Friday, October 04, 2013

Financings of the Fortnight Worries About The Window

"It was wide open a minute ago."
Who’s lining up next? It’s become quite the parlor game, now that the biotech IPO window has been wide open for months. But all the fun might be on hold as Washington works to sort itself out (or get further entangled) and Wall Street starts to worry over the potential economic instability. What if the days of the shutdown turn into weeks? What once seemed laughable has already come to pass, as the Ted Cruz Republicans are proving their disdain for Obamacare with ever uglier self-inflicted wounds. Hey, don’t take our word for it. Ask Grover.

Already we’re seeing a small but ominous sign: There are no IPOs on the list of current road shows, despite the queue of those – including MacroGenics and Relypsa – that are on file. Perhaps the seven biotech IPOs in the last two weeks -- Acceleron, Five Prime Therapeutics, BIND Therapeutics, Foundation Medicine (see description in our roundup below), Ophthotech, Evoke Pharma, and Fate Therapeutics -- were the SEC equivalent of a rush job to avoid the potential politically-induced volatility.

Once biotech IPOs started to show signs of life last fall and then took off this spring, everyone has wondered what would burst biotech’s bubble. Most assumed it would be bankers pushing out too much crappy paper, but perhaps it will be the idiocy in Washington, particularly if it extends past the debt default deadline of Oct. 17. If Wall Street starts steep selling and recessionary fears turn into reality, biotech IPOs will be a swift casualty of the broader market.

For a few more days, at least, the IPO machinery will grind away. The SEC has enough cash under the mattress to keep the lights on for a few weeks, unlike so many other government agencies. But it will clang to a halt if the shutdown drags on; the folks who deal with registrations and whatnot are not deemed essential staff.

Seems all the headlines (and tweets) are focused on the effect on Twitter’s pending IPO, but arguably no sector has benefited more than health care from the IPO changes this year, as all manner of companies at various stages of development have become public. IPO data house Renaissance Capital says health care companies have launched 42 IPOs and raised $7.6 billion this year, the most of any sector. They’ve also scored the highest aggregate returns year-to-date, 64%. (By comparison, our technology compatriots in their hoodies have had 30 IPOs, raising $3.3 billion and gained 44% on average.)

It’s only fair to mention that the health-care numbers include the likes of giant CRO Quintiles Transnational ($947 million raised) and Pfizer’s animal health group Zoetis ($2.2 billion raised), but the argument still holds: A prolonged and wholly unnecessary drought would hurt biotech disproportionately. It’s like the party you’ve been planning with your neighbors has finally started swinging, but the creepy guy with the fake tan across the street who smokes too much calls the cops. Not because the party was too loud, but because he thinks your house’s architecture is ugly. Ruining his property values, or something.

Let’s ignore for a moment the bucket of cold tea, er, water tossed in biotech’s direction, and get on with our parlor game, made all the more intriguing by the JOBS Act rules that allow companies to file in stealth and remain so for weeks on end.

We already mentioned MacroGenics and Relypsa, which filed publicly this week to raise up to $126.5 million. Among companies that haven’t declared – at least publicly -- Moderna Therapeutics would make a fine candidate, says our friend Luke Timmerman of Xconomy. (Moderna CEO Stephane Bancel wouldn’t take the bait and said he prefers to proceed with caution. For more on Moderna’s new Department of Defense grant, see our roundup below.)

OK, who else? Our colleagues at START-UP wrote this summer about Forma Therapeutics’ decision to re-structure itself to make spinouts of single assets easier; CEO Steve Tregay was quick to say that, if need be, the company could convert back to a more traditional corporation and go the IPO route.

“At the time in 2009 when we started talking about [becoming a holding company], it wasn’t obvious you’d see a robust IPO market,” said Tregay. “We knew we wanted to provide liquidity to our shareholders, and we wanted to commoditize assets. Can we convince Wall Street to believe in sustainable R&D companies? We think so. But our first objective was and is to create a sustainable research engine, and to do that we needed to do things differently than the old ‘R-then-D’ model.”

You can’t talk about IPOs without mentioning Third Rock Ventures, which has pushed three portfolio companies public this year. Might we see more before the New Year? If FOTF had to bet (all proceeds going to charity, of course), we’d put a few chits down on Blueprint Medicines, Constellation Pharmaceuticals, and Sage Therapeutics, which just saw interim CEO and Third Rock partner Kevin Starr hand the reins to the former head of Shire’s regenerative medicine group, Jeff Jonas.

