buyout offer from Royalty. Elan would gain a 21% interest in potential future royalty payments to Theravance from GSK on four partnered respiratory drugs, including Breo Ellipta, which was approved by FDA May 10 for the treatment of chronic obstructive pulmonary disease. It also includes Anoro Ellipta, a combination of vilanterol with the LAMA umeclidinium, which is pending at FDA with a Dec. 18 user fee date, as well as in a bifunctional muscarinic antagonist-beta1 agonist (MABA) monotherapy and vilanterol monotherapy, both in development. For Theravance, the deal would have been hard to refuse given the rich terms, even though the company recently announced a separation to form one entity to manage the royalty revenue stream from Breo. Management said the arrangement will complement the company’s previously announced plan to separate into two companies. The firm said April 25 it will split into two entities, a royalty company called Royalty Management. Co. with a focus on near-term profitability and returning capital to shareholders, and Theravance Biopharma, a research-focused biopharmaceutical company. - Jessica Merrill

Alvine/AbbVie: On May 14, AbbVie signed its second deal since spinning out from parent company Abbott Laboratories in January, this time with San Carlos, Calif.-based biotech Alvine Pharmaceuticals. AbbVie agreed to pay $70 million upfront for an option to either acquire Alvine outright or license all of the assets related to its lead compound ALV003 for the treatment of celiac disease. The disease, which is characterized by gastrointestinal inflammation due to the ingestion of gluten-containing foods, affects about 3 million Americans and currently has no treatment options other than limiting gluten intake. ALV003 has completed a Phase IIa study and Alvine is prepared to take the drug through a 500-patient Phase IIb study, slated to read out in late 2014. Should AbbVie opt into the program, it will pay a “substantial” option fee, as well as further near-term milestone payments. The amount of those payments was not disclosed. The relationship between Alvine and AbbVie has a rich history; AbbVie’s venture arm (then Abbott Biotech Ventures) backed the biotech in May 2010 when it invested an undisclosed amount. AbbVie’s funds were an extension of Alvine’s Series A – the initial tranche was $21 million in 2006 led by Sofinnova Ventures with additional participation from Prospect Venture Partners, InterWest Partners, Cargill Ventures and Flagship Ventures. Another $21.5 million was raised when Panorama Capital and Black River Asset Management joined the syndicate in 2009. - Lisa LaMotta

RuiYi/Genor/CMC Biologics: China-U.S. hybrid RuiYi announced May 16 a series of partnerships to develop RYI-008, a novel anti-interleukin-6 monoclonal antibody in China to treat autoimmune disease and cancer. Formerly Anaphore, the hybrid is 90% a Chinese company, and about 10% U.S.-based, CEO Paul Grayson said. RuiYi conducts research at a facility in the Zhangjiang Hi-Tech Park in Pudong Shanghai, China, with only its executive management team based in offices in La Jolla, Calif. The antibody, in preclinical development now, will be developed first in China, and the company has forged a partnership with three other companies to get it there. China has said it would make biotech innovation a priority, but few companies have been bold enough to develop innovative biologics in the country, choosing instead to focus on biosimilars and generics for China, Grayson said. RYI-008, formerly ARGX-109, was in-licensed from Belgian/Dutch biotech arGEN-X in October 2012. RuiYi inked an exclusive licensing and co-development agreement with Shanghai-based Genor Biopharma to develop RYI-008 in China. Financial details of the deal were not disclosed. The company was chosen partly due to its close relationship with China FDA and its deep knowledge of China’s regulatory environment. Founded in 2007, Genor is focused on development and commercialization of therapeutic mAbs and Fc-fusion proteins. The company has more than 10 products in its pipeline, three of which are at IND and clinical stages. Danish contract manufacturer CMC Biologics will develop a cell line for RYI-008 for global manufacturing in all markets. Specific terms of the agreement were not disclosed. - Tamra Sami
Roche/Curie-Cancer: France’s Curie-Cancer and Roche announced May 15 that they are building upon a four-year partnership to expand their translational research programs and hasten development of new cancer treatments. In 2009, they agreed to partner around a preclinical research program which gave Roche access to a platform of preclinical models developed by the research teams at the Institut Curie. Curie-Cancer develops Institut Curie’s industry partnership activities. The Roche Institute for Research and Translational Medicine is the Swiss group’s arm there which aims to identify leading French academic research teams and build partnerships with them in areas of shared interest. The initial partnership gave Roche access to preclinical models that are highly representative of the tumors observed in patients. Using the platform, Roche determined in which sub-type of breast cancer an antibody was most effective. The Institut Curie also owns the Reverse Phase Protein Analysis platform, which gives researchers better understanding of how a Roche antibody works on the cancer cells at the molecular level, and also helps to identify predictive response markers. Curie-Cancer and Roche currently are working on a number of translational research programs involving Roche molecules that make use of the same technology. For example, a team of Curie-Cancer clinicians, anatomopathologists and researchers are working on developing a new Roche molecule targeting tumors. No financial details of the partnership were disclosed. - Sten Stovall

