Financings of the Fortnight Says If It Floats Like A Duck...

The biotech IPO trickle continues, with Supernus Pharmaceuticals debuting its shares May 1 and raising $50 million for its drug reformulation programs. It was a third less than the company had hoped for when it freshened up its nearly forgotten S-1 and decided last month to make a lunge for the window. It’s the seventh biopharma to debut this year – five in the US, two in France (France? Mais oui) – and folks are wondering if the opening will expand.

We would never suggest that one deal, especially one as delayed and discounted, should stand for larger trends without putting it in context. Supernus raised $49 million from private investors (with well over $100 million more raised through non-dilutive royalty deals) and a $50 million IPO. Its immediate post-IPO valuation of $120 million translates into a 1.4x step-up, about in line with the typical biopharma IPO in the post-crash era – starting in 2009, that is.

In the same time period, we found pre-IPO terms for 44 US and foreign biopharmas that eventually went public. They wanted on average to sell shares at $14.50 each (we’ve used the midpoint of initial proposed price ranges, and we’ve converted foreign currencies to dollars). Their actual average IPO price: $11.69, or a 20% discount. (Supernus: A 62% discount, from $13 to $5.)

We found the proposed number of shares to sell for 39 companies. On average they wanted to sell 6.7 million. They actually sold an average of 8.2 million, or 22% more shares than first expected. (Supernus: twice as many shares sold than expected, from 5 million to 10 million.)

In other words, with a big haircut and dilution, Supernus is a lot like its post-recession peers, but more so. There’s another resemblance: It had to sell a good chunk of its IPO shares to existing shareholders. Lead VCs New Enterprise Associates, Abingworth, and OrbiMed Advisors ponied up $33 million – a whopping two thirds of the issue. (With insiders like that, who needs outsiders?) We noted it a couple months ago: insider participation isn’t necessarily a bad omen for post-IPO stock performance. And VCs taking companies public these days know the extra outlay is likely, even necessary to get the deal done.  As Clovis Oncology CEO Pat Mahaffy, who has now taken three biotechs public, said at a conference this week of Clovis’s late 2011 successful IPO, “It would have been hard to pull off without insider participation.” It’s now the new normal, says Mahaffy.

As of this writing Supernus is up $1.06 a few days past its debut, a 21% bump. Its backers, new and old, can only hope that over time it continues to resemble its 2012 peers in post-IPO performance. As a class, they’re up 15% post-IPO (as of the April 30 closing bell), and the class of 2011 is slightly better than that at 19%. For a lot more on IPO performance since 2009, look for START-UP Magazine’s next Valuation Watch. For the choicest biotech financing morsels, stick with…

Argos Therapeutics: Once a candidate for an IPO, Argos has turned to insiders for a $25 million Series D round to support Phase III trials on its treatment for metastatic renal cell carcinoma. It’s been an up-and-down year for Argos, which readied its story for retail investors last July but cancelled the offering in March, and instead returned to existing shareholders for cash. Like publicly traded Dendreon, Argos has a personalized cancer treatment in which tumor cells are modified and infused back into the patient to provoke a tumor-specific immune response. But Argos’ timing could hardly have been worse: Days after filing its prospectus, Dendreon shares lost almost two thirds of their value as questions about uptake, reimbursement and demand arose about Provenge (sipuleucel-T). With just $2 million in the bank at year’s end, Argos held hope for a $66 million listing until late winter before scuttling the offering eight weeks ago. “Public investors would like to put companies in boxes,” Argos CEO Jeff Abbey told our Pink Sheet colleagues. “It makes it hard to differentiate ourselves, although our technology is totally different.” Forbion Capital led the new round, and insiders TVM Capital, Lumira Capital, Intersouth Partners, Caisse de depot et placement du Quebec, Morningside Group and Aurora Funds contributed the balance, bringing Argos’ total funding to $114 million since 1997. With $75 million budgeted to spend through 2015, Argos will need more capital from a partnership, private round or IPO during the interim. -- Paul Bonanos

