2013 M&A of the Year Nominee: Valeant/B&L

It's time for the IN VIVO Blog's Sixth Annual Deal of the Year! competition. This year we're once again presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A of the Year, Alliance of the Year, and Financing of the Year. We'll supply the nominations (about a half dozen in each category throughout over the next week or so) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

Valeant Pharmaceuticals -- the seemingly insatiable embodiment of growth-by-acquisition in modern pharmaceutical times -- has been party to more than a dozen significant M&A deals since acquiring Biovail in 2011. Its biggest move in 2013, earning an M&A-of-the-year nod from us, is the $8.7 billion takeover of ophthalmology specialist Bausch & Lomb.

The May 2013 deal was a big win for private equity owners Warburg Pincus. It put some extra shine on the reputation of then-B&L CEO Brent Saunders, who has moved on to Forest to work his Hassanian brand of turnaround-magic in the world of primary care. And it again highlighted ophthalmology -- and B&L's diversified pharma/device/consumer approach to the field -- as an industry hotspot.

But the main reason we've nominated Valeant/B&L for the M&A Roger this year is that it underscores the increased activity on the big deal front of specialty pharma over its supposedly deeper pocketed Big Pharma rivals.  In fact a look at the top biopharma deals by dollar value this year suggests none of the 'big' deals -- the recent exception of BMS selling its stake in its diabetes JV to AZ notwithstanding -- were Big Pharma deals.

Warner Chilcott went to Actavis for $8.1 billion. Shire bought ViroPharma for $3.3 billion. Onyx went to Amgen (OK we're splitting hairs there, but we'll call Amgen a 'big biotech'). The remains of Elan went to Perrigo. Big Pharma --  its stated penchant for bolt-ons be damned -- bolted on very little of substance this year. On the other hand, Spec Pharma has the firepower, as our friends at Ernst & Young reminded us this year. And it is using it.



Valeant in particular has been using it to diversify. At the time of the deal, CEO Michael Pearson said Valeant has made no secret of its interest in durable specialty sectors with low R&D risk such as eye care and dermatology (last year's big buy was derm specialist Medicis, for $2.8 billion). Acquiring B&L will enable Valeant to balance its revenue mix from both a geographic and therapeutic perspective, he added. Post-B&L, about 50% of Valeant revenue stems from the U.S., with Eastern and Central Europe comprising 15%, Western Europe and Japan 13%, and Latin America, Canada, Australia, Southeast Asia and South Africa rounding out sales.

In terms of therapeutic areas, dermatology and aesthetics contributes about 34%, eye health about 32%, neurology and “other” about 12%, and consumer and oral health about 11%, the CEO said. (Consumer businesses are absolutely on Valeant's radar since adding B&L's consumer brands, the company has said more recently.)

So vote Valeant for its personification of specialty pharma's growth ambitions, particularly in comparison to Big Pharma's 'hey everybody let's get small' religion. For the way it represents the shifting firepower available for the big deals (buybacks and dividend hikes aren't free -- and that's where a lot Big Pharma's money has gone over the past few years). And for its kid-in-a-candy-store, shopping-spree approach to building a large, specialist pharma player: think of it as a vote not just for Valeant/B&L, but for Valeant/Solta, Valeant/Obagi, Valeant/Medicis, and all the rest and what's to come.

Artillery photo via flickr/Paul Campy // cc

2013 Financing of the Year Nominee: Opthotech's $192 Million IPO

It's time for the IN VIVO Blog's Sixth Annual Deal of the Year! competition. This year we're once again presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A of the Year, Alliance of the Year, and Financing of the Year. We'll supply the nominations (about a half dozen in each category throughout over the next week or so) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

Ophthotech had a grand vision: its IPO would help fund Phase III testing of its lead candidate, platelet-derived growth factor inhibitor Fovista (E10030) to treat wet age-related macular degeneration. That motivated it to be aggressive in its IPO dealings, leading to the largest biotech IPO fundraising this year: $192 million. And in a year filled with impressive public market debuts when public market debuts of biotechs were one of *the* top stories, Ophthotech's IPO deserves your vote for financing of the year.

How'd they pull it off? Rather than aim for a specific amount, Ophthotech upsized the deal to maximize fundraising in the still-sweltering September IPO market. It increased its IPO price range once and then priced above the second range, at $22. It also increased the number of shares sold to 8.7 million from an initial 5.7 million.

Now that investor IPO interest has cooled, Opthotech’s all-out pragmatic approach seems particularly prescient. “As far as the IPO size, we always believed it best to take any potential financing risk off the table,” Ophthotech CEO David Guyer told our sister publication START-UP. “In biotech, there are always things that come up – the need to enrich a trial or pre-commercial activities. We always thought that if we were fortunate enough, we would increase the size of the offering.”

In May, ahead of the IPO, Ophthotech also got $83 million from a royalty financing worth up to $125 million with existing investor Novo A/S and a $50 million mezzanine venture round. All told, that gave the biotech $319 million in cash at Sept.  30.

