Thursday, July 25, 2013

Financings of the Fortnight Says Up You Worms! You Butterflies!

Forgive us if you don’t have small children, but events of the past fortnight have put a certain Dr. Seuss book in mind.

IPOs are certainly up. Not just the number of biotech firms going public – more than 20 this year, just past the half-way mark – but the pop for companies that, a couple years ago, public investors probably would have sneezed at. Bluebird bio, a gene therapy developer, nearly double its IPO price; Epizyme, doing epigenetic work, more than double its IPO price; rare-disease firm Prosensa Holdings, more than double. US IPO indices, where the bulk of the IPO activity is happening, are up about 20% for the year.

How much are the warm breezes blowing through the IPO window contributing to venture optimism? That’s a question we’re asking START-UP’s third annual life science venture survey. Here are the previous two years’ results. First, 2011:

And 2012:

In Seussian terms, 2011 and 2012 were not great years for up. This year? We don't want to unblind the data yet; the survey is still open. But we can tell you this: So far the VCs who feel positive about the industry say the IPO window is a major factor.

Can it continue? As we write this, yet another preclinical biotech has breached the public barricade; Agios Pharmaceuticals, which only recently filed its first IND, raised more than $100 million (see blurb below). We like to think the early-stage firms – the Agioses, Epizymes, Verastems, and Reguluses (Reguli?) -- are an excellent gauge of investor sentiment. The public side is listening to the early-stage story.

The venture investment data don’t all reflect the same bounce. According to the MoneyTree survey from the National Venture Capital Association and PwC, there have been 202 biotech investments in the US through the first half of 2013. The pace will need to pick up substantially to match 2012’s total of 477 deals, according to the survey (though seeing how pace usually picks up in the second half, don’t bet against it). Total dollars in are about on pace: $2.2 billion invested so far this year, slightly more than half of 2012’s total of $4.2 billion.

The Dow Jones VentureSource data has different numbers but the same trends: 127 biopharma venture deals so far this year, less than half of last year’s total of 279; and $1.9 billion into biopharma so far this year, roughly half of last year’s total of $3.7 billion.

It’s not our job to make predictions, but we're confident that if the IPO issues continue apace, those fair-to-middling half-year venture investment numbers will be a distant memory. The lure of the public markets is strong – even stronger when it’s rewarding companies that are years away from significant clinical data -- and it also should pull investment into companies that want to use IPOs as leverage in acquisition negotiations.

It will be interesting to see how the IPO window affects the need for corporate venture, which has been increasingly important the past few years. In the 2012 START-UP survey, 60% of respondents said it was important to maintain healthy life science industries and 19% said it was crucial. We haven’t closed out this year’s survey, but so far we haven’t seen any indication of those numbers fading. (For results and analysis from the 2011 survey, click here; for 2012, click here.)

On a related note, the current IN VIVO has an inside look at the corporate venture team at General Electric, dubbed healthymagination, which has recruited health care veterans from Kleiner Perkins Caufield & Byers and Mohr Davidow to help the GE behemoth see – and potentially acquire – disruptive technologies before they become billion-dollar acquisitions. They shy away from pharmaceuticals, so you won’t see a lot of FOTF ink spilled about their investments, but it’s an insightful read nonetheless.

You’ll find no greater disruptive technology in children’s literature than Dr. Seuss's Cat in the Hat, by the way. If you’ve never read it, it’s not too late, no matter how old you are. But first, we encourage you to finish the rest of this edition of…

Agios Pharmaceuticals: Chalk up another IPO win for an early-stage biotech. Agios sold 5.9 million shares at $18 apiece July 23 to raise $106 million, a step up from the 5 million shares it hoped to sell in the $14 to $16 range. Working on metabolism targets to treat cancer and rare metabolic disease, Agios just recently filed its first IND for its lead candidate, AG-221, a small molecule that targets cancers with mutations in the enzyme isocitrate dehydrogenase 1, or IDH1. The company expects to start clinical trials this year. Some of the firm’s work is promised to partner Celgene, which signed a broad co-development deal with Agios in 2010, later revised in 2011. Before the IPO, Celgene was Agios’ second largest shareholder with 17% ownership and was expected to buy more shares in the offering, worth $12.75 million, according to regulatory filings. ARCH Venture Partners and Flagship Ventures each held 16.4%. The largest pre-IPO shareholder was Third Rock Ventures (23.7%), and the upsized offering represents the venture firm’s second big IPO haul – at least on paper – this summer. Third Rock was also top owner of bluebird bio, a gene therapy developer which debuted in June at $17 per share and has since doubled its share price. Bluebird and Agios are the first IPOs from Third Rock’s portfolio of mainly early stage biotechs, and it is benefiting from the public markets’ sudden embrace of riskier endeavors based on relatively new area of research. Recent successful debuts include Epizyme, an epigenetics company, OncoMed Pharmaceuticals, working on cancer stem cells (see blurb below), and Prosensa and PTC Therapeutics, with drugs tackling the rare Duchenne’s muscular dystrophy. Preclinical cancer stem cell company Verastem went public in early 2012.  J.P. Morgan and Goldman Sachs led the Agios underwriting team, which has the option to sell an extra 883,333 shares. – Alex Lash