Telstar Pharma: Astellas Pharma has gotten into the asset-financing game with Telstar, a virtual company formed around an ulcerative colitis treatment spun out by Astellas. The compound, ASP3291, was actually outlicensed to Drais Pharmaceuticals, a New Jersey firm whose cofounders, Donna Tempel and Robert Desjardins, were US senior management at one of Astellas’ predecessors. Tempel and Desjardins went on to form AkaRx with backing from Astellas Venture Management, an investment that brought one of the most lucrative returns in recent biotech memory. Drais is paying an undisclosed upfront fee and royalties on future sales to Astellas for ASP3291. Astellas’ venture arm has contributed a minor stake, less than 20%, of Telstar’s $14 million initial financing round, and parent company Astellas has various rights to the compound: the right of first refusal for the Japanese market, the right of first exclusive negotiation for any future partnering for the compound, and non-exclusive negotiations for ex-Japan markets. By depositing ASP3291 in a corporate entity separate from Drais, it should prove a cleaner exit – and faster return – if the compound succeeds in an upcoming Phase IIa trial. Telstar’s lead investors, InterWest Partners and Sutter Hill Ventures, are also investors in Drais. Astellas said it was considering a similar deal with Drais for a compound in a different, undisclosed therapeutic area. -- Daniel Poppy

Castlight Health: In its second large venture funding in two years, health care shopping pioneer Castlight Health has raised a $100 million Series D round that it says it will use to grow its commercial team and add features to its product. Announced May 1, the round was led by T. Rowe Price, Redmile Group and two major unnamed mutual funds, as well as prior investors. Founded in 2008 as Ventana Health Services, Castlight is a Web-based service that enables customers’ employees to compare out-of-pocket costs for procedures such as colonoscopies, X-rays and MRIs. In 2010, the company raised a $60 million Series C, led by non-venture backers the Cleveland Clinic and Wellcome Trust, as well as VCs such as Venrock Associates, Oak Investment Partners and Maverick Capital. The D round more than doubles Castlight’s total cash raised to $181 million. Last year, Castlight announced a 250% increase in revenue over 2010. Chief marketing officer Peter Isaacson would not detail the company’s 2011 performance, but noted that its customer base and revenue are growing “very quickly,” with many new clients being Fortune 100-sized firms. With so many companies still offering employees health care coverage, one of Castlight’s biggest challenges is determining which potential customers to target, he added. -- Joseph Haas

Transcept Pharmaceuticals: Five months after the eye-opening FDA approval of its sleep aid Intermezzo (a reformulated zolpidem, a.k.a. generic Ambien) Transcept has sold 9 million shares at $4.50 a piece in a public offering to raise $37.6 million net of expenses, not including a possible overallotment sale. Many observers had written off Transcept after the FDA gave the company a second thumbs-down in mid-2011, nearly three years after the firm originally submitted its NDA to the feds for Intermezzo, which is designed to help people fall back asleep after waking in the middle of the night. Transcept is relying on sales by US marketing partner Purdue Pharma to bring in revenue, and the marketer launched the drug last month. Transcept has earned a $10 million fee from Purdue and can draw an additional $80 million, plus royalties. The company, which went public in early 2009 through a reverse merger with Novacea, will use the new proceeds to help develop TO-2061, a low-dose version of ondansetron for obsessive-compulsive disorder. The compound has been used for twenty years to combat the nausea and vomiting caused by chemotherapy, radiation and surgery. The 4.5 million shares offered increase the outstanding share pool by 32%, with 675,000 reserved for the underwriter over-allotment. -- Alex Lash

Photo courtesy of flickrer jamiejohndavies.

While You Were Running With The Bulls

Again. Excuse the WYW rerun but there are too many crazy pictures to ignore the annual San Fermin Festival in Pamplona.