Ophthotech might need every bit of that cash, and maybe more, for an ambitious Phase III program. The company initiated two Phase III trials for Fovista in combination with Lucentis (ranibizumab) in August and plans to start a third Phase III trial in the first quarter of 2014. The three trials are expected to enroll 1,866 patients at about 225 locations globally. Fovista is intended to work in combination with anti-VEGF (vascular endothelial growth factor) drugs like Lucentis, Eylea (aflibercept) and Avastin (bevacizumab), which are the current standard of care for wet age-related macular degeneration (AMD), though Avastin is used off-label.

Fovista came out of Eyetech Pharmaceuticals, which kicked off the first post-genome bubble IPO window in 2004. Although the Eyetech IPO went well, the main product as anti-VEGF Macugen (pegaptanib) was soon crushed by competitors. OSI Pharmaceuticals (now part of Astellas Pharma) acquired Eyetech for $935 million in 2005 and then spun-out the anti-PDGF projects, including Fovista, into Ophthotech. Valeant later picked up Macugen for a mere $22 million.

Ophthotech investors are likely to wait a while for the next big milestone – initial top-line data from the Phase III program isn’t expected until 2016. But even as IPO valuations have been sliding into winter, Ophthotech has added to its initial IPO upside. In its first day of trading, Ophthotech was up 20%; by Dec. 11, it had added 27% from the offer price. That gives the company a market cap of $886 million. All this signals that investor hopes are still riding high, undeterred by flagging 2013 IPO returns or the long wait until a major milestone. If all this financial finagling gets investors the wholly owned blockbuster they are hoping for, then it will have been well worth it.

Financings of the Fortnight Spins A Big LP

 

Since when did “LP” stand for “Lavish Pharma” – as in, lavishing cash upon the life science venture world?

Everyone in our corner of the playground has known for some time that corporate venture groups are making more direct investments, especially in funding early-stage biotechs. “We’re going in earlier and earlier,” Jens Eckstein, the head of GlaxoSmithKline’s longstanding venture arm SROne, told "The Pink Sheet" recently. “We’re now incubating companies and creating companies on our own.”

In 2012, 28% of the nearly 80 biopharma or diagnostic start-ups that raised A rounds had at least one corporate investor on board (and often had more). In 12 of those deals, the corporates took the lead. Eckstein also said that SROne invested $53 million in 2012, its most active year yet.

Big Pharma is filling the void left by limited partners, too. Again, one of the most aggressive spenders is GSK. The latest example, announced last week, is its $23 million investment in a fund run by French firm Kurma Life Sciences Partners to focus on rare diseases. Officially Kurma Biofund II, it’s the first instance of a fund specific to a disease or indication subsector that we can recall since Kleiner Perkins Caufield & Byers said it would set aside $200 million for a “pandemic and biodefense” fund in the midst of the avian flu frenzy. (That link is well worth clicking, by the way, if only for the San Francisco Chronicle file photo of Brook Byers rocking That ‘70s Hairdo.)

Glaxo, like most of its Big Pharma brethren, wants products with the possibility of accelerated approval and high prices that won’t get push-back from payors. The rare-disease rush has gone on for quite some time, prompting our colleagues to ask a year ago if it were a precarious bubble. Apparently GSK and Kurma’s other LPs that include New Enterprise Associates don’t think so.

To be clear, the money GSK is pouring into venture funds is separate from the capital under management at SROne. (SROne used to make LP investments but hasn’t for about six years, Eckstein said.)  In the case of Kurma, GSK feels its smaller partner is better suited to sniff out the opportunities in European research labs, a similar story it told when it agreed earlier this year to co-fund up to 10 single-asset startups with Avalon Ventures in San Diego. (Again, the cash did not come from SROne’s capital pool.) GSK isn’t a limited partner in the Avalon deals, per se, but it is leaning heavily on Avalon’s scouting expertise. “If we can’t find ten cutting-edge programs, we’re not going to get into ten,” Lon Cardon, GSK’s SVP of alternative discovery and development, told Start-Up in April. “But we’re pretty confident Avalon can source four, five, or six without too much trouble.”

The Avalon arrangement also gives GSK an option to purchase each entity as it produces a clinical candidate that can move into IND-enabling studies. But in its more straightforward LP relationships – at least the ones publicly disclosed – it invests with no such strings attached.

Since the start of 2012, GSK has made other big commitments. In March 2012 Index Ventures said it had closed its first life-science-only fund at €150 million ($220 million) with GSK and Johnson & Johnson combining to commit half the total.

In January 2013 GSK said it would pump $50 million into Sanderling Ventures’ new $250 million fund, a surprising bit of news if only because Sanderling’s previous fund closed eons ago in 2004. Based near San Francisco, Sanderling’s West Coast location, where GSK had not partnered with a venture firm at the time, was a factor in GSK’s decision. (Since that announcement, during this year’s JPMorgan conference, Sanderling has not filed any regulatory updates that would indicate more progress toward the $250 million goal.)

GSK also has invested in Boston-based Longwood Founders’ Fund, run by Boston biotech veterans Christoph Westphal, Michelle Dipp, and Rich Aldrich. Dipp and Westphal were GSK executives for a relatively brief and controversial time after the company bought their Sirtris Pharmaceuticals. The amount of GSK’s Longwood investment was not disclosed.

(Other examples of Pharma LP investments: VenBio’s first fund backed by Amgen, Baxter International, and the CRO Pharmaceutical Product Development; Merck & Co.’s Research Venture Fund initiative, which includes an investment in Flagship Ventures’ latest fund; and Eli Lilly’s “Mirror Funds,” which after a big opening splash in 2010 hasn’t produced news since 2011.)

