Technology Marches On, And Financings Of The Fortnight Is There!

Digital future? Sounds expensive.... and confusing! Instead, let's talk about the recent past. What stood out for us in this latest fortnight-plus – extended a bit to accommodate the Thanksgiving holiday and our expanded waistlines – were two vast sums of money for companies plying cutting-edge biomedical technologies that, despite some successes in previous permutations, are still high risk. 

We’ll start with the second, because it’s a more obvious case. The company is Juno Therapeutics, which has rounded up a few programs of cancer immunotherapy under one corporate roof. None of them use the infused-antibody paradigm of Yervoy (ipilumumab), the Bristol-Myers Squibb product approved for melanoma treatment, but the much more complicated dance of autologous cell therapy that Dendreon, with its prostate cancer treatment, showed a few years ago could make it to market. Dendreon also ran into trouble, however, because the dance – removing blood from patients, isolating T-cells, shipping them to a lab, re-engineering them, shipping them back, and re-infusing them into the patient – was more than just putting your feet on the floor in the right sequence. Juno’s backers, to the tune of $120 million and, soon, a lot more (see our blurb below), think the Seattle/New York startup has all the right moves, including improvements to the process and stunning (but small sample size) Phase I data from one of its programs. (Xconomy's Luke Timmerman got the early access and the jump on everyone this week for an excellent long-take on the company.)

The other technology-driven story is the second massive cash infusion for Moderna Therapeutics, the Flagship company that wants to inject modified messenger RNA into patients to spur them to produce their own therapeutic proteins. Moderna simmered sotto vocce within Flagship for a couple years until late 2012, when it emerged with a $40 million commitment. Still years away from clinical proof of concept, it almost immediately secured a licensing deal with AstraZeneca with a $240 million upfront that gives AZ rights to cardiovascular and metabolic programs that emerge from Moderna. 

Which brings us to the week before Thanksgiving, when Moderna added to the pile with a $110 million Series B round from Flagship and a raft of undisclosed backers. We’re a long ways from learning if Moderna’s ambitious idea works, but if it does, it will have to overcome a hurdle that has bedeviled many other companies – often extremely well-funded, too – using RNA-based therapeutics. Those oligos don’t hold up well in the body. Delivery is hard. 

When two researchers won the Nobel Prize in 2006 for their discovery of RNA interference, the biotech world seemed well on its way to developing therapeutics based on the gene-silencing technique. Two companies in particular, Sirna Therapeutics and Alnylam Pharmaceuticals, seemed poised to battle for years. Not quite. Merck & Co. bought Sirna for a cool billion dollars, and it was never heard from again. Alnylam’s rich alliances with Big Pharma came to a crashing halt at the end of last decade.

Alnylam was left to clean up the mess with a big restructuring, but it has steadily rebuilt value, and it recently scored notable Phase I data for a program based on its subcutaneous delivery technology. Its share price has rebounded and at $62.98, it’s nearly twice as high as it flew in the heady days of the ‘00s, before its pharma partners abandoned ship. 

So what to make of these new blockbuster financings? Juno is building upon the rollercoaster experience of Dendreon, even hiring Dendreon's former COO as its CEO. Its investors apparently think nothing short of a full financial blitz will make autologous cell therapy 2.0 a winning version. And Moderna has enough cash now to hand-deliver every dose to every patient on a gold-embossed platinum serving tray. And to get into patients' bodies, they might be able to use a subcutaneous approach, too. 

What will be the next frustrating biotechnology to spur a new round of hopeful spending? When the money flows, you'll certainly be able to read about it in....

