Deals Of The Week Road-Tests Biopharma Options

More options are always better, right? Obviously, that’s a “yes” when it comes to building our dream Tesla Model S. But big biopharma is getting nowhere fast with deals that build in options to license drug candidates.

The number of option-to-license deals executed peaked at more than 30 in 2009, when biotech financing had dried up in the wake of the 2008 U.S. economic meltdown, and has declined every year since, according to data from Elsevier’s Strategic Transactions database. That’s only counting deals with an option-to-license as the main component. What has big biopharma accomplished with its slew of option deals in the last decade and a half? Not much, so far. Even though option-based partnerships can be cheap, they also rarely offer results.

Option-to-license deals, or option-alliances, are often a way of making a half-hearted bet on biotechs’ riskiest, early-stage candidates and technologies. For small biotechs, the extent to which they rely upon these deals can be a sign of their relative fiscal desperation. Option-alliances lock up biotech assets very early, with a high level of continued uncertainty (and development costs) for the biotech and a capped future potential upside.

For pharma, these deals are a bargain – pay a little upfront and part of early-stage R&D costs and then pick up rights to a candidate, or not, typically after clinical proof-of-concept data emerges. Biotechs are able to retain control of their assets for a while longer, potentially allowing them to move development forward faster.

We analyzed all R&D-based option-alliances with a disclosed potential value of $100 million or more. That’s almost 120 deals, some dating back as early as the late 90s. Many of the more recent ones remain active, of course; these deals typically extend over at least three or four years. Most of the remaining deals either expired or were terminated. We could only find seven of these $100M+ deals that actually resulted in option exercises, and some of those later blew up in the clinic.

GlaxoSmithKline is a nice case in point. It has been one of the most active R&D options dealmakers, with at least 18 of these deals, most of which were initiated from 2006 through 2009. A few of GSK’s option-alliances have resulted in abject disappointments – most prominently with Nabi Biopharmaceuticals for the smoking cessation product NicVax, which failed in Phase III. Last year, Nabi merged with Biota.

Others got shunted to the side due to changes in GSK priorities (a $1.5B bio-bucks deal w Targacept was terminated in 2011 as the pharma left neuroscience) or as biotechs became defunct (after a $1.2B bio-bucks deal in 2007, Epix Pharmaceuticals then slid out of existence in 2009). Several of GSK’s option-to-license deals were done under its Center of Excellence for External Drug Discovery (CEEDD), which silently sank under waves of corporate restructuring around 2010.

(GSK is undeterred from experimenting with its approach to external, early innovation. This week it picked the first set of winners from a discovery-stage academic competition. See below for further details.)

The pharma does have several ongoing option-alliances, including at least four with companies that recently IPO’d. One is an option to back-up compounds for Duchenne muscular dystrophy (DMD) from Prosensa; GSK is partnered with the biotech on lead compound drisapersen, which failed in Phase III testing to treat DMD in September. Optimists are hoping its exon skipping technology has progressed since the first iteration and are looking for an effective DMD treatment among Prosensa’s back-up compounds, some of which GSK can option. Prosensa is the worst-performing 2013 IPO, down 72%.

GSK also has an anti-inflammatory and HCV deal with microRNAi company Regulus Therapeutics, initiated in 2008 and expanded in 2010; an anti-cancer stem cell antibody deal with OncoMed Pharmaceuticals that was for four candidate originally from 2007, but was cut down to two candidates in 2011; and a discovery deal with Five Prime Therapeutics for skeletal muscle diseases and muscle wasting targets and candidates that was originated in 2010 and expanded in 2011.

GSK has exercised its options at least twice, but both times candidates were returned. In 2010, it optioned Anacor Pharmaceuticals’ Gram-negative infection treatment and then subsequently returned it a few years later. That same year, it optioned Traficet-EN (now vercirnon) from ChemoCentryx. This September, GSK returned rights to the candidate for all indications. The pharma retained CCX354 for rheumatoid arthritis, which it also optioned. It may still option a third candidate under the 2006 deal.

Despite keeping a lot of options open, no one’s going anywhere fast. But we’re keeping our eyes on the road, moving ahead to all the latest deals (including loads of academic and discovery partnerships) in this edition of…