The $64,000 question – or multibillion-dollar question, really – is whether all this activity will pay off with more drug revenue for GSK and its peers. There’s strong evidence that direct corporate venture bets have rarely led to the parent company acquiring the investment targets, but there’s nothing yet to help glean how much Pharma’s LP activity has helped. Let's take GSK: From 2010 to 2012, the firm was 461 million pounds in the red based on its purchase and sale of equity investments, so assuming the SR One and LP activity counts against those figures, it’s hard to say GSK is getting a good financial return. But all this corporate venturing, whether as GP or LP, not just a financial exercise; GSK personnel take scientific advisory positions in the funds it invests in, where they have a window into dealflow and emerging ideas and technology.

Perhaps it’s instructive to note that of all the Big Pharma, GSK has made the most noise about re-organizing its internal research with a more venture-like mindset. As companies like GSK, Merck, and J&J cozy up to innovative entrepreneurs and financiers, is the warm fuzziness of innovation rubbing off? That's their hope. And even though there's been little correlation between corporate investors and corporate acquirers, as noted earlier, it's no predictor of future behavior, so don't be surprised if the investments lead to buyouts. Pharma's co-investors -- the other LPs in their strategic funds and the VCs who syndicate with their corporate venture funds -- are likely to do well. (They already do; companies with corporate VC investment command better acquisition multiples than companies without.)


What remains to be seen is the influence Pharma's cash has on the recipients of said cash. A curmudgeon might note that big Pharma advice -- the bow wrapped around the gift of its early-stage investment dollars -- hasn't resulted in productive R&D within its own walls over the past decade. Directing more resources -- human and financial -- toward what Pharma thinks it wants right now may mean that other opportunities (ones Pharma doesn't realize it needs later on) might not get funded. Then again, without those Pharma dollars propping up the early stage ecosystem, we might see far fewer companies and drug candidates altogether.

Whew. With that, we've managed to put the "long-playing" back in LP. But DJ FOTF is never done dropping old-school science; we put the needle on the record when the drumbeats go like...

Esperion Therapeutics: The anti-cholesterol drug developer just pulled off what sounds like a zen koan or knock-knock joke: An initial public offering for the second time. The Michigan firm priced its IPO on June 26 and will raise $70 million by selling 5 million shares at $14 a pop, giving it at first a market capitalization over $200 million. It’s not really the firm’s second IPO; a previous iteration, also called Esperion, went public in 2000 and was bought by Pfizer in 2004 for more than $1 billion. The program Pfizer brought in ended up stalling, and the current version of Esperion was created to spin it back out. The program is ETC-1002, designed to lower LDL-C (the so-called bad cholesterol) in statin-resistant patients, and is currently in Phase II. The through-line in all this is Roger Newton, leader of the team that discovered Lipitor (atorvastatin) in the previous millennium at Warner-Lambert. He founded the first Esperion in 1998, stayed on at Pfizer after the first Esperion’s acquisition, and spun back out with ETC-1002 in 2008 to form the second Esperion with $23 million in venture backing from Alta Partners, Aisling Capital, Domain Partners and others. Longitude Capital Partners led a $33 million Series B. Pfizer also took a small stake at the time of the spinout; Esperion’s regulatory filings show Pfizer as a 10% owner before the IPO, thanks in part to a conversion of debt into equity, but Pfizer holds no rights or royalties to ETC-1002. Pre-IPO, Esperion’s largest shareholders were Alta, Aisling and Domain, all with nearly 20% stakes. Not unusual these days, existing investors including Newton pitched in to make the IPO happen, buying 1.2 million of the shares, or more than 20%. Newton owned more than 7% of the company before the IPO. Credit Suisse and Citi led the underwriting and will be able to buy up to 750,000 more shares. – Alex Lash

XO1: The Cambridge, UK start-up has formed to develop an anti-clotting antibody with an $11 million Series A investment from Index Ventures, the venture firm’s largest solo A round to date. The preclinical anticoagulant, ichorcumab, was synthesized by a University of Cambridge research team, based on an antibody produced by a patient with unusual blood-clotting patterns. Index’s David Grainger was a longtime Cambridge research scientist who became an advisor to Index in 2008, then joined as a venture partner in 2012. He told our Pink Sheet colleagues that his close ties to the school led to a quick deal, rather than a competitive process.XO1’s key asset was created after a head-injury patient in her fifties exhibited a rare trait. Grainger said the patient in question had “a benign tumor of the immune system,” naturally producing a previously unseen antibody at an “out-of-control” pace. Her rare condition allowed her to survive a hematoma without bleeding to death, despite a clotting profile apparently similar to that of a hemophiliac. Cambridge researchers produced a similar effect synthetically with an antibody that targets exosite 1 of the thrombin molecule. Index invested from its €150 million ($200 million) Index Life VI fund that closed in March 2012. As noted earlier in this column, half the fund’s money came from GSK and Johnson & Johnson, but neither receives special rights to the portfolio companies in return. – Paul Bonanos

PTC Therapeutics: Rare diseases make for frequent IPOs these days. The latest debut for a biotech working on treatments for orphan indications belongs to PTC, which sold 8.4 million shares at $15 each to net itself $117 million. The deal was upsized from the 6.9 million shares it aimed to sell in the $13 to $16 range. Founded in 1998, the firm raised more than $300 million in private cash and tried to go public in 2007, only to withdraw its filing. The company is spending most of its resources on ataluren, in Phase III in the US for Duchenne’s muscular dystrophy caused by nonsense mutations and under review for market approval in the European Union. It is also in Phase III for nonsense mutation cystic fibrosis, only one of a handful of firms working on a disease-modifying drug in the area. PTC’s IPO came days after bluebird bio, a gene therapy firm going after rare blood-borne diseases, raised $116 million in its debut. Another rare-disease firm, Prosensa Holding, could follow soon.-- A.L.