Quintiles/Merck Serono: Merck-Serono and newly public CRO Quintiles Transnational announced May 15 a five-year strategic collaboration that appears to go beyond the typical consolidation which the provider services industry’s larger pharmaceutical companies have pursued over the past few years. The deal, which the companies described as “first of its kind,” will create a drug-development engine by combining “expertise and experience” from the two organizations. Merck-Serono will lead strategically while Quintiles will handle the nuts and bolts of clinical trial planning and execution. In short, this is about more than saving money for Merck-Serono, a company that apparently is saving quite a bit these days. The mid-sized pharma’s parent company Merck KGAA reported May 14 during its quarterly earnings call that it was ahead of schedule in executing on its restructuring – which involved the closure of Merck-Serono’s Geneva headquarters – and that it would move forward its financial targets from 2014 to this year. Merck-Serono Executive VP and Global Head of Development and Medicine Annalisa Jenkins said that the partnership transcends the typical preferred-partnership outsourcing model. The deal moves beyond trading volume for “a better rate card,” she said. Quintiles has the benefit of seeing across different companies throughout industry, she said, and of integrating that knowledge, adding, “it’s remarkable that we don’t make a greater attempt to embrace and integrate that knowledge in how industry plans and executes studies.” The Merck-Serono/Quintiles tie-up does just that, she said, and “financially the incentives are set up to drive to more efficient decision making.” Specifics of the financials weren’t disclosed. The deal is Quintiles’ first since its public market debut May 8. The industry’s largest CRO and its existing investors sold more than 27 million shares combined at $40 apiece, raising about $950 million (Quintiles netted about $500 million). - Chris Morrison

AbbVie/Galapagos: AbbVie made further news May 17 when it and partner Galapagos announced that they will extend their 2012 collaboration centered on GLPG0634, a Phase II Janus kinase inhibitor, to development in Crohn’s disease. Under the revised agreement, the Belgian biotech will fund and complete a Phase II trial in Crohn’s, which should facilitate rapid progression into Phase III. AbbVie will pay Galapagos $50 million upon completion of the study, expected in mid-2015. Galapagos will initiate what is planned as a 20-week, Phase IIa/b study of ‘0634 in Crohn’s patients in early 2014, investigating for both disease remission and early maintenance of the drug’s beneficial effects. The study will be performed in parallel with a Phase IIb study in rheumatoid arthritis, pursuant to the agreement Galapagos signed with then Abbott Laboratories in February 2012. At the time, Abbott paid $150 million upfront with a commitment for $200 million more if the JAK inhibitor met pre-determined criteria in Phase II study in RA. - J.A.H.
Photo Credit: Wikimedia Commons

Financings of the Fortnight Waits For Public Investors To Hop On Bluebird

It’s been another IPO-intensive couple of weeks here at FOTF HQ. We keep looking for other things to write about, but sometimes the fastest shave on deadline is with Occam’s razor. Or something like that. We didn't exactly ace our philosophy classes in college.