• Speaking of getting gouged by animals: The New York Times Magazine cover story this week is about the new world of behavioral pharmacology ... for pets. The market for doggy drugs is nothing to bark at; Pfizer's companion animal division raked in almost $1 billion last year.


• In Philadelphia, says the Inqy, competition among hospitals and specialist centers for cancer patients and a difficulty expanding locally means that Fox Chase Cancer Center has been forced to opt for Plan B: building a second campus further afield in Delaware.


• The SF Chronicle profiles BioMarin Pharmaceuticals, the 11-year old orphan disease specialist, and notes its potential as a takeover target as drug marketers that previously ignored rare diseases begin to see the pharmacoeconomic light.


• Neurogen's Phase II/III insomnia hopeful adipiplon has hit a snag. Neurogen halted a pivotal study of the drug after next-day effects of the drug were worse than expected. The company has laid the blame on the drug candidate's bi-layer tablet formation. (BREAKING: Actelion's own insomnia candidate almorexant is doing a wee bit better.)


• In Houston, Dr. Michael E. DeBakey, heart surgeon and inventor extraordinaire, died Friday night, less than two months short of his 100th birthday. The NYT's obit is here. DeBakey had a hand in creating, developing or pioneering countless surgical procedures and devices including the heart-lung machine that made cardiac surgery possible and the Debakey Ventricular Assist Device. He also had a role in developing the first Mobile Army Surgical Hospitals that helped save the lives of so many soldiers as well as inspire one of the finer TV shows in history.

AP photo by Alvaro Barrientos

Can a Sleep Drug Awaken Demand from European Consumers?

Superficially, it’s paradoxical.

Sepracor wouldn’t sell US marketing rights to its sleep drug Lunesta, even though it could probably have gotten a great deal. And then last week it goes and sells European rights to GSK for just $20 million upfront and another $135 million in milestones?

OK, that’s by no means a true yawner. But it’s hardly a wake-up call in this age of colossal licensing fees and milestones. VX950, the barely post-proof-of-concept hepatitis C candidate from Vertex, fetched $165 million upfront, and $380 million in pre-commercial milestones for merely European rights. Why didn’t Lunesta, with US sales approaching $600 million, do at least the equivalent?

Because the comparison isn’t at all fair. Hep C is a life-threatening disease currently treated with a couple of inadequate, problematic therapies. Insomnia is probably just as big a market -- but is less important to doctors than it is to patients (for some background on the insomnia markets and related dealmaking, see our coverage here and here).

And that’s precisely the challenge. In the US, Sepracor sets its own price and then can spend hundreds of millions of dollars getting its message out to consumers. In Europe and Japan it can do neither.

Which means that Lunesta will have a lot more commercial risk outside the US than something like VX950. GSK’s $20 million bet on the product isn’t exactly trivial, but it isn’t a huge vote of confidence that European insomniacs and their doctors will clamor for Lunivia (European for Lunesta) in the face of a host of generics like racemic zopiclone, Ambien, and a number of benzodiazepines.

And it’s why so much of the deal’s $135 million in milestones apparently depends not merely on getting a centralized approval, but on getting reasonable levels of pricing from various European countries. Sepracor could still make plenty of money: we estimate that it’s getting what might, on a blended basis, work out to a 15% royalty (the rate increases with sales) plus another 10-15% profit on selling the material to GSK. But Sepracor will only make money if the drug is successful.

Thus the $20 million upfront fee represents a cautious gamble that Lunesta’s data package will not only pass muster with the EMEA, but will convince the national reimbursement groups that they should pay a premium for a drug that can be used chronically and which comes with a host of data showing its beneficial effects on insomnia-associated co-morbidities, like depression.

Same thing in Japan, where a pricing milestone on Lunesta is also a key part of the value in the deal Sepracor signed in July with Eisai. The upfront in that deal was probably considerably smaller than what GSK paid: not only is the market about half the size of Europe, the product has to jump through more clinical hoops before it can be approved. In any event, the Eisai terms were undisclosed, which means they weren’t material.