Valeant Pharmaceuticals: In the last fortnight, specialty pharma and serial acquirer Valeant raised a total of $5.5 billion in funds to pay for its most expensive takeover to date, eye care company Bausch & Lomb. On June 24, Valeant closed on a public offering of 27.1 million shares (including full exercise of the 3.5 million-share overallotment) to gross $2.3 billion, selling stock at $85 apiece. Days earlier, the company launched a private offer of $3.2 billion principal amount in senior unsecured notes due in 2021 and 2023. Valeant announced in late May the $8.7 billion acquisition of Warburg Pincus-owned B&L, creating one of the largest ophthalmology companies in the world that will sell prescription and OTC drugs, including Valeant’s existing AMD treatment Macugen, gained through the 2012 Eyetech acquisition, plus contact lens products and surgical devices. Warburg Pincus will receive $4.5 billion of the purchase price, and the remainder will be used to retire B&L’s outstanding debt. Valeant has previously focused on dermatology and neurology drugs, as well as branded generics. The B&L deal marks Valeant's 25th acquisition in the last five years, for an aggregate $19.4 billion in up-front payments and potential earn-outs, according to Elsevier’s Strategic Transactions. -- Amanda Micklus


All The Rest: In a Series B round led by Stanley Family Foundation, with Clarus Ventures and Takeda Ventures also participating, Heptares (GPCR drug discovery) raised $21mm…3-V Biosciences brought in $20mm in Series C funding to advance its Phase I cancer candidate…protein therapeutics firm Complix NV raised a $15.5mm Series B…Vasopharm GMBH completed a $6.5mm Series F round to fund start of Phase III of VAS203 for traumatic brain injury…Trigemina’s Series A-1 round garnered $4.5mm to advance Phase II TI-001, an intranasal oxytocin migraine candidate…A Series A round for Numedii led by Claremont Creek Ventures and Lightspeed Venture Partners brought in $3.5mm…University of Turku spin-out Forendo Pharma (treatments for endometriosis and low testosterone levels) received the first €1.2mm ($1.57mm) tranche from Karolinska Development, which gains a 21% ownership and over a three-year period will invest a total of  up to €3mm…Following a 2012 recapitalization, predictive biosimulation company Entelos received additional undisclosed venture funding from Clearlake Capital Group and Michaelson Capital…epigenetic neurological drug start-up Rodin Therapeutics received undisclosed seed funding from J&J Development and Atlas Ventures…Formed late last year by the merger of public European antibody and vaccine developers Vivalis and Intercell AG, Valneva SE raised €40mm ($53.5mm) in an underwritten rights offering…Repros completed a follow-on offering of 3.75mm shares at $19 for net proceeds of $67mm…FOPOS were also completed by Intercept Pharmaceuticals, $61.7mm; Cempra Pharmaceuticals, $47.7mm; Progenics, $35.2mm; Mast Therapeutics, $23mm; Biodel, $18.5mm; Echo Therapeutics, $10.1mm; and Soligenix, $9.2mm…Four initial public offerings went final: Gene therapeutics firm bluebird bio raised $108mm through the sale of 6.8mm shares at $17, above its initial $14-16 range; Esperion (cardiometabolic drugs) netted $65.1mm, selling 5mm shares at $14, the midpoint of its anticipated range; Aratana Therapeutics, which had postponed its filing of 4.3mm shares at an $11-$13 range, amended its IPO terms to sell 5.8mm shares at $6, raising $35mm; and Canadian drug design company Antibe Therapeutics netted $2mm, selling 3.9mm shares at $0.55…Prosensa Holding BV announced terms of a 5mm ordinary share IPO priced between $11-13…Several firms filed for IPOS: Liver disease therapeutics developer Conatus Pharmaceuticals; outsourced medical services provider Envision Healthcare; small-molecule cancer therapies developer Onconova Therapeutics (Baxter holds a 14.7% stake and a 2012 alliance with the company worth up to $565mm); and specialty pharmaco Iroko Pharmaceuticals…Through a $25mm senior secured term loan facility led by GE Capital, Navidea Biopharmaceuticals gains support for its Lymphoseek radiopharmaceutical agent platform…Hercules Technology Growth Capital provided Rockwell Medical (end-stage renal and chronic kidney disease treatments) with $20mm in debt financing…To help Phase II trials for its lead candidate for primary brain cancer, Diffusion Pharmaceuticals brought in $5mm through the sale of convertible notes to existing investors, adding onto a $5mm convertible note sale of September 2012…Following Elan Corp.'s withdrawal of its offer to acquire private Austrian drug company AOP Orphan Pharmaceuticals, AOP spun off its 80% ownership in cancer business Activartis Biotech GMBH to a group of private investors.