We could also take a closer look at biotechs that have raised a few rounds, are deep into the clinic, and whose investor roster includes crossover firms or VCs at the end of their fund cycle. Or firms whose executives have notable track records. (The upcoming START-UP takes a look at one such company, Kolltan Pharmaceuticals, whose cofounder Yossi Schlessinger had a hand in kinase inhibitor developers Sugen and Plexxikon, each of which exited quite handsomely.)

The answer to whether these guesses are correct could already be lying on someone’s desk deep in the bowels of the SEC in a pile of confidential filings, just waiting for the POTUS and both houses of Congress to come together, join hands, and realize that it’s a small world after all. Which is just about as likely as the next Pulitzer Prize being awarded to this edition of…

Foundation Medicine: It isn’t quite four years old, but the cancer diagnostics specialist is already public, and in a big way, its share price nearly doubling the first day it traded and holding those gains for a week. The Cambridge, Mass. company priced its offering Sept. 25 above expectations at $18 per share, ultimately grossing $121.9 million. Foundation sold nearly 6.8 million shares, including a greenshoe option for underwriters, raising substantially more than the five million it planned to sell for $14 to $16 apiece. The young company last year began selling its first product, a diagnostics platform that matches individual cancer genomes with a broad database of genomic alterations in order to optimize care. Stakeholders receiving liquidity via the offering included venture firms Third Rock Ventures, Kleiner Perkins Caufield & Byers, and Google Ventures; crossover investors Deerfield Partners, Casdin Capital and Redmile Group; and individuals including Microsoft founder Bill Gates, Russian billionaire Yuri Milner, and Digene CEO Evan Jones. The IPO is the third this year for Third Rock, which is on quite a roll. It’s also a notable exit for Google Ventures, which quietly has built a small but influential health care portfolio, led by partner Krishna Yeshwant (and profiled here). With the company’s market capitalization hovering around $1 billion, the investors who pumped in $89 million in two rounds of funding have earned a hefty return. It’s yet another sign that the public markets are welcoming for life sciences companies with a strong story to tell – even young ones. – Paul Bonanos

Arvinas: Many drugs work by blocking or inhibiting proteins and the reactions they cause in the human body, but only about 25% of the roughly 20,000 proteins in the body can be inhibited with molecular therapy. New company Arvinas is pursuing the opportunities presented by a different approach to disease-causing proteins – degradation – and will get its work underway with a $15 million Series A announced Sept. 26. Canaan Partners and 5AM Ventures led the A round, with participation from Elm Street Ventures and Connecticut Innovations, a state-funded venture firm with a goal to keep innovation by Connecticut researchers within the state. Along with the Connecticut Department of Community and Economic Development, Connecticut Innovations is supplying to the New Haven biotech  an additional $3.5 million in non-equity funding, some of which is tied to hiring milestones. The state also took a $1 million equity stake in Arvinas through Connecticut Innovations’ investment in the A round. The company’s work stems from research at Yale University by Craig Crews, a professor of chemistry and pharmacology, focused on inducing a cell’s own protein-degradation capability to bind to specific protein and mark it for degradation, which would remove it from the system entirely. He previously founded the biotech Proteolix, which also focused on protein degradation and was bought out in 2009 by Onyx Pharmaceuticals, bringing that company the multiple myeloma candidate Kyprolis (carfilzomib). – Joseph Haas

Moderna Therapeutics: The Flagship Ventures company said October 2 it had received a grant worth up to $25 million from the US government’s legendary Defense Advanced Research Projects Agency (or DARPA) – birthplace of the Internet -- to develop treatments for infectious disease and bioengineered attacks. The Cambridge, Mass. biotech is working on a new drug modality, in which modified messenger RNA (mRNA) are injected into a patient to spur endogenous production of therapeutic proteins. Shortly after emerging from stealth, Moderna’s platform received validation – and a boatload of cash – from AstraZeneca. But the firm has yet to prove in clinic that its mRNA analogs can evade the immune system, which is primed to recognize RNA as a viral invader, and trigger a patient’s ability to make proteins in the right quantities to fight pathogens. Moderna has raised $40 million from its Series A from Flagship Ventures and individuals, including its own CEO Stephane Bancel, after a long evolution from a Harvard University researcher’s idea to more efficiently create induced pluripotent stem cells. The AZ deal brought $240 million in upfront fees, plus potential milestones and royalties, for the rights to as many as 40 compounds across several therapeutic areas. The DARPA grant runs for five years and focuses on the production of therapeutic antibodies. Moderna’s appeal to public health officials in a pandemic or emergency situation is to simplify the distribution of treatments. Its mRNA-based injectable agent would need to be produced, shipped and stored, but potentially with less complication and cost of other types of stockpiled or rapid-response agents. – Alex Lash