Salix/Santarus: The union of Salix Pharmaceuticals with Santarus creates a billion-dollar gastrointestinal specialty pharma that holds U.S. rights to fast-growing diabetes drug Glumetza (metformin extended release). Salix agreed Nov. 7 to pay $32 per share in cash for San Diego-based Santarus, valuing the company at $2.6 billion; its combined annual revenues would be about $1.3 billion based on their most recent quarterly performances. Salix has relied heavily on Xifaxan (rifaximin) for traveler’s diarrhea caused by Escherichia coli infections and hepatic encephelopathy; it produced $514.5 million in 2012 revenues, about 70% of the company’s total product sales. But it says the conjoined entity will be more diversified, with no drug accounting for more than half its revenues. Glumetza, a drug Santarus shares with Depomed, has delivered $131.4 million in revenue to Santarus in the first nine months of 2013. The buyout price represents a 37.8% premium over Santarus’s Nov. 7 closing price of $23.22. Raleigh, N.C.-based Salix had about $817 million in cash at the end of the third quarter, but intends to finance the deal with $1.95 billion in debt and a $150 million revolving credit facility from Jefferies Finance, as well as nearly all of its cash on hand. - Paul Bonanos

Roche/Polyphor: Switzerland-based Roche signed an exclusive global licensing deal to develop and commercialize Swiss biotech Polyphor's investigational antibiotic POL7080 against certain hospital-acquired superbug infections known as Pseudomonas aeruginosa, signaling Roche’s first foray back into antimicrobial development for three decades. Roche will pay up to CHF 500 million ($548 million) for the experimental antibiotic, which has only just entered Phase II testing, the companies said Nov. 4. The world’s largest maker of cancer drugs, which is trying to diversify into other disease areas, will make an upfront payment of CHF 35 million and milestone payments of up to CHF 465 million to the Swiss biotech. Roche said POL7080 belongs to a new class of antibiotics that kills P. aeruginosa, a bacterium found in hospitals and resistant to many antibiotic treatments, by a novel mode of action. It’s the first of a number of novel antibiotic candidate drugs being assembled by research and early development group pRED, which is now under the new leadership of John Reed and focusing on three main areas of unmet medical need: Hepatitis B, Influenza and Antibiotics. The pact with Polyphor is the first demonstration that Roche is back in antibiotics. In contrast, other Big Pharma companies have cut back, including former field leader Pfizer, which closed its antibiotic R&D center in Connecticut in 2011, as well as Bristol-Myers Squibb and Eli Lilly. AstraZeneca, GSK, and Merck remain active in the space. Privately-owned Polyphor discovers and develops macrocycle drugs intended as a complement to classical small molecules and large biopharmaceuticals. Although Polyphor, whose main shareholders are private individuals, doesn’t have any products on the market, its pact with Roche is its sixth deal since 2008. Its three drug candidates developed using its protein epitope mimetics (PEM) drug discovery technology are POL7080; POL6326, a CXCR4 antagonist currently in Phase II and ear-marked for several indications; and POL6014, an elastase inhibitor that’s in pre-clinical studies. PEMs are “medium-sized…, fully synthetic cyclic peptide-like molecules that mimic the two most relevant secondary structure patterns involved in Protein-Protein Interactions (PPIs),” according to the company’s Web site. It adds that they are “among the most potent and selective molecules known to modulate PPIs, GPCRs with large ligand-binding domains, and enzymes.” - Sten Stovall

Endo/Paladin: Endo Health Solutions’ new CEO Rajiv De Silva is making good on following in the footsteps of his former employer Valeant by conducting rapid-fire M&A that adds to the specialty pharma’s business. The Pennsylvania company announced Nov. 5 that it will acquire Montreal-based Paladin. The Canadian spec pharma has over 60 marketed products and will give Endo a jumping off point for building its business in Canada, Mexico, and South Africa. The $1.6 billion deal will be an almost all-stock transaction, with Endo paying CAD$77 ($73.70) per share for all outstanding shares of Paladin, a premium of 20% to Paladin’s share price of $63.91 on Nov. 4, the day before the deal was made public. Paladin shareholders will receive 1.6331 shares of the new company in stock and CAD$1.16 in cash, as well as one share of Knight Therapeutics, a new company. Knight will be spun-out of Paladin and be formed around Impavido (miltefosine), a treatment for the parasitic disease leishmaniasis. Impavido received a positive opinion from an FDA advisory committee in mid-October and has a PDUFA date of Dec. 18. Following the deal, the new company will be re-domiciled in Ireland in an effort to take advantage of a more favorable tax rate. Currently, Endo has a tax rate in the high-20% to 30% range. The new company will have a tax rate closer to 20%. - Lisa LaMotta

Pfizer/Juvenile Diabetes Research Foundation: The Juvenile Diabetes Research Foundation (JDRF) said Nov. 4 it would partner with Pfizer’s Centers for Therapeutic Innovation (CTI) to co-fund up to four jointly selected projects in the fields of immune tolerance, diabetic nephropathy and beta cell health. This is JDRF’s first corporate partnership since it announced a collaboration last year with Novo Nordisk, which will run out of the pharma’s Type 1 Diabetes R&D Center in Seattle. JDRF is the largest charitable supporter of type 1 diabetes R&D; it is currently sponsoring about $530 million worth of research, with $110 million in support last year. Pfizer’s CTI was established in 2010 to help further translational science; it hopes to get its first compound into the clinic this year and to bring two candidates into the clinic every year starting in 2014. CTI works with a network of 24 academic and medical institutions. Financial details of the deal were undisclosed. - Stacy Lawrence