Photo courtesy of flickrer technochick, aka Angie Linder. Thanks, Angie!

Financings of the Fortnight Has Its Eyes On the A's

Our sister publication START-UP starts up every new year with The A-List, a review of the previous year’s Series A life-science financings, which we feel are an excellent proxy for gauging investor enthusiasm for new biomedical ventures and measuring the shifts in what’s getting funded, and who’s doing the funding. 

But we can’t wait for the end of the year to peek, so we’ve tallied year-to-date Series A financings using Elsevier’s Strategic Transactions. (Two weeks ago, we did the same with follow-on public financing.) The top-line result: In dollar terms, we’re on pace to equal 2010, a particularly glum year with $876 million total raised in Series A money. To match last year’s modest rebound of $1.1 billion raised, Series A funding must pick up with alacrity, a trend that’s hard to imagine as the Euro crisis continues to bubble and the U.S. loses its economic momentum from the spring. 

Here are the numbers: In the first half of 2012, 33 Series As across the biopharma, device, and diagnostic industries totaled $423 million. The majority of the first half’s total comes from the biopharma sector, mainly US and European companies. (24 financings, $345 million.) That’s just $30 million fewer raised than in the first six months of 2011 from the exact same number of transactions. So it’s fair to say biopharma isn’t lagging as much as the device sector. Still, biopharma numbers to date are not on track to reach the full-year 2011 biopharma figure of $887 million from 63 deals.

The average fundraise in the first half is $15.1 million, slightly higher than 2011’s full year tally of $14.1 million. But wait: the higher total is, ahem, warped by Warp Drive Bio’s $125 million investment from Third Rock Ventures, Sanofi, and Greylock Partners in January. Warp Drive is researching the medicinal properties of naturally occurring microbes with R&D support from Sanofi through a separate collaboration. It’s one of the most intriguing deals of the year so far, not just for the cash considerations, but for the unusual structure that gives Sanofi a nonexclusive option to acquire Warp Drive if certain milestones are achieved. At the same time, Warp Drive has the right to force a sale of the company if other milestones are met. It’s a brave new world when Series A-funded companies and their investors are locking in future acquirers. 

We’re also seeing a lot of solo Series As, a sign that the VC shakeout has left fewer viable syndicate partners for early-stage deals. Ten Series As were solo-backed, and the largest was Third Rock’s $41 million infusion into Global Blood Therapeutics, a firm developing candidates that alter key blood proteins, with an initial target in sickle cell disease. Third Rock is no stranger to solo A-rounds, notching SAGE Therapeutics, Blueprint Medicines, and Lotus Tissue Repair in 2011.

But the Boston and San Francisco firm also knows that good syndicates are hard to find: it joined Bessemer Venture Partners and Frazier Healthcare in a $10 million financing for Alcresta, which is working on a nutritional supplement that contains more digestible and absorbable forms of long-chain polyunsaturated fatty acids. Alcresta was the syndicate’s third go-round together, all with the same management team. The same phenomenon cropped up this year with the investment trio of Astellas Venture Management, InterWest Partners and Sutter Hill Ventures, who are now on their fourth venture together. It’s not rocket science for people who’ve made money together to revisit the formula, but the reduced pool of investors makes it all the more likely.

While oncology and peripheral vascular disease start-ups dominated the 2011 biopharma Series As, Series As the past six months were focused mainly on neurology, gastrointestinal, musculoskeletal, and metabolic disorder companies, which together made up 40% of the financing. Neurology led with seven financings bringing in $64 million, or 17% of the first-half dollar total and nearly a third of the deals. Four GI-related financings followed, while metabolic and musculoskeletal players had three deals apiece.

Biopharma Series A's By Therapeutic Category, January-June 2012

 

Note: The total number of deals is greater than 24 as several financings involve companies in multiple therapeutic areas.

SOURCE: Elsevier’s Strategic Transactions

Even though CNS start-up Cerecor’s $22.5 million round was shy of the $30 million raise the company had forecasted a year ago, the transaction topped the list as highest raise in CNS and third-largest Series A in the first half of 2012. Counting the second half of 2011, we’ve now seen 16 A-round neurology deals the past year, which perhaps holds counterbalance to Big Pharma’s well-documented exit from the CNS space.

On the device side, six Series A rounds raised $49 million. The dollars and number of deals lag the full-year 2011 total of $151 million raised in 24 transactions. In vitro diagnostics have tallied $27 million in three deals, slightly better than the 2011 pace, which finished with $48 million from 10 transactions. It’s worth noting that corporate venture played a role in three of the  biggest device and diagnostic Series As. Merck Serono Ventures along with KPCB and TPG took part in the first tranche of the Series A raise for Auxogyn, a company focused on infertility assessment using noninvasive devices that determine embryo viability. Novartis Ventures Fund led a $12.5 million first round for ImaginAb, with participation from Merieux Developpement (bioMerieux’s venture arm) and other investors. ImaginAb is developing engineered antibody fragments for diagnostic imaging, initially in cardiovascular diseases. And the molecular diagnostics company Xagenic pulled in $10 million in a  January round that included Dutch diagnostic giant Qiagen.