You don’t have to be the sharpest tool in the shed to notice how life-science IPOs have re-inserted themselves into the daily chatter this year, and there’s one upcoming issue that makes for fascinating conversation: bluebird bio, a big-idea company (gene therapy for rare diseases) that apparently strives to avoid capital letters. The firm later this year expects to enter a Phase II/III study with its lead program Lenti-D to treat young boys with the rare hereditary disorder childhood cerebral adrenoleukodystrophy, or CCALD. Also this year, bluebird should launch a Phase I/II trial for another gene transfer product, LentiGlobin, to treat ß-thalassemia major and sickle cell disease.

A bell-ringing IPO would be notable for at least three reasons. First, if someone told you five years ago that public investors would one day line up to buy shares in a gene therapy company, you probably would have had that person tested for the stark-raving-mad gene. But this decade the field has enjoyed quite a turn-around, as our Start-Up colleagues explained last summer. A large step in that journey came a couple of months later, when the European Union approved uniQure's Glybera despite a spotty track record.

Perhaps true optimists would say they never doubted that gene therapy, like so many biomedical technologies, would take more than two decades to find its way into commercial products. But a lot of other biomedical technologies aren't effectively shut down for years because of daunting safety concerns. Glybera’s approval was one kind of validation of gene therapy; a bluebird IPO would be another.

In a sense, though, public investor validation happened nearly a year ago, before the Glybera approval, when bluebird raised its $60 million Series D. The round included its previous VC backers, but new to the company’s cap table were hedge funds, so-called “crossovers” that have made their presence felt in biotech the past few years. The idea is that public investors with biotech savvy want a foothold in an elite circle of privately held firms so they’re in position to benefit from a boffo takeout offer or from an inside seat at IPO. Once in, as with bluebird’s D round, liquidity is probably no more than a couple years away. The crossovers bring much-needed cash to a mezzanine round, but they also bring a certain amount of impatience.

So when bluebird said Deerfield Capital, RA Capital Management, Ramius Capital Group and two undisclosed public funds pitched into last year Series D, it was pretty clear where the firm’s sights were set. Those undisclosed public funds are likely affiliated with Fidelity and The Capital Group, both of which are listed in bluebird’s S-1 as having invested for the first time in the Series D, and which own about 12% and 9% pre-IPO respectively. We don’t know yet how much bluebird is aiming for, but the firm has raised north of $100 million since a 2004 recapitalization. (It was known as Genetix Pharmaceuticals until 2010.)

Raj Shah, partner at RA Capital Management, one of bluebird's "crossovers," told FOTF that his firm had been waiting for a gene therapy company to produce good animal data. When bluebird showed its two lead programs were “unequivocally active” in humans, RA jumped in and is prepared to increase its position at the IPO. “We want exposure to the best technologies in this space,” said Shah. The EU approval of Glybera was encouraging, said Shah, but “FDA's recent IND acceptances of bluebird’s programs are also quite validating for the gene therapy space.”

It’s not the same as approval, of course – no gene therapy product has made it to market in the US – but it’s a significant point and speaks to the company’s approach of using a method that has elements familiar to regulators. The company extracts the patient’s own hematopoetic stem cells, makes the genetic modification ex-vivo, and transfuses the modified cells back into the patient.

The third reason to take note of bluebird is its largest owner, Third Rock Ventures, which appears in this column as often as a Kardashian on the New York Post’s Page Six. Third Rock owns 28.1% of bluebird, double the stake of the next largest owner, TVM Capital (with 14.3%, and ARCH Venture Partners is next with 10.6%). The Boston firm has had no problem raising funds – and funds, and funds, and more funds – with two exits, and two other portfolio companies in option-to-acquire agreements with larger partners.