Eisai/Arena: Eisai doubled down on Arena’s weight loss drug Belviq (lorcaserin) by expanding its commercialization rights to most of the world from much of North and South America. That’s despite slow sales in the drug’s first full quarter on the market – only $5.4 million. Insurers have been slow to start to reimburse for Belviq and Vivus’ Qsymia (phentermine/topiramate ER). Under the expanded deal, Arena will receive a $60 million upfront payment and up to $176.5 million in regulatory and development milestones. That’s an increase of $123 million from the milestone amount remaining under the prior agreement. Arena will continue to sell Belviq to Eisai for the U.S. and other North and South American territories for a purchase price of 31.5% and 30.75% of Eisai’s net sales in those regions, respectively. For Europe, China and Japan, Arena will receive 27.5% of Eisai’s net sales, while for all other territories the rate is 30.75%. These rates can increase on a tiered basis. Arena also stands to receive a one-time purchase price adjustment of $1.56 billion based on sales in the territories covered by an agreement; that’s an increase of $185 million from the prior deal. Eisai has exclusive commercialization rights in all countries worldwide, excluding South Korea, Taiwan, Australia, Israel and New Zealand. The partners expect also to investigate Belviq as a smoking cessation treatment. - S.L.

GSK/Various Academic Researchers: With a view to front-loading its pipeline, GSK has selected eight winners in its first Discovery Fast Track competition, designed to translate academic research into starting points for new potential medicines. The contest attracted 142 entries across 17 therapeutic areas from 70 universities, academic research institutions, clinics and hospitals in the US and Canada. The program gives certain researchers the opportunity to partner with GSK and jump-start their research into a development program. The winning projects deal with important unmet medical needs, including antibiotics resistance, diseases of the developing world, and certain cancers. The selected scientists will collaborate with GSK’s Discovery Partnerships with Academia (DPAc) team, the sponsor of the competition, to quickly screen and identify novel compounds to test their hypotheses. If advanced chemical testing is successful, the winning investigators could be offered a DPAc partnership to further refine molecules and assess their potential as novel new medicines. GSK devised the contest as a potential engine for accelerating input into its translational research operation, hoping to entice the brightest minds across North America with the promise of lending its potential to their discovery-stage programs. GSK and the academic partner share the risk and reward of innovation, where the U.K. drug maker funds activities in the partner laboratories, and provides in-kind resources to progress a program from an idea to a candidate medicine. Work on the winning Discovery Fast Track projects will begin immediately and the first screens are expected to be completed in mid-2014. - S.S.

Johnson & Johnson/ Evotec: Johnson & Johnson and Evotec are looking broadly, beyond the current focus on beta amyloid and Tau protein-based mechanisms, to identify new targets for Alzheimer’s disease. Under a collaboration announced on Nov. 8, the companies will seek to identify drug targets that could lead to entirely new approaches to treatment using Evotec’s TargetAD database. At best, the drugs in clinical trials today, if successful, will have modest efficacy for treating symptoms of mild-to-moderate patients, and “delay Alzheimer’s symptoms by a few weeks,” said Evotec’s Werner Lanthaler in an interview. The Janssen-Evotec partnership is much more ambitious than current efforts, both in its approach to how it achieves its goals and the goals themselves, he added. The database is derived from analysis of dysregulated genes in high-quality, well-characterized human brain tissues representing all stages of disease progression, Evotec said. It was built off of tissue contributions from The Netherlands Brain Bank and is “systematized, unbiased, and comprehensive,” said Lanthaler, explaining that by being unbiased, it is agnostic to whether the approach is ultimately an antibody, small molecule, or other kind of compound.  No other companies currently have access to the database, and Lanthaler was cagey in stating whether they would or its use would be exclusive to J&J. But he did say that J&J was the first company Evotec approached when it decided to look for licensees, and it jumped on the opportunity – perhaps in part because the companies have had a previous successful relationship in other therapeutic areas. Janssen will reimburse up to $10 million of full-time employee-based research costs and make preclinical, clinical, regulatory and commercial payments, capped at between $125 million and $145 million per program. Evotec will also be entitled to royalties from sales from any products that emerge from the collaboration. The deal runs for three years, and, on J&J’s side, is being conducted through its California Innovation Center. - Wendy Diller

(Thanks to Teslamotors.com for use of this image of our new Tesla S -- are you paying attention Santa??)

Deals Ot The Week Searches For Meaning In Deal Breakups

 It’s been a ghoulish week for deal-making – only half a handful of deals made it onto our list of noteworthy new transactions.