Now if you'll excuse us, we're shifting our attention away from data dives and toward springboard and platform dives. But first, many thanks to the Olympian effort of Amanda Micklus and Maureen Riordan for this week's column. It's time to raise the torch for another edition of...

  
California Institute for Regenerative Medicine: California's state agency that funds stem-cell and other regenerative medicine R&D announced July 26 $150 million in grants for translational projects that are expected to file an IND or complete an early-stage clinical trial within four years. Only one of the awards goes to a for-profit entity, the San Francisco Bay Area firm StemCells Inc., which wants to use stem cells to treat spinal cord injuries in the neck both in patients with new injuries and in patients who have been paralyzed for months or years. The other six awards are going to academic or institutional researchers and range from $14 million to $20 million per project. The lack of private sector recipients underscores the challenges of turning stem-cell-related research into product candidates. Three years ago, CIRM handed out $225 million in grants to move 14 preclinical projects toward the clinic; only one of the 14 was based at a for-profit company. -- Alex Lash


Bluebird Bio: Once an area that drew great skepticism, gene therapy is now drawing big money. Cambridge, Mass.-based start-up Bluebird Bio raised its third big round of funding since the beginning of 2010, tapping a diverse syndicate of investors for $60 million in Series D money that will support ongoing trials of gene therapies for rare diseases. It comes just as European regulators have approved the first gene therapy product in Europe, another strong sign of the advances the field has made the past decade. The Bluebird deal includes contributions from public and private growth investors Deerfield Partners and RA Capital, hedge fund operator Ramius Capital Group, and two unnamed public investment funds, as well as strategic backer Shire. They join returning venture firms ARCH Venture Partners, Third Rock Ventures, TVM Capital, and Forbion Capital Partners. Bluebird Bio raised $35 million in a Series B round in early 2010, then was slated to take $30 million in two tranches of Series C capital in an April 2011 agreement. The startup, however, held a call option which it never exercised on the second tranche; its VCs instead put that $15 million into the Series D round at a higher price, according to Bluebird CEO Nick Leschly. The firm plans to conduct a Phase II/III study of a treatment for childhood cerebral adrenoleukodystrophy and a Phase I/II study of a beta-thalassemia and sickle-cell disease therapy. Both are built on Bluebird’s lentiviral technology, in which a patient’s own bone marrow stem cells are genetically modified and returned to the patient, potentially obviating the need for a transplant. – Paul Bonanos

Alimera Sciences: The publicly-traded ophthalmic company said July 18 it has grossed $40 million in a sale of preferred shares to Palo Alto Investors, Sofinnova Ventures, and New Enterprise Associates. The trio gets 1 million preferred shares and warrants to buy 300,000 more, with each preferred share convertible into 13.75 common shares. Investors can trigger a conversion at will, outside of a lockup period and other constraints. The preferred shares entitle their holders to dividends and other distributions pro rata with the common stock, as well as unspecified downside protection. The shares can also convert to common if Alimera’s lead product gains regulatory approval or if Alimera raises additional equity at predefined share prices, Sofinnova partner Garheng Kong told the IN VIVO Blog. Kong was among Alimera’s original investors at Intersouth Partners and is now one of the partners investing Sofinnova’s new $440 million life-sciences-only fund, up to 25% of which could go toward positions in public biotech companies, Kong said. (Alimera is the fourth investment from the fund.) Alimera’s lead product is Iluvien, an eye implant that delivers drug up to 36 months to treat vision loss associated with diabetic retinopathy. It is approved in France, Austria, Portugal, the U.K., and of this week, Germany. The US FDA asked for more clinical data last November, the second time it has issued a complete response letter for Iluvien. No new PDUFA date has been disclosed. The private stock sale must be approved by a majority of common stockholders; as of July 17, holders with 56% of the common stock had agreed to vote in favor, according to Alimera. – A.L.

Durata Therapeutics: With a handful of biotechs knocking on the IPO window this fortnight, only one as of this writing has gotten through. Antibiotic developer Durata on July 18 raised $68 million by selling 7.5 million shares at $9 each. The firm missed its original goal of $75 million by pricing below the intended $11 to $13 per share range, but it sold more shares to bridge part of the gap. Existing investors Domain Associates, New Leaf Ventures, Aisling Capital, Sofinnova Ventures and Canaan Partners agreed to buy 3.8 million shares, more than 50% of the offering, to get the deal done. That’s par for the course these days. It’s rare for a biotech to go public without insider participation, as we detailed in February. Nothing’s changed since then. If biotech backers want to reach liquidity, they’ll more than likely need to help get the glass half-full. Investors are adding not subtracting Durata shares, but their holding times to date have been relatively short. Durata was founded less than three years ago from the ashes of Pfizer’s nearly $2 billion acquisition of Vicuron Pharmaceuticals. In Pfizer’s hands, one of Vicuron’s main products, the antibiotic dalbavancin for skin and soft-tissue infections, received three rejections from the FDA. But with the agency rolling out new regulatory guidelines for certain antibiotics, Durata feels it can do it right this time and recoup the rewards of bringing a once-weekly intravenous gram-positive antibiotic to market. It is currently conducting two Phase III trials. BofA Merrill Lynch and Credit Suisse led the underwriting team, which has the option to buy 1.1 million additional shares for 30 days following the IPO. – A.L.

