Financings of the Fortnight Ponders Neurodegenerative Death And Taxes

The big funding news this fortnight doesn’t come from public or private investors, it comes from taxpayers. As "The Pink Sheet" DAILY reported May 15, the Obama administration formally rolled out its national Alzheimer’s plan, which has been in the works for more than a year.

Alzheimer’s and other dementia-related diseases were already slated to get $450 million in National Institutes of Health funding in 2012, with the same amount proposed by the White House for 2013, but the new plan adds extra money: $50 million right away this year and $80 million proposed for next year, with another $20 million for caregiver support, education, data collection and other services.

Intriguing, then, that in a field where clinical trial costs are often cited as a major barrier to an already-skittish industry getting more deeply involved, nearly half of the extra $50 million for 2012 is earmarked for clinical trials. It won't help struggling biotechs push promising treatments, mind you; $16 million is going toward a prevention trial using the Roche/Genentech-sponsored antibody crenezumab to test still-healthy members of extended families in and around Medellin, Colombia, who share a rare genetic mutation that almost assures them of early-onset Alzheimer’s. The study, which the sponsors consider to be a Phase II adaptive trial, will cost an estimated $100 million. A private research group, the Banner Alzheimer’s Institute of Phoenix, is in charge, and chose crenezumab as the agent last December because it has demonstrated a better safety profile so far in early Alzheimer’s trials conducted by Genentech.

In addition to the NIH’s $16 million, Banner is putting up $15 million. Genentech will pay the remaining costs, but it’s unclear who will pay if the cost runs beyond $100 million. (Genentech spokeswoman Robin Snyder declined to speculate on additional costs but said the company doesn’t expect funding to be an issue.)

However it plays out, the fact of mighty Roche getting subsidies for as much as one-third of a major trial is, at the least, a sign of the importance of making progress – any progress at all – in Alzheimer’s R&D. We’re not complaining; if $16 million of our national treasure brings about an Alzheimer’s breakthrough, or simply speeds the progress toward one, it’s money well spent and a pittance compared to the costly burden of the disease now and a generation from now.

But to be clear: Neither Banner nor NIH accrue any rights to crenezumab, which Genentech licensed from Swiss biotech AC Immune in 2006, so if the trial points toward crenezumab as a viable treatment, Genentech/Roche could be sitting on a gold mine. The trial is expected to run five years, with an interim analysis after two. At that point the investigators would evaluate continuation of the trial to support an application for approval, said Snyder. “We are hopeful that the trial will support an indication, the specifics of which are yet to be discussed with regulatory authorities,” she wrote in an email. “If it works we would like crenezumab to be as broadly available to patients who may be eligible.”

The Banner Institute plans at some point to test the same antibody in people at higher risk for the more common form of Alzheimer’s.

A side note: Steering millions of federal dollars toward potentially groundbreaking Alzheimer’s trials hasn’t yet provoked the same skepticism as the millions being steered toward other drug discovery and development efforts under the new translational center known as NCATS.

Funding crucial Alzheimer’s trials is of course a different proposition than, say, repurposing drugs that have sat on industry shelves or fallen out of use, one of the mandates of NCATS, which had a $575 million budget this year. But both efforts are dollars spent that, in a parallel universe, perhaps, might have gone toward basic biomedical research, a common refrain from critics. (Our START-UP colleagues, who profile a different source of funding for biotech innovation every month in the “Capital Matters” column, wrote about one of the NCATS programs, the Therapeutics for Rare and Neglected Diseases, or TRND, a few months ago. You can read it here.)

Our friends at Pink Sheet are all over the NCATS story, and we suggest you follow along. It will require a subscription, but to paraphrase the late Donna Summer, they work hard for the money. So hard for it, honey. Rest in peace, disco queen, and same to you, go-go king. No one loves to love you, baby, more than…