But bluebird as far as we can tell would be its first IPO, and cofounder Mark Levin told our "Pink Sheet" DAILY colleagues that there should be more in the coming year. (The story on Levin’s talk this week at the Harvard Club in New York is coming soon. The dressed-down Levin had to don a tie to speak at the stuffy club, which made for good comedy at the start of his talk: "How many people here had to borrow a tie to get in?" he asked the crowd. "I actually heard someone had to get a pair of pants.")

Fully clothed or not, every venture firm wants its portfolio companies to be public and liquid, of course, but if TRV notches multiple issues in the next several months, it could be a big validation not only of its company formation process but also its ability to shepherd those firms quickly to important milestones -- important enough for the still-small coterie of public biotech specialists to buy in. That is, if the companies going public are the ones in TRV’s portfolio that have grown from true early-stage seedlings into viable businesses.

We’re getting a bit ahead of ourselves. Yes, biopharma firms are going public, but on the whole, they’re still not big-science risk takers. A couple pain-med companies here, a PE-backed CRO there (see our Quintiles blurb below), and the next out the door is probably going to be a firm with $300 million-plus in venture backing that’s hoping public investors buy its rationale for yet another blood thinner on the market. (See our Portola Pharmaceuticals blurb below.)

Meanwhile, venture firms continue to cozy up to Big Pharma to help raise new funds or to help defray the risk of their early-stage efforts, as Avalon did with GlaxoSmithKline, in a deal that got our DOTW brethren thinking deep thoughts a couple weeks ago.

Now Atlas Venture is the latest to pull in big drug companies as limited partners. The venerable firm said this week it has Amgen and Novartis on board, although neither is accorded special rights to either invest in or acquire the companies that Atlas starts up. However, Atlas pledges to “explore areas of mutual interest” with its Pharma LPs, and Amgen and Novartis are free to invest directly in the Atlas companies from their own venture funds, both of which are extremely active. The key, Atlas partner Jean-Francois Formela told our PSD colleagues, is not to do anything that would lead the firm or its LPs to “unnatural behavior,” which we have to nominate for quote of the year. Because, when you think about it, what exactly is natural behavior for a VC and its investors? (We know a few entrepreneurs who would love to answer that in a manner unsuitable for family viewing.)

It all brings us back to philosophy: the Platonic ideal of venture capital, and all that. Are your investments the true essence of your existence, or just shadows on the wall of your portfolio? A famous philosopher once said, "I know kung-fu." But, grasshopper, if you have traveled this far, it is infinitely better to know…

Quintiles Transnational: The massive contract research organization’s return to the public markets, timed perfectly, was by no means a typical biopharmaceutical IPO. The May 8 issue raised a staggering $1.1 billion and pushed the company's market value to $6 billion as Wall Street’s interest in biopharma continues to rise. As you might guess from the dollar totals and the fact that Quintiles went private a decade ago, this was a private equity deal, not a venture capital exit. Quintiles founder and Executive Chairman Dennis Gillings, Bain Capital and TPG Capital each made more than $150 million in the IPO, and each continues to hold about 20% of the company, assuming the percentage of shares to be sold was the same in the final sale as reported in the S-1. Bain became the lead Quintiles investor in 2008, when several new private equity investors came in. The investors weren’t waiting for an IPO to get paid; they've already cashed out about $1.5 billion in dividends in the last five years. In addition, Gillings and investors split a one-time $25 million payment upon the IPO. Quintiles will use most of the proceeds to make that investor payment and pay down more than $350 million in debt. The IPO priced at the top of its range at $40, and – in another sign this was no ordinary biopharma IPO – the number of shares sold by insiders ballooned at the last minute by more than 5 million. For most VC-backed biotechs, insiders have to buy shares to get an IPO done. – Stacy Lawrence