Juno Therapeutics/Argos Therapeutics: Hello, cancer immunotherapy. The big Series A financing news this week – this year? – was Juno’s $120 million haul to help the company develop and commercialize not one, not two, but three autologous immunotherapy platforms from two rival research institutions. Autologous is like the high-profile Dendreon: T-cells are removed from the patient, genetically souped up in a lab to recognize and kill cancer cells, then re-infused into the patient. The top-line investors in Juno are ARCH Venture Partners and the Alaska Permanent Fund, which invests that state’s oil revenues. Which means Juno – perhaps a clever way to give Alaska and its capital city naming rights? – is cashing in on former Governor Sarah Palin’s successful campaign to raise taxes on oil companies. That tax hike is now the subject of a major political battle, by the way. But we digress. Alaska’s fund managers won’t have a Juno board seat, which means ARCH’s Robert Nelsen is the main money man to herd cats as Juno’s riches are disbursed to folks at Memorial Sloan-Kettering Cancer Center, the Fred Hutchinson Memorial Cancer Center, and Seattle Children's Research Institute. Nelsen tells us that the groups will continue to run their own cancer immunotherapy programs under Juno’s roof, and “may the best data win.” (The Sloan-Kettering folks are unveiling at ASH this weekend a study that brings the percentage of Phase I patients treated with MSKCC’s CART-19 immunotherapy who had a complete response to 88%, or 15 of 17: basically their cancer disappeared.) What’s more, Nelsen says a Series B round “larger than the Series A” is about six months away. We’ll have more on Juno in this week’s issue of "The Pink Sheet", and in the upcoming Start-Up magazine. Meanwhile, at the other end of the funding rainbow, Juno competitor Argos Therapeutics, which has been plugging away at autologous immunotherapy for more than a decade, also had funding news. It topped up its Series E round to $60 million as it continues a pivotal trial in renal cell carcinoma. The first tranche of the E round came in August and included warrants. Argos withdrew an IPO bid in 2012 and instead brought in a Series D round. Other than both working on autologous immunotherapy systems, Argos and Juno have another connection: Argos’ recent backers included Russian and South Korean pharma companies, which mean Juno’s investors can see Argos’ investors from their kitchen window.  – Alex Lash
 
Xencor: Dilution was the headline for the IPO of antibody company Xencor. It priced December 3 at one-third of the mid-point of its original range, and to compensate it doubled its shares sold, and then some. It first filed to raise $75 million by selling 5 million shares at a mid-point of $15 each; it actually raised $70 million by selling 12.7 million at $5.50. That’s despite existing investors, which include MedImmune Ventures and HealthCare Ventures, committing to buy about $20.5 million, or 29%, of the IPO. Investors are demanding deep discounts as the biotech IPO market has softened this fall, so much so that it was a bit of a surprise Xencor made it out at all. Before it got the deal done, Xencor postponed its IPO, as did at least five other biotechs leading up to Thanksgiving. The Xencor offering was originally slated for Nov. 14. The worry for investors is that bankers are now scraping the bottom of the barrel. Perhaps the typical momentum of January’s JPMorgan conference can breathe a bit of life back into IPOs – if the right companies come along. (For a detailed look at the 2013 IPO strategies of OncoMed Pharmaceuticals, bluebird bio, and Ophthotech, check out this Start-Up feature.) At least for Xencor, the immediate investor upside of a deep discount is the potential for money left on the table. In its first day of trading on Dec. 3, Xencor got a 52% bounce, to $8.64 per share. Longer term, Xencor’s fate likely hangs on lead candidate XmAb5871 to treat rheumatoid arthritis, which won’t see a significant milestone until Phase Ib/IIa data due in the second half of 2014. A Phase IIb proof-of-concept trial would follow in the first half of 2015, with partner Amgen Inc. having data in hand in 2017 to determine if it will exercise its option. – Stacy Lawrence
 