Arena Pharmaceuticals: Wasting little time, Arena announced May 16 it priced a secondary stock offering and grossed $60.5 million just six days after an FDA advisory committee voted 18-4 in favor of Arena’s weight-loss drug lorcaserin. Arena sold 11 million shares at $5.50 per share, although shares reached as high as $7.02 on May 11, the day of the committee vote. Shares closed May 16 at $5.67. The vote doesn’t guarantee approval of lorcaserin, but it’s a notable reversal. The panel voted down the drug in September 2010, largely due to data that showed an increase in tumors in rat studies. A reassessment of that data, plus new information on the tumors’ causes, reassured the panel this time around that the cancer risk is negligible. Obesity drugs need to meet only one of two criteria set out in FDA’s draft guidance on weight management products: they either must provide a 5% weight loss in 35% of patients on-treatment and twice as many patients on-treatment as on-placebo; or there must be at least a 5% difference between weight loss in the active-product and placebo groups. Lorcaserin met the former standard, but not the latter. (More details about the panel’s decision is here, courtesy of our Pink Sheet colleagues.) Lorcaserin’s PDUFA date is June 27, so Arena’s new cash reserves give it a boost for commercialization, although in a deal expanded just before the committee vote, Eisai owns commercial rights to the drug in the US, Mexico, Canada and Brazil. Underwriters Jeffries & Co. and Piper Jaffray & Co., with help from BMO Capital Markets, have the option to sell up to 1.65 million additional shares. Two other sponsors of obesity are vying for FDA approval. Qnexa from Vivus has a PDUFA date of July 17, and Orexigen Therapeutics, which agreed to conduct a cardiovascular outcomes trial, hopes to re-file Contrave for approval in 2014. -- Cathy Dombrowski and Alex Lash

OncoMed Pharmceuticals: One of the first cancer stem cell companies, OncoMed is now hoping to cash in on the cancer stem cell hype (which just happens to be the subject of a forthcoming feature in Start-Up magazine). After all, OncoMed, founded in 2004, is a relative graybeard of the field, with a couple of alliances under its belt and three programs in the clinic. Tiny Verastem notched a $63 million IPO in late January without anything yet in the clinic, and another company, Stemline Therapeutics, filed its IPO papers in April. OncoMed hasn’t set terms yet, but it won’t be a surprise if it aims sky-high. Venture backers have put at least $170 million into the company since its founding, most of it coming in a massive Series B in 2008. There are seven venture funds and one strategic investor with stakes of 5% or more in OncoMed, led by U.S. Venture Partners (17%), Latterell Venture Partners (12%), and GlaxoSmithKline (12%), which also owns options for worldwide rights to two OncoMed antibodies. GSK can exercise the options at either the end of Phase I or Phase II proof of concept trials. OncoMed owns exclusive rights to its lead compound, the antibody demcizumab, and is currently testing it in two Phase Ib trials, both in combination with chemotherapy agents.  -- A.L.

Egalet: In its second incarnation, Danish pain management firm Egalet Ltd. has raised $14.3 million in Series B financing. The firm restructured and recapitalized in 2010, shedding its cardiovascular program to focus on its abuse-resistant Egalet technology for the development of opioid and non-opioid pain medications.  The company is preparing to advance lead candidate EGP066, an extended-release form of morphine, into Phase III studies. The Egalet platform creates tablets that erode at a controlled rate to produce prolonged- or delayed-release delivery. It also prevents the drug ingredient from being easily extracted, which deters drug abusers from chewing, snorting, or injecting it. First-time investor CLS Capital joined returning shareholders Atlas Venture, Omega Funds, Sunstone Capital, and Index Ventures, which committed to a two-tranched €2 million ($2.6 million) Series A round in August 2010.  Prior to the recap, Egalet A/S had raised at least $60mm in venture financing. In December 2009, it out-licensed its CV compound, the beta blocker EGP042, to RedHill Biopharma. The firm has a second formulation technology, Parvulet, that creates a soft pudding-like substance that can be eaten with a spoon. Farther down its pipeline are extended-release versions of oxycodone, hydrocodone, and hydromorphone. -- Amanda Micklus