Portola Pharmaceuticals: The next biotech IPO likely to price is for hematology firm Portola, which is currently on the road to talk up an IPO slated for the week of May 20. Portola had $125 million in cash on March 31, and wants to raise $100 million through the sale of 6.9 million shares at $13-$16 each, not a massive sum considering the firm has raised at least $306 million in venture financing. Pre-IPO, the firm’s largest shareholders are an arm of the Singapore government’s investment company, MPM Capital, Prospect Venture Partners, and several other venture firms hold more than 5 percent. At the proposed mid-point, Portola would be valued at $469 million. Portola’s lead compound is the oral anticoagulant betrixaban, a once-daily Factor Xa inhibitor that ex-partner Merck handed back to Portola in 2011. Portola hopes to carve out a market in the crowded field for the drug after hospitalization. There are other differences that Portola hopes will catch the fancy of public investors. Betrixaban is in Phase III for the prevention of venous thromboembolism (VTE) in acute medically ill patients; there isn’t another novel oral anticoagulant in the clinic or approved for this indication, according to the company. On the road show, Portola CEO William Lis pegged the betrixaban market at $3 billion to $4 billion, based on the current price of orals of about $8 daily, and assuming 35 days of usage post-hospitalization. Lis expects to market betrixaban to hospitals, so he estimates a sales force of about 100 will be sufficient. The firm’s next candidate is PRT4445, a Phase II antidote for Factor Xa inhibitors. – S.L.

Isis Pharmaceuticals: The publicly traded antisense developer said May 8 it priced a secondary offering of 9 million shares of common stock at $19 per share. Isis gathered $162.5 million in net proceeds from the sale, a sizeable amount to help the firm push through its deep pipeline, with nine compounds expected to produce Phase III or significant Phase II data by early 2014. The offering cashes in on momentum the firm has seized in the past several months – not least of which was the Kynamro (mipomersen) approval in late January for the treatment of the very rare homozygous familial hypercholesterolemia. Meanwhile, Isis’s dealflow continues unabated, as our DOTW brothers and sisters note in this post. The firm has raised more through partnerships, about $2 billion, than it has from equity sales; at the end of 2012, the firm had the potential to earn up to $5.1 billion in future milestones. It’s also worth noting that Isis owned nearly 21% of Regulus Therapeutics, which it and Alnylam Pharmaceuticals established jointly in 2007, when Regulus went public in October 2012. As of the end of February, the most recent disclosure, the stake had dipped just below 20%. Regulus debuted at $4 a share and has risen 82% to $7.29 as of May 15. Underwriters led by Goldman Sachs and JP Morgan have the option to sell an additional 1.35 million shares.-- Alex Lash

Lumena Pharmaceuticals: It’s a new company wrapped around a very old product. Lumena announced a $23 million Series A round to redirect toward orphan indications a compound that was tested more than a decade ago in more than 1,400 patients. The tests were run by Searle and then Pharmacia, where Lumena’s current VP of research worked on the program to fight high cholesterol. (Subsequent acquirer Pfizer shelved the program.) Lumena is aiming to treat cholestatic liver disease, which is characterized by retention of bile acids in the liver, resulting in painful symptoms related to an intractable itch. Sufferers of various forms, including Primary Biliary Cirrhosis, the pediatric Alagille Syndrome and Progressive Familial Intrahepatic Cholestasis, often have difficulty sleeping, and have been known to scratch their skin until they bleed and scar. Lumera will use the Series A proceeds to run Phase III trials in each of the orphan indications. The firm has been in stealth mode since 2011 with Pappas Ventures partner Mike Grey serving as CEO. Pappas led the round and recruited Alta Partners and RiverVest Venture Partners to join. Like many venture firms seeking to avoid high-risk, high-cost projects, Pappas was interested especially in pharma opportunities with defrayed risk and short clinical development paths. Grey said the prior clinical work and orphan indications requiring smaller trials made LUM001 appealing. The compound inhibits apical sodium-dependent bile acid transporter (ASBT). That protein is critical in the process of reabsorption of bile acids from the small intestine, specifically the lumen, where the body absorbs nutrients from digested food. – Paul Bonanos