Sitari Pharmaceuticals: The joint venture that Avalon Ventures and GlaxoSmithKline announced this spring hatched its first company November 22. The two staked Sitari, which will focus on developing a drug therapy for celiac disease based on research at Stanford University, to a $10 million Series A financing. The $10 million is not a straight cash investment, Avalon Managing Director Jay Lichter told "The Pink Sheet" DAILY. Avalon provides $3 million in cash, while GSK will provide up to $7 million in both cash and in-kind services. Using intellectual property licensed from the Stanford lab of Chaitan Khosla, Sitari will attempt to address celiac, an autoimmune digestive disease caused by intolerance to gluten, by inhibiting the transglutaminase 2 (TG2) pathway. Avalon will transfer tools from the Stanford labs to Sitari’s La Jolla, Calif., location where the GSK chemical libraries will be screened for potential TG2 inhibitors. That will be the starting point of the discovery work, along with considering compounds discovered by Khosla’s team, to determine which chemical scaffold might work best along with other pharmacodynamic factors, Lichter said. The company is years away from selection of a clinical candidate, however. At the time of selection, GSK will have the option to acquire the company or let Avalon take it forward on its own, said Pearl Huang, GSK’s global head of Discovery Partnerships with Academia (DPAC) unit. Huang said $10 million likely will be the standard A round for the companies co-founded by GSK and Avalon, based on both partners’ experience of what it takes to get to candidate selection. – Joseph Haas
 
5am Ventures: The San Francisco Bay Area firm said December 3 it has closed a $250 million fund, its fourth. It’s 20% larger than the group’s third fund, which closed in 2009. Four years between fund closes isn’t bad for an early-stage investor, although as managing partner Andy Schwab told Start-Up last year, “We’re realistic that not all of our companies can be two professors and an early-stage idea.” The firm has reached exits through investments in new companies that were vehicles for mature technologies, such as the Alza pain patch that was spun out and re-jiggered by Incline Therapeutics. 5am cashed out when The Medicines Co. bought Incline in 2012. It’s also had success extending a franchise. It sold Ilypsa in 2007 for $420 million to Amgen, which wanted the startup’s phosphate binder to treat chronic kidney disease. 5am and its syndicate partners spun out of Amgen some of the extra Ilypsa assets into a new company called... Relypsa. (They’re not called 5am for nothing; you’ve got to get up early to be that clever.) Amgen eventually shelved the Ilypsa program, but Relypsa made steady progress and raised north of $150 million in venture cash. It went public this fall, six years after its spin out. Relypsa also dampened its IPO ambitions, going out at $11 a share instead of $16 to $19, and raising $80 million (with insiders buying about a quarter of the shares) instead of roughly $120 million. (Shares closed at $19.60 on Dec. 5.) The new fund keeps the same managing partner lineup of Andy Schwab, Scott Rocklage, and John Diekman.  – Alex Lash
 
Best of the Rest (Highlights of Other Financing Activity This Fortnight): Continuing its focus on drug assets, Versant Ventures will create the biotech incubator Blueline Bioscience, which will spin off start-ups to which Celgene holds an option to buy... Versant also funded the latest Inception spin-off, Inception 4, an ophthalmic company that secured a joint research and option agreement with Bayer...Visterra added $8.1M to its Series A, which now totals $34.2M, and concurrently in-licensed dengue fever IP from MIT…Despite losing GSK as its Fabry disease partner, Amicus Therapeutics was busy: the company restructured its financial and corporate structure, announced $40M in new equity and debt financing, and acquired a lead ERT for Pompe disease in its takeover of Callidus Biopharma…Horizon Pharma netted $144M in a private senior notes sale, $35M of which will fund the purchase of exclusive US rights to AstraZeneca’s pain drug Vimovo…and Gilde Healthcare closed a $200M third fund dedicated to home- and digital-health, diagnostics and medtech, and pharmaceuticals. -- Amanda Micklus

Deals of the Week Mulls The Wild Frontier

Sometimes, it's said, the pioneers are the ones that end up with arrows in their backs. It's a tech-industry cliché, one designed as a reminder that first-mover advantage isn't everything. There are those whose innovations turn into category winners, and then there are those whose inspired inventions become part of someone else's best-selling product.