Financially material that is. Sepracor is certainly hoping they’ll be seen as strategically material. The company has recently been a punching bag for investors, taking particularly heavy punishment when new CEO Adrian Adams lowered revenue expectations for 2007 during the company’s July earnings call.

Thus the biggest value to the deals may yet be validation for Sepracor’s ability to take a product developed in the US and convince leading CNS companies they can rely on the company’s US clinical and marketplace work to win approval for, and successfully commercialize, a consumer-driven product in markets where consumers don’t rule.

While You Were Redesigning Your Blog

Does our blog look big in this? You may have noticed a few changes round these parts, and we hope you like them. No, not that the pace of our posting has slowed (this will surely pick up as industry deal activity awakes from its summer slumber), but moreso the new look and feel of our corner of the web.

Today you'll even see the addition of our first blogroll (in the right-hand column). If you're not already familiar with these Web sites, go check them out. For now, it's a short list, and sure to expand. There are plenty of other high-quality blogs, and rest assured we will aim to update that list relatively frequently.

We'll be rolling out a few other new features in the days, weeks, months ahead. IN VIVO Blog started out only a few months ago as an experiment, and judging by feedback we've received from readers it seems to be working.

So thanks for dropping by, tell your friends and colleagues about us, and feel free to send suggestions, tips, rants, praise, remonstrations, or commiserations about the Phillies' inevitable collapse to blog [at] windhover.com. Or, as always, speak your minds in the comments.

Now, on to some weekend news you may have missed ...

• Back in the U.S.S.R.: Several drugs in clincal trials to treat hepatitis C have suffered setbacks this year, potentially opening the door to new mechanisms of action. On Friday night Implicit Bioscience announced that a Phase IIa study of its immune modulator oglufanide disodium had commenced in Australia. The drug originally hails from Russia, where it was developed and marketed to treat severe infections.
  
• I'm So Tired: The Guardian weekend magazine has an excerpt from The Family That Couldn't Sleep: A Venetian Medical Mystery, by D.T. Max. The book describes the mystery surrounding fatal familial insomnia, along the way illuminating the history of other prion diseases like vCJD and kuru.


• Everybody's Got Something to Hide Except Me and My Monkey: The New York Times writes about functional MRI, and how a company called Omneuron is using the brain imaging technology to treat chronic pain. But the tech's first application could be in lie detection, says the CEO of the aptly named No Lie MRI.
  
• Cry Baby Cry: Results from Neurochem's Phase III trial of its Alzheimer's disease candidate Alzhemed were "inconclusive"--i.e. didn't show statistical significance--the company reported Sunday night. This is the latest setback for the company and its drug; shares of Neurochem have been in freefall since late last year.

Sleep Tight, Kids!

Well, all that insomnia prescription/revenue growth had to come from somewhere.

According to research released today by Medco Health Solutions, the children are feeling verrrry sleeeepy. Just don't let them drive:

... use of prescription sleep medications by children under age 19 surged 45 percent between 2001 and 2006; and 52 percent among adults age 20 and older. ... Yet, with those increases have come increased scrutiny on some safety concerns of the medications in this class. In March 2007, the FDA requested that all manufacturers of sedative-hypnotic drug products, a class of drugs used to induce and/or maintain sleep, augment their product labeling to include stronger language concerning potential risks. These risks include severe allergic reactions and complex sleep-related behaviors, which may include sleep-driving, the FDA report stated.

Medco's release is of course designed to raise awareness of generic zolpidem; Sanofi's last Ambien patent expired on April 21st. The most recently available IMS data through April 20th shows Ambien holding onto nearly 41% of new insomnia prescriptions (Ambien CR, Sanofi's extended-release replacement, had nearly 20%), but generic competition from 13 companies means it shouldn't be long before that plummets.