Merrimack Pharmaceuticals: The oncology developer raised $148 million in parallel equity and debt offerings as it moves several compounds through early clinical trials. Both sales closed July 17, the first financings for the firm since its IPO in 2012. The $125 million debt component consisted of convertible notes that bear 4.5% interest a year and mature in 2020. On the equity side, Merrimack sold 5.75 million shares at $5 each, which includes the option exercised by underwriters to sell an extra 750,000 shares. It netted the company $27 million. Merrimack’s science is based on building simulations of cancer pathway networks, which has led them to create several drug types: monoclonal antibodies, bispecific antibodies, antibody mixtures, and nanoparticle-formulated chemotherapies. Its most advanced compound is MM-398, an encapsulated irinotecan currently in Phase III, with orphan designation in the US and Europe for metastatic pancreatic cancer in patients who have failed gemcitabine treatment. The underwriters, led by JP Morgan and BofA Merrill Lynch, also have an option to sell an additional $18.75 million in convertible notes. Before its IPO last year, Merrimack had raised $270 million in private financing. – A.L.

OncoMed Pharmaceuticals: The developer of cancer treatments netted $89 million through its initial public offering on July 17. Including the overallotment, the company sold 5.6 million shares at $17, higher than the anticipated $14-16 range. OncoMed, which targets cancer stem cells with both biologics and small molecules, plans to use the IPO proceeds to advance its key projects through Phase II trials and to support ongoing partnerships. Cancer stem cells are the subset of cells within a tumor that help a cancer regenerate and proliferate even after treatment, although their existence and function is still a matter of debate in solid tumors. OncoMed’s wholly-owned demcizumab, which inhibits DLL4 in the Notch signaling pathway, is in Phase Ib trials for solid tumors including pancreatic and non-small cell lung cancers. Its most advanced partnerships are for OMP59R5, in Phase Ib/II, and the Phase I anti-Notch MAb OMP52M51, both shared with GlaxoSmithKline. OncoMed’s other key collaboration is with Bayer to develop biologics and small molecules that target the Wnt pathway. Since its 2004 inception, OncoMed has raised close to $170 million in two rounds of venture funding. Pre-IPO, US Venture Partners was the company’s largest shareholder (17.3%), followed by Latterell Venture Partners and GSK. OncoMed reported $24.7mm in revenues for 2012 (on a $22 million loss), and had about $60 million in cash on hand as of March 31, 2013. – Beth Detuzzi

Alcresta: The small Newton, Mass.-based nutritionals company has raised a $10 million Series B round that it says will get it to commercialization and provide options when entering partnering discussions. Alcresta’s original three investors – Third Rock Ventures, Frazier Healthcare Ventures and Bessemer Venture Partners – have returned to provide the B round. Founded by former Alnara Pharmaceuticals executives Alexey Margolin and Robert Gallotto, Alcresta is developing a nutritional supplement with omega-3 and omega-6 fatty acids that are more easily digested and absorbable for patients who have digestive problems. The fatty acids are an important part of cardiovascular and brain health. Most nutritional drinks and infant formula include the triglyceride form of the fatty acids, but certain patients – including premature infants, some elderly, and cancer patients – lack the proper enzymes to digest the nutrients in the triglyceride form. Gallotto told our Pink Sheet colleagues that Alcresta has yet to burn through its Series A financing. It chose to raise more money before it receives product approval to keep the option of commercializing its first product on its own. The company currently has two point-of-care products in development, one for patients who need to be fed with a feeding tube and one for patients who can swallow their own food. Both products are designed to be mixed with nutritional supplements that patients are already taking. If they work as planned, they would jumpstart the digestive process. Alcresta has an unusual business model. It shares its staff, headquarters, and investors with a sister company, Allena, which is developing similar enzyme-based products that will be considered pharmaceuticals. Allena focuses on innovative non-systemic oral protein therapeutics to treat nephrologic and urologic conditions. – Lisa LaMotta

All The Rest: In addition to closing a $14M Series A round, Amphivena Therapeutics also secured an option-to-acquire from Janssen…to support Phase II studies of AbGn-168H for psoriasis, AbGenomics received $9.6M in funding…RusnanoMedInvest led a $6.7M add-on to Lithera’s Series C, which now totals $27.3M…transgenic mice producer Harbour Antibodies raised 2.3M and signed a concurrent deal with Pfizer…UK firm ReNeuron grossed £25.35M through a private placement and also received a £7.8M grant from the Welsh government…after closing its reverse merger with Tranzyme, Ocera closed on a $20M PIPE…a sole health care-dedicated investor backed Rexahn in a $5.7M RDO…oral drug delivery company Oramed raised $4.6M in an RDO…to fund lead candidate Arikace for orphan lung infections, Insmed completed a $62.4M FOPOVerastem, which is targeting cancer stem cells, publicly raised $55M…acute and chronic pain drug developer AcelRx grossed $51M in a secondary offering…microRNA-targeting Regulus closed on a $42.8M follow-on…cancer company TG Therapeutics did a $35M FOPO…with a focus on back-of-the-eye diseases, pSivida raised $10.8M publiclyOxygen Biotherapeutics completed a $5.7M public offering of Series C 8% convertible preferred stock…Heat Biologics, developer of allogeneic cellular vaccines for cancer and infectious diseases, priced its IPO at $10, the bottom end of its range, to gross $25M…Onconova and Iroko set terms for their advance of a Series B round planned for later this year, Immunomic Therapeutics raised $3M in debt…and Quest Diagnostics gained $485M by selling to Royalty Pharma rights to future royalties on the Phase III cancer candidate ibrutinib. -- Amanda Micklus

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