Frazier Healthcare: The veteran venture firm said September 30 it has closed its seventh fund with $377 million committed, topping its $300 million target. Its previous fund was a $600 million vehicle that closed in 2007, and in the intervening years the firm has indicated it will shift some focus toward growth stage companies, although the area is not new to Frazier. There are currently nine companies in its growth portfolio, ranging from makers of health care product packaging and orthotics to dialysis services to outpatient facilities for bariatric surgery patients. To that end, for FH VII it has promoted two members who have worked on the firm’s growth buyout investments. Brian Morfitt is now a general partner, and Ben Magnano is now a partner. That said, Frazier continues to make early stage bets, too. It most recently co-led a $16 million Series A financing for Atterocor, which is developing a small molecule treatment for the adrenal cancer adrenocortical carcinoma and expects to enter the clinic this year. (Look for more on Atterocor in the upcoming issue of START-UP.) Frazier recently participated in the IPOs for Portola Pharmaceuticals, in which it had a 5.6% pre-IPO stake, and Chimerix, with a stake under 5%. It also saw acquisitions for its portfolio companies Trident Health and Incline Therapeutics. -- A.L.

All The Rest:
JJDC joined as a new investor in a €31M Series B extension for Merus...Array BioPharma partner Loxo Oncology snagged a $33M Series A...To advance trabodenoson through Phase II for glaucoma, Inotek Pharmaceuticals raised $21M in equity and $7M in debt…Protagonist Therapeutics added $4M onto the $14M in Series B funds grossed this past June…NovaDigm completed a $14M Series B round to support its Phase II vaccine for chronic yeast infections...Lilly Asia Ventures provided a $10M Series C to Tianjin CanSino BiotechZindol raised $10M to advance its CINV candidate…Relmada Therapeutics closed on an oversubscribed $8M Series A round that began in July 2012…Opsona Therapeutics added €3M from Omnes Capital onto its €33M Series C announced in April 2013…InterWest Partners led a $1.5M seed investment in Integrated Molecular….Aequus Pharmaceuticals completed a $Cdn1.2M Series A to support work on a transdermal reformulation of the anti-psychotic aripiprazole…advancing research on PDE4 inhibitors for neurological diseases, Tetra Discovery Partners closed on a $1M seed round…BVM Capital seeded K94 Discoveries with $300kImmunAid is in the process of raising a Series B financing…the following biotechs completed FOPOs: Synageva BioPharma (rare diseases) $155.7MNovavax (vaccines and vaccine adjuvants for infectious diseases) $100MFibrocell (autologous cell therapy) $45.1MTherapeuticsMD (generic and OTC women's health products) $33MKaloBios (antibodies) $30MIdera Pharmaceuticals (TLR antagonists in autoimmune and inflammatory diseases) $27.7MStemCells (cell-based therapeutics and tools) $16.2M…and Kythera is proposing an $85M secondary offering…the following completed PIPEs: MorphoSys (antibody libraries) $84.4MNavidea Biopharmaceuticals (Crede CG III invested) $30MAmpio Pharmaceuticals (inflammation) $25.3MCelsus Therapeutics (multi-functional anti-inflammatory candidates) $12.5M…and La Jolla Pharmaceutical (to achieve development milestones for GCS100 and LJPC-501) $10MOphthotech, Bind Therapeutics, Evoke Pharma, Enzymotec, and Fate Therapeutics each priced their IPOsMacroGenics set IPO termsRelypsa filed to go public…Cleveland BioLabs received a $10M senior secured term loan from Hercules Technology Growth Capital…Pivotal Therapeutics raised $Cdn7M in a combination equity/debt financing…Business Development Bank of Canada's BDC Venture Capital arm raised a $135M fund for health care investmentsGates Foundation and JPMorgan Chase teamed up for a new fund to finance late-stage health technologies…and orphan drug accelerator Cydan added $10M to the $16M raised in April 2013. -- Amanda Micklus

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