All The Rest: The fortnight’s largest venture round was GPCR therapeutics developer Trevena’s $60mm Series C round to which Forest Labs committed $30mm and also optioned the company’s Phase IIb-ready TRV027 for acute decompensated heart failure… In a Series E round, oncology-focused Tokai Pharmaceuticals took in $35.5mm…Kite Pharma’s Series A preferred stock financing – including the conversion of $15mm in outstanding promissory notes – garnered the cancer immunotherapeutics developer $35mm…Belgian biotech Cardio3 Biosciences raised €19mm ($25mm) in venture funding: €7mm in new equity committed by existing investors and €12mm from the conversion of existing convertible loans…Virtual company Tacurion Pharma (formed by Drais Pharmaceuticals) raised $15mm in an A round from backers including Astellas, which also out-licensed its nocturia candidate to the start-up…In a round led by Mérieux Développement, which was joined by return backer Shire, NeuroPhage Pharmaceuticals scored $6.4mmCallidus Biopharma closed a $4.6mm Series A financing to speed up preclinical studies of candidates in Pompe and Gaucher diseases…In a registered direct offering, Dyax will issue 8.9mm common shares priced at $2.30 and 41k Series 1 preferred shares (priced at $230 and convertible into 100 shares) for proceeds of $30mm…A stock purchase agreement with Lincoln Park Capital Fund grants Zalicus the right to sell up to $25mm worth of its common stock to support clinical trials of lead pain candidates Z160 (Phase II) and Z944 (Phase I)…Through an RDO of 3.9mm shares at $4.14, Omeros brought in $16.1mm…A follow-on public offering of 63.3mm shares at RMB12.25 ($1.99) each, resulted in proceeds of  $126mm for Chinese CRO Zhejiang Huahai PharmaceuticalsAcadia Pharma netted $94mm through its FOPO of 8mm shares priced at $12.50…Rockwell Medical brought in net proceeds of $33.1mm in its FOPO, selling 11.5mm shares at $3.05…Cyclacel Pharmaceuticals expects to see $20mm in proceeds from a public offering of 6.7mm shares at $3…In a FOPO of 9.5mm shares at $1.50, Discovery Laboratories netted $13.4mm…Initial public offerings that priced: Receptos netted $68.3mm through the sale of 5.2mm shares at $14, the low-end of its $14-16 range; Ambit Biosciences, first planning to sell 4.6mm shares at a $13-15 range, priced 8.1mm shares at $8, still bringing in $65mm; and after trying since 2007, Insys Therapeutics finally completed a $34.2mm IPO by selling 4.6mm shares (including overallotment) at $8, way below its $16-18 range, which was later cut to $8-$10…Alocobra upped the number of IPO shares it plans to sell to 2.275mm at a $10-12 range; increased from the 1.4 mm shares in its March S-1 filing…Kamada, which filed for its IPO in April, announced it would sell 5.6mm ordinary shares…Biotechs that filed for IPOs: OTC cellular therapeutic vaccines developer Heat Biologics and Esperion Therapeutics; the latter cardio-focused company went public in 2000, but was acquired in 2003 by Pfizer, which spun it off to investors five years later…Vivus plans to offer $200mm worth of 7-year, convertible senior unsecured notes…Alimera Sciences (ophthalmic pharmaceuticals) has secured a $20mm debt facility – $5mm in a principal term loan, plus up to $15mm more as a working capital line of credit – through Silicon Valley Bank…Theravance is splitting into two separate public entities, one to focus on its 2004 GlaxoSmithKline deal, the other to perform R&D; and in a separate arrangement, Elan will make a $1bn cash payment to Theravance in exchange for a 21% stake (held by GSK under the 2004 deal) in royalties related to a portfolio of four Theravance respiratory drug programs…In fund news: Merck KGAA pledged to increase its investment in its corporate venture capital fund MS Ventures, raising its funding level to €100mm ($129mm) from up from its initial €40mm at the fund's inception in March 2009. -- Maureen Riordan

Photo courtesy of IngytheWingy, who seems to have a thing for public transportation. 

Thanks to Mike Goodman for his contributions this week.