Dynavax Technologies: Like Arena, Dynavax is a veteran biotech hoping to soon celebrate its first product launch, with the hepatitis B vaccine Heplisav now before the FDA for review. Dynavax tapped the public markets, raising $74.4 million on May 9 before deductions and expenses. It sold 17.5 million shares at $4.25 apiece, adding more than 10% of its share count to the outstanding base. If that’s not enough dilution, underwriters have the option to sell another 2.6 million shares. What’s more, Dynavax also announced just before the share sale that longtime CEO Dino Dina will step aside for a more commercially experienced successor. He’ll remain CEO until the search is complete, and he’ll also keep his board seat, Dynavax said. Investors didn’t take kindly to the CEO news or the offering, which was priced 17% below the previous day’s close of $5.09. Shares have continued to decline, closing May 17 at $3.76. But Dynavax needs the cash, as it owns full rights to Heplisav, for now at least, and says it intends to launch it independently in the US. Historically, biotechs that keep worldwide or at least US rights to their first commercial products fare better in the long term, but a successful launch is no guarantee. Dendreon’s prostate cancer treatment Provenge (sipuleucel-T) and Human Genome Sciences’ breakthrough lupus drug Benlysta (belimumab), both hailed as welcome additions in under-served indications, have faltered badly out of the gate. That's led to new management for Dendreon and, for HGS, a hostile takeover bid from marketing partner GSK. -- A.L.

Image courtesy of flickr user brain_blogger. How appropriate.

Financings of the Fortnight Wraps Up The Year With Rare Gifts

We here at FOTF holiday headquarters (not pictured above) can't think of a better Hannukwanzamas present than a treatment for a rare disease whose patients previously had few or no options to help them. One of the big stories this year in our neck of the woods is that many in the biopharma industry are thinking the same thing, too. Of course, motivations for some are fueled in part by premium pricing and favorable regulatory pathways, terms that don't exactly invoke the holiday spirit. But if remedies come to market, we won't quibble. Capitalism is the worst of all pharmaco-economic systems except for all the others.

We've already noted several fundings, including the new companies Ultragenyx and Orphazyme, in this column this year; in the upcoming issue of START-UP, the Capital Matters team will examine a new NIH program, dubbed Therapeutics for Rare and Neglected Diseases, or TRND, that helps both academics and biotechs bring rare-disease programs across the valley of death. TRND has already helped push treatments for sickle-cell anemia and relapsed chronic lymphocytic leukemia into the clinic, with hopes for two more clinical programs in 2012. (TRND's full roster of programs is here.)

Now Atlas Venture and the specialty pharma firm Shire, which has aggressively built a rare-disease business to complement its ADHD franchise, are teaming to vet rare-disease programs and, if considered worthy, house them in entities co-financed by the two partners. 

The arrangement is a spin on an idea Atlas has already implemented and that other VCs are working on, as well: Since acquisitions these days are practically the only way to exit an investment, bring the potential buyer in early, preferably as a funding partner. For every project Atlas and Shire fund upfront, Shire gets an option to purchase down the road within a pre-negotiated time frame. Shire already has had notable success in the rare diseases arena, as its human genetic therapies unit continues to lead its sales and revenue growth. In 2010, the HGT unit generated 64% sales growth over the prior year, thanks to strong sellers such as Elaprase (idursulfase), Vpriv (velaglucerase alfa) and Replagal (agalsidase). 

Atlas has its Atlas Venture Development Corp. (AVDC), a group that's looking to in-license compounds, develop them quickly through proof of concept, and if possible sell them back to the original licensee. Its first deal was for an Eli Lilly & Co. migraine drug, now housed in an LLC called Arteaus Therapeutics. 

Versant Ventures also likes the find-the-buyer-early approach. It recently launched a cancer genomic analysis firm Quanticel Pharmaceuticals with $45 million from Celgene, which gets exclusive use of Quanticel's technology and exclusive rights to buy Quanticel, including any pipeline candidates Quanticel develops on its own, within three and a half years. 

With Shire, Atlas might find rare-disease programs that lend themselves to an asset-financing, virtual-development approach, but it could take a "platform approach" and perhaps build a more substantial stand-alone operation, as Atlas principal Ankit Mahadevia told our colleagues at "The Pink Sheet".

If you haven't noticed, both Atlas (for Arteaus) and Versant (for Quanticel) are nominees for our Deal of the Year in the exit/financing category, and voting just started. Cast your vote, please; it's all we want for Christmas, other than a little less unmet medical need in the world. Have safe, peaceful holidays, and we'll see you in 2012 with the next edition of...

