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 FOPO…Verastem, 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 publicly…Oxygen 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 IPOs...in 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

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.