CoDa Therapeutics: The San Diego wound-healing firm is the first to benefit from venture firm Domain Associates’ new strategic alliance with the Russian sovereign fund Rusnano. On July 24, Domain said CoDa has completed a $40 million Series B financing, with contributions split equally between Rusnano and a Domain-led syndicate of CoDa’s current investors. These include the Australian VC firm GBS Ventures and the New Zealand firm BioPacific Ventures. Domain and Rusnano said in March they were each committing up to $330 million over the next three to five years to fund Domain portfolio companies. CoDa came first because it needed financing, according to Domain partner Brian Dovey. It is in Phase IIb trials for a wound-healing compound aimed at venous leg ulcers and in Phase II trials for the same compound for treatment of diabetic foot ulcers. Domain companies that receive Rusnano funds are obligated to license exclusive rights to sell their products in Russia and the CIS regions to NovaMedica, a new Russian company that Rusnano and Domain are spending up to $190 million to create. The partners claim it will be Russia’s first fully integrated, innovative domestic drug firm, and will be structured as a joint venture between Rusnano and Domain. As a condition of its Series B financing, CoDa has licensed exclusive rights to its lead product and related technologies in Russia and the CIS to the new company, in exchange for undisclosed royalties on sales. Domain is one of several U.S. life sciences venture capital firms that are working with Rusnano, a five-year-old $10 billion sovereign fund charged with helping Russia jumpstart domestic high-tech industries, and as profiled this spring in START-UP's Capital Matters column, it has been aggressive making investments in Western biotech, both directly and through other funds such as Domain and Burrill & Co.  – Wendy Diller

Photo courtesy of the International Olympic Committee.

Financings of the Fortnight Hops Across the Pond

The United Kingdom isn't really Europe, as any Euroskeptic worth his warm pint would tell you. But we were still surprised to see a flurry of financing news coming from the Isles in August, when, famously, everyone across the pond and beyond is supposed to be off catching a few rays.

Biotech doesn't take a summer holiday, apparently. Still, three newly-minted UK firms announcing Series A fundraisings within the same week at the end of August is reason enough for a double-take. Life-science venture in Europe (and yes, we include the UK) has been weak-kneed, as our London-based colleagues wrote a few days ago. That's not surprising, with the austerity measures in the UK and a continent-wide debt crisis adding to an investment attitude already more cautious than what's found in the US. Nearly half the 27 fundraisings by private European biotech companies so far this year have been for sums totaling $10 million or less, a "drip-feed" mentality that some argue can be counter-productive as start-up managers constantly scramble for the next meager slice of humble pie. (Then again, some say hungry executives are the best kind.)

Whatever your views on human motivation, there's no denying this year's frugality, which becomes more pronounced if we weed out the two massive rounds at the start of the year that went to Danish firm Symphogen for €100 million ($131 million) and Circassia for £60 million ($98 million).

One bright spot has been Series A financings, which in Europe have averaged just over $12 million each this year, thanks in part to the debuts of several Swiss firms firms such as Shield Therapeutics. (See here and here for more.) Duly noted that Switzerland, while smack-dab in the middle of Europe, doesn't play in the euro-zone and, thus, isn't subject to the same economic vicissitudes.

Economic Darwinians like to talk about creative destruction: tear down an old structure to give breathing room to new ones. The UK has historically been dominated by large drug firms, so the crumbling of these monoliths around the edges -- such as the recent shuttering of Pfizer's Sandwich labs, though nothing to cheer about when announced this past February -- might eventually generate start-ups.

But such gestation needs time. Take for example Autifony Therapeutics. It's the second newco born from the dissolution of GlaxoSmithKline's neuroscience division, which the London-based Big Pharma announced in February 2010. Autifony is the first of the week's trifecta of UK start-ups that caught our attention, and unlike the first GSK neuro-spinout, last year's Convergence Pharmaceuticals, Autifony is still preclinical, with a pipeline of small molecules targeting voltage-gated ion channels to address hearing loss. GSK still holds about 25% of the company. SV Life Sciences and Imperial Innovations, the tech-transfer-plus arm of London's Imperial College, are each in for up to £5 million. (Read more about Imperial's new fund and aggressive investment plans here.) Only a £3 million tranche is currently in play, however -- drip, drip, drip -- until the firm can complete a toxicity package in about a year, its co-founder told our Pink Sheet colleagues. If the full £10 million goes in, GSK's current stake would drop to 13.2%, and GSK has no future rights to any of Autifony's programs.

The other two brand-new UK startups, KalVista Pharmaceuticals and Mission Therapeutics, are detailed below in our roundup. There were venture fundings in other parts of the world, too: Ardelyx in California, highlighted below, Affinium Pharmaceuticals in Texas and Toronto, and Spinifex Pharmaceuticals down under.

Alas, we can only choose four. As experienced globetrotters, we know the importance of traveling light. Take just the essentials: Pepto-Bismol, a featherweight rain slicker, a hidden wad of $20 bills to bribe the border guards, and of course...