Ember Therapeutics: Third Rock Ventures launched Ember Therapeutics Dec. 15 with a $34 million Series A round. As Ember’s lone investor right now, Third Rock will seek another backer that can offer the right expertise in the relatively new field of targeting brown fat augmentation to fight obesity, as well as insulin sensitivity, an approach to diabetes that has been plagued by safety problems. Ember's programs are currently in the preclinical stage. Louis Tartaglia, a Third Rock partner and interim CEO of Ember, told The Pink Sheet that a new investor could be a traditional VC or a venture arm of a pharmaceutical company "with which we do a large R&D alliance." If the latter, the corporate venture investor would likely be brought into the A round, Tartaglia said. Ember will be Third Rock’s third entry into the metabolic health arena, following Zafgen, which is working on methionine aminopeptidase 2 (MetAP2) inhibition to treat severe obesity, and Rhythm Pharmaceuticals, which is focused on MC5 agonists to treat obesity and type 2 diabetes. Ember is Third Rock's fifth publicly disclosed Series A investment in 2011. -- Joseph Haas

 

Aviir: The Irvine, CA company and Stanford University spinout disclosed it has raised $10 million of a planned $30 million Series B round to push its TruRisk cardiac risk diagnostic test to market. The round was led by Merck Global Innovation Fund, the fund's first disclosed investment as parent company Merck looks to put venture cash to use both directly and indirectly. (The January IN VIVO has a Q&A with Merck's new top dealmaker, Roger Pomerantz, which you can read here.) Previous Aviir investors New Leaf Venture Partners, Aberdare Ventures, and Bay City Capital joined Merck in the B round. Those three also contributed more than $11 million to a planned $25 million round disclosed in regulatory filings in 2007, but it's unclear how much more Aviir raised in that round -- which documents also classified as a Series B -- or how much venture funding total the firm has brought in. A company spokesman did not return requests for clarification. TruRisk measures a patient's blood level of seven proteins associated with arterial plaque at risk of breaking off and causing heart attack. -- Alex Lash

Covidien: Diversified life-science firm Covidien said Dec. 15 it would spin out its pharmaceutical business into a standalone publicly traded company and keep its medical devices and supplies, which currently contribute 83% of sales to the US-Irish firm. (Covidien was formerly TycoHealthcare.) The pharma unit, which consists of generic and branded drugs, active pharmaceutical ingredients and imaging agents, posted a compound annual growth rate of zero between 2007 and 2011. It accounts for about $2 billion in annual sales of products such as bulk acetaminophen, generic methadone for opioid addiction, and the painkiller Exalgo (hydromorphone). There were no immediate estimates of the amount Covidien could raise in the spin-out of the unit. Executives say they've been planning the move for years. The pharma unit has been without a president for about a year, but executives said recently that they have hired someone to run the unit before the spin-out. The hire will come on board in early 2012, and the pharma unit will be prepared for a sale in September, Covidien CEO Jose Almeida said last week. Abbott Laboratories is another diversified firm that plans to divest pharma holdings, but unlike Covidien, Abbott will keep its generic drug products under the same roof as devices and diagnostics.  -- David Filmore

Ariad Pharmaceuticals: Cancer drug developer Ariad said Tuesday, Dec. 20 it had finalized its $243 million secondary offering, selling 24.7 million shares at $10.42 each, as it prepares for life as a commercial company. A marketing application for its mTOR inhibitor ridaforolimus has been submitted to authorities in the US and Europe by its partner Merck & Co., with an FDA decision expected in mid-2012. Ariad plans to co-promote the sarcoma treatment in the US. Next year, the firm could submit pan-BCR-ABL inhibitor ponatinib for leukemia. It is currently in a pivotal Phase II trial, with interim results released earlier this month. The perils of first-time launches for biotechs are legion as they shift resources away from R&D and into sales and marketing, all while investors typically shun the company's stock in a habit known as "shorting the launch." Those that manage to stay independent for the long haul tend to outperform their peers, although giving up some of their marketing rights can cloud the picture, as this analysis in July's IN VIVO shows. Meanwhile, Ariad's stock price is trading above the offering price. Shares closed Wednesday, Dec. 21 at $11.60 a piece. Underwriters bought their full extra allotment of 3.2 million in the deal. J.P. Morgan, Cowen and Co., and Jefferies & Co. were the lead underwriters. -- A.L.

Thanks to Joe Haas for his contribution to this week's intro. 

Photo courtesy of flickr user Howard Dickins.