As we wrote last year, market share in insomnia is known to shift quickly--and reliably--in response to DTC advertising. And as the IN VIVO Blog pointed out last month, those DTC ads have gained their share of admirers, and FDA attention.

Medco anticipates saving upwards of $150 million per year thanks to generic zolpidem. And they just might get away with it without the antics of Abe & the beaver, the butterfly, and those meddling kids.

When DDMAC Attacks

Insomnia drug Rozerem's Your Dreams Miss You advertising campaign may have crossed the line into Nightmare for its marketer, Takeda. (if we can find a copy of the problematic spot, we'll post it here. meanwhile, enjoy Rozerem's pitch in happier times.)

Abe & the beaver, in better days

Admired for their off-beat and clever take on the results of insomnia (and questioned for being too convoluted for the average consumer), the ads, say the FDA, may have gone too far this time.

The agency's division of drug marketing, advertising, and communications (DDMAC) slapped the drugmaker with a warning letter for one of its ten-second reminder ads. For such a short spot, the ad broke a ton of rules. Some of DDMAC's more serious allegations point out that while Rozerem is not indicated for use in children, some of the language in the ad is misleading:

The combination of these statements ("Back to School") and images of school-aged children and school-related objects suggest that Rozerem is indicated for and can be safely used in the pediatric population. The presentation in the TV ad is especially concerning given that the PI for Rozerem includes the following Precaution regarding pediatric use: "Safety and effectiveness of ROZEREM in pediatric pateints have not been established. Further study is needed prior to determining that this product may be used safely in pre-pubescent and pubescent patients." (FDA's emphasis)

That study is warranted because of Rozerem's known affect on reproductive hormones in adults--decreased testosterone levels and increased prolactin levels. Making matters worse, Takeda failed to submit the ad to FDA "at the time of initial dissemination" as required by current regulations.

Yikes, Honest Abe would not be happy. Takeda, go sit in the corner. You're in a time-out.

Incidentally, it makes one wonder who's next ... perhaps the FDA will crack down on Osama bin Laden's endorsement of the erectile dysfunction drug Levitra?

A Sleeper of a Deal

Insomnia: more than just another solid film by British writer/director Christopher Nolan. The $4 billion market is one of Big Pharma's thriving primary care playgrounds, home to some of the industry's wackiest DTC ads and a handful of lucrative deals.

Days never end. Nightmares are real. No one is innocent.

Eli Lilly said yesterday it was acquiring the private insomnia-focused biotech Hypnion to help boost its CNS pipeline. Terms of the deal weren't disclosed but IN VIVO has learned the transaction was all-cash and included no earn-outs. While Nolan's 2002 film grossed nearly $114 million we reckon Hypnion probably sold for more than twice that figure, even without having the benefit of Al Pacino or quasi-exotic Alaska locations.

It's not surprising that Hypnion's backers sold out--insomnia is an increasingly competitive space to play in, with large, expensive Phase III development programs (like Somaxon's multiple pivotal trials for Silenor).

Hypnion opted to sell rather than license in the wake of decent Phase II data for its lead candidate, HY10275, which were announced in January. HY10275 is a dual histamine/serotonin (H1/5HT2a) receptor modulator, a mechanism that may allow the drug to avoid scheduling by the FDA/DEA as a controlled substance. Currently marketed drugs, with the notable exception of Takeda's Rozerem (a melatonin receptor modulator) block the GABA-A receptor and according to regulators are potentially abusable.

The vast majority of the company's value was tied up in that compound and its backups & while the company's private investors have supported the company well thus far--it has raised nearly $90 million since inception in 2000--Hypnion was largely a binary bet. Licensing HY10275 would have left little for future public investors to chew on.

Lilly's been active in insomnia R&D at least since it licensed in pruvanserin from Merck KGAA in 2004. Pruvanserin, a serotonin receptor antagonist, is also in Phase II.