Mission Therapeutics: Spun out of labs at the University of Cambridge, Mission's ubiquitin-based research is still in early days, prompting acting CEO Niall Martin to call the £6 million ($10 million) Series A funding "a bold move by our investors to take on a company like ours." Announced Aug. 25, the round was led by Sofinnova Partners and included corporate venture from GlaxoSmithKline's SROne and the Roche Venture Fund, as well as £1.3 million from Imperial Innovations. It's Imperial's first bet on a Cambridge spin-out and more evidence, along with the Autifony deal described above, that its new mandate to invest beyond the alumni of Imperial College is no window dressing. Mission is focused on cancer, but beyond that, it's too early to talk about indications of interest. They're quite specific about their targets, however: ubiquitin enzymes E2, E3 and de-ubiquitylating enzymes (DUBs) involved in the DNA Damage Repair (DDR) signaling pathway, which cells use to monitor their genomes for damage. The Series A funds should last two-and-a-half to three years, according to Martin, enough to get the new company to, or close to, pre-clinical validation with one or two of its main target/protein areas. Mission joins start-ups such as CellCentric and ProGenra in the race to target the ubiquitin pathway. -- Melanie Senior

KalVista Pharmaceuticals: Big Pharma isn't the only storehouse of compounds worth mining as sources for new companies. To create KalVista, SV Life Sciences and Novo A/S have spun out a basket of potential eye disease treatments from a small specialty shop in their portfolios. Each investor has put £4 million into KalVista, which now holds small molecule kallikrein inhibitors targeting the eye disease diabetic macular edema (DME). KalVista got the assets from Vantia Therapeutics, a urology specialty firm that itself was spun out of Ferring Pharmaceuticals in 2008. Crockett says KalVista's compounds could be useful for DME patients who don't respond to Roche/Genentech's Lucentis (ranibizumab), especially if the firm is ultimately successful developing an oral formulation. For now, though, it's pushing an injectable that could reach the clinic by the end of 2012. DME is becoming a competitive space, and KalVista will likely need some differentiation. Through its acquisition of Fovea Pharmaceuticals in 2009, Sanofi is working on both a plasma kallikrein inhibitor for retinal-vein-occlusion induced macular edema and a DME-specific compound. For a therapeutic area nearly abandoned by Big Pharma in the previous decade, eye disease is driving a lot of deal flow. SV Life Sciences wants to do with KalVista what it did with Swiss biotech ESBATech, reorganizing it around ophthalmology and selling it to Alcon in 2009 for up to $590 million, with the non-ophtho assets spun out into yet another newco, Delenex Therapeutics. -- M.S.

OrbiMed Advisors: As promised, the prominent New York-based health care investment firm is moving into royalties. It already has venture capital funds, hedge funds, and mutual funds under its auspices. In the spring of 2010, it closed a $550 million fund, dubbed Caduceus IV, that was slightly larger than its predecessor but aimed for roughly the same allocation mix: 60% biopharma, 25% devices, and the rest diagnostics. At that time, its partners told our friends at START-UP that the royalty fund was in the works but wouldn't discuss potential fund size. Now we know: The $600 million "Royalty Opportunities" fund will be domiciled in Luxembourg and follows established firms such as Paul Capital, Royalty Pharma, and Cowen Healthcare Royalty Partners into the arena. (OrbiMed also turned to those firms to find some of its new royalty team.) Royalty deals can be quite nuanced with complex structures, but two frequent templates are upfront payouts to drug makers in exchange for all future rights to downstream sales royalties; and debt structures that use royalties as collateral. Orbimed says it'll lean heavily toward the latter. It has pursued royalty-related deals from its other funds, with about 25 already on the books, but wanted to create a dedicated fund to give its limited partners an avenue to lower but less risky returns, targeting 2x over five to seven years instead of the minimum threshold of 3x of typical venture funds, said OrbiMed partner Carter Neild. -- Paul Bonanos and Alex Lash

Ardelyx: In another showing of corporate venture backing this fortnight, Amgen Ventures has joined the investor syndicate for Ardelyx, which completed a $30 million Series B preferred stock financing on August 31. The cash will help complete a Phase II trial of its lead compound, RDX5791, for constipation-predominant irritable bowel syndrome. The funding is a significant jump from the $22.3 million Ardelyx reported as the total for the round in this July Form D filing. Existing shareholders New Enterprise Associates, CMEA Capital, and individuals were also involved. The 2007 start-up focuses on mineral metabolism imbalance and metabolic disorders says it now expects to finish a Phase II trial by early next year and provide the first efficacy data for RDX5791, an NHE3 sodium transport inhibitor. At a different dose or regimen, RDX5791 also has potential in preventing excess dietary sodium absorption to help control hypertension, the company said. Its other two agents are in preclinical testing: RDX002 (an NaP2b phosphate transport inhibitor for chronic kidney disease) and RDX009 (TGR5 agonist for Type II diabetes). All three molecules have restricted systemic absorption and primarily target transporters and receptors in the intestines to affect only cardio-renal, metabolic, and gastrointestinal functions. Because of their minimal systemic nature, Ardelyx believes its drugs will avoid the side effects and thus be safer than current systemic treatments on the market. -- Amanda Micklus

Many thanks to Melanie Senior for her help this week.

Photo of the world's most adorable frog is courtesy flickr user Benimoto via a Creative Commons license.