While it's rarely quite that way in the pharma business, drug-developing pioneers can still face challenges that benefit their competitors but backfire on their own ambitions. Among the Davy Crocketts struggling to translate a novel product into a sales juggernaut is Seattle's Dendreon, which was thought to be sitting on a goldmine when its Provenge (sipuleucel-T) became the first cancer immunotherapy to be approved by FDA in April 2010. Now, however, the company has more muted expectations for Provenge -- and accordingly, will go through a painful restructuring that will cost a quarter of its employees their jobs.

Many estimates pegged Dendreon to bring in well over $1 billion annually at its peak, given its survival benefit for prostate cancer patients, and Dendreon staffed up accordingly to meet anticipated demand. During a Sept. 8 conference call, CFO Greg Schiffman acknowledged that it had overreached in projecting $350 to $400 million in annual sales, including $175 to $200 million in the fourth quarter alone.

Many doctors are loath to prescribe the expensive buy-and-bill drug, reportedly due to concerns about reimbursement; thus, it's been difficult for Dendreon to reach Provenge's target patient population. While the company ultimately made the decision not to close its three manufacturing plants, it has scaled back production -- and one commercial relationship didn't survive the cut: Dendreon canceled its antigen supplier contract with GlaxoSmithKline, which company officials described as a "second-source" contract rendered unnecessary by the slow sales.

With 500 staff set to be laid off, Dendreon says it can save $120 million annually, and now expects to break even on Provenge if it can generate $500 million in annual sales. A fraction of what they'd hoped for, sure, but sometimes that's the price of being first-to-market with a category-defining product. "We are scientific pioneers," said Gold during the conference call, "and also commercial pioneers."

With that in mind, it's Friday afternoon. Sure, it was a short work week for most of us, but we all deserve a break. So please ride off into the sunset with...

GlaxoSmithKline/BARDA: GlaxoSmithKline has received a two-year $38.5 million grant from HHS’ Biomedical Advanced Research and Development Authority to support the pharma’s development of an experimental antibiotic against biothreat pathogens such as Yersinia pestis, which causes bubonic plague, and Bacillus anthracis, which causes anthrax. GSK could receive additional financing from BARDA if the research agreement is extended, bringing the potential total funding to $94.5 million. The work centers around development of GSK2251052, an antibiotic targeted at the bacterial enzyme leucyl tRNA synthetase (LeuRS), which is moving into Phase II in ventilator-associated pneumonia and Phase III for complicated intra-abdominal infections. GSK ‘052, previously known as AN3665, is a boron-based Gram-negative systemic antibiotic that GSK licensed from Anacor Pharmaceuticals under their 2007 platform technology collaboration around four targets. On Sept. 6, GSK and Anacor agreed to extend that research partnership around LeuRS candidates, with the pharma returning all intellectual property related to the other three targets included in the original deal. — Joseph Haas

Evotec/Roche: German drug discovery company Evotec appeared at first blush to have pulled off a coup on Sept. 5, when it announced it was licensing back to Roche a potential Alzheimer's therapy, EVT-302, first inlicensed from the Swiss multinational more than five years ago. A great piece of business for Evotec, apparently, with Roche paying it an upfront of $10 million and potentially over $800 million in future development and commercial milestones. But on closer inspection the ownership of the asset had as many switchbacks as an alpine pass: a predecessor company, Evotec Neurosciences, owned EVT-302 when it was first spun out of Roche, and these rights came with the company when it was later acquired by Evotec. Under the all-new deal, Roche benefits from a package of preclinical and clinical data, collected by Evotec when it tried, and failed, to develop EVT-302, a highly selective MAO-B inhibitor, as an aid to smoking cessation. EVT-302 complements the other approaches Roche is pursuing for the treatment of Alzheimer's, including MAbs against beta-amyloid. With Roche now shouldering all costs of development, the deal works well for Evotec: over the past two years, it has restructured its business and is focused on developing drug discovery partnerships with partners, rather than developing its own R&D pipeline. MAO-B is up-regulated in the brains of Alzheimer's disease patients, and as well as breaking down monoamines like the neurotransmitter dopamine, it also produces oxygen free radicals, which contribute to oxidative stress and could possibly accelerate the disease process. An inhibitor might slow down disease progression, and Roche is to conduct a Phase II trial in 2012 to prove this concept. - John Davis

F-Star/Merck Serono: F-Star, an antibody engineering company based in Vienna, Austria, saw its relationship with one of its pharmaceutical corporate investors blossom this week when it announced a discovery and development agreement with Merck Serono, the pharmaceuticals arm of Merck KGaA. The German company's VC arm, Merck Serono Ventures, has only been an investor in F-Star since January 2010, when it co-led an €8 million extended Series A financing, but its parent company obviously liked what it saw. Merck Serono and F-Star will now build on their relationship by collaborating on the discovery and development of antibody-derived therapeutics against inflammatory disease targets in a deal valued at €492 million ($683 million). Merck Serono will nominate three therapeutic targets and the companies will collaborate on developing targeted and bispecific biologics against these molecules. Merck Serono will have exclusive commercialization and development rights, with F-Star receiving an initial technology access fee, research-based funding, and development and commercialization milestones, as well as tiered royalties on sales. Accessing bispecific antibody capabilities has been a hot topic lately, with this week's F-Star/Merck Serono tie up reminiscent of last week's Zymeworks/Merck collaboration, although the technology access fee and committed R&D dollars make F-star's tie-up richer. - J. D.

Astellas/Evec: Japan’s Astellas Pharma has in-licensed the worldwide development and commercialization rights to a fully-human antibody targeting infectious disease from Japan’s Evec. Specific details regarding the program weren’t provided. While Astellas’ upfront payment for the pre-clinical program is modest at ¥600 million ($7.75 million), development and sales milestone payments could add as much as ¥13 billion ($168 million) to the deal, which also includes royalties. Founded to commercialize research conducted at the University of Hokkaido and based in Sapporo, eight-year-old Evec is developing antibodies for cancer and inflammatory disease as well as infectious disease. Evec previously licensed an antibody to Boehringer Ingelheim in a 2008 deal that could be worth up to €55 million ($75 million). In August, Astellas appointed a new CEO, promoting Yoshihiko Hatanaka, the head of the U.S. Astellas unit, to the top post. – Lisa LaMotta

Eisai/SFJ Pharma: It's a deal -- and a financing! This week's DOTW two-fer illustrates the heightened risk-hedging protocols at work as big pharmas try and limit their cash R&D burn, while still retaining access to a product a la project finance. And based on the press release, there ain't a whole lot for Eisai -- or its shareholders -- NOT to like about the SFJ arrangement. Essentially Eisai has partnered late-stage clinical development of its Phase III tyrosine kinase inhibitor, lenvatinib, in thyroid cancer. Under the agreement, the studies will be conducted by Eisai (so it keeps control!), BUT they will be completely funded by SFJ. That's right --SFJ is picking up the tab, and in return stands to earn milestone payments, but only if the compound wins regulatory approval. In addition, if and when the compound is approved, all commercial rights remain with Eisai. With so many of the financial details of the relationship undisclosed, one has to assume that the future milestone payments owed to SFJ, which is backed by VCs including Clarus and Abingworth, are lucrative. This isn't the first time Eisai has sought a partner to hedge its development risk: back in 2009 Eisai teamed up with the CRO Quintiles to develop multiple oncologics. That particular alliance called for Eisai and Quintiles to share development costs, with Quintiles' cancer specialists conducting the proof-of-concept trials and Eisai paying milestones for compounds that meet predefined POC criteria.--Ellen Licking

Image of Davy Crockett, painted by Chester Harding, reproduced courtesy of Wikimedia Commons.