We could not spot one, large or small, involving big pharma or specialty companies. Nor could we see any particularly compelling reason for the interlude. A number of the largest and most active deal makers are adjusting to new leadership and reorganizations, among them Shire PLC, AstraZeneca PLC, Bayer AG, Merck & Co. Inc., and Teva Pharmaceutical Industries Ltd. Certainly, the abrupt resignation of scientist-executive Jeremy Levin as CEO of Teva was a management deal gone bad, leaving the world’s largest generics company adrift and its board of directors on the defensive against a bewildered and angry Wall Street.

That led us to reflect on business deals gone bad and – a trip to the virtual deal cemetery – Deals of the Week’s ‘No Deal’ designation. For the year to date, DOTW has tracked 10 noteworthy terminations, a figure that is in line with stats for the past three years. It’s impossible, or rather meaningless, to speculate much about commonalities among these deals. It’s likewise impossible to extract trends based on, say, the ratio of deals that don’t pan out to those that do. Discarded deals covered a range of therapeutic areas and most involved a big pharma abandoning a biotech collaboration. But breakups occurred at all kinds of points in time and at different phases of development.

A romp among the headstones: GlaxoSmithKline PLC pulled out of a licensing agreement with ChemoCentryx Inc. in September, over Crohn’s disease candidate vercimon following a Phase III miss; ChemoCentryx is trying to figure out why the GSK-led study failed while the Phase II succeeded. Teva itself was the source of several ‘No Deals’ in the course of the year, as its new CEO – now gone – and his management team undertook a pipeline review that resulted in handing back solid tumor therapy Rx 3117 to Rexahn Pharmaceuticals Inc. Also canned was the Israeli generics maker’s much larger, high-profile four-year-old biosimilars pact with biologics manufacturer Lonza Group, which is doing its share of soul-searching and dealing with its own management upheaval.

Amgen Inc. ended a 2009 collaboration around a Type-2 diabetes program with Array BioPharma Inc. Perhaps the fissure with the biggest ramifications was AstraZeneca’s termination of a collaboration with partner Rigel Pharmaceuticals Inc. around the Phase III rheumatoid arthritis drug fostamatinib. Although that deal involved only one asset, it was expensive – AZ paid $100 million upfront – and emblematic of AZ’s ongoing pipeline problems.

But we couldn’t bear to end the week on such a downbeat note, with an energetic meeting like Partnering For Cures about to begin on Monday in New York. This meeting, funded by The Milken Institute, now in its fourth year, is a showcase for venture philanthropy and aims to bring together non-profit disease foundations, patient advocacy groups, investors and biopharma companies in order to look for ways to fund gaps in financial support of innovative medicines for deadly diseases.--Wendy Diller (Thanks to Hollywood Gothique for photo)

Leukemia & Lymphoma Society/ Stemline Therapeutics: One of the few deals announced this week involved one such venture philanthropy initiative. On Oct. 29, the non-profit Leukemia & Lymphoma Society and two-year-old biotech Stemline Therapeutics Inc. announced a partnership to speed up development of a cancer stem cell therapy, SL-401, for the treatment of acute myeloid leukemia and blastic plasmacytoid dendritic cell neoplasm. The latter is a rare hematological disorder with characteristics of both leukemia and lymphoma. LLS is committing more than $3 million to help develop the drug and support an educational program around BPDCN.

The drug has demonstrated efficacy in patients with advanced AML and BPDCN, including multiple durable complete responses in both indications, a greater than 80% overall response rate in BPDCN, and an improvement in overall survival of third-line AML patients relative to historic data, the companies said in a press release.

LLS wouldn’t provide much information about the compound or the deal, but it has a long track record in funding early stage research in blood cancers and getting some of those projects into the clinic.  It awards about $60 million in grants to academic investigators each year, and at any one time has about 300 grant-sponsored projects underway. Because of its close, long-standing ties to academia, it has deep expertise in science and a network of contacts that can facilitate progress of successful development programs, said Louis DeGennaro, the society’s chief mission officer and a scientist by training.

The effort to bring industry closer into the LLS fold began after DeGennaro joined the organization eight years ago, when it had the broad grant program for academics but little else in place to facilitate getting promising research projects through what is referred to as ‘the valley of death’. About 10% to 15% of the projects it funded moved into development, but it was tough to do FDA-compliant studies in an academic environment, he recalled in an interview. In 2008, DeGennaro started the society’s Therapeutic Acceleration Program to assist investigators and companies in filling in that gap, harvesting programs from its research portfolio as well as early-stage programs underway at biotech companies that could be effective in treating blood cancers, but were not being developed because of economic or other concerns.

LLS provides these companies with non-dilutive capital, expertise and access to networks of key opinion leaders and contract research organizations; in exchange, the recipient company has to agree to continue work on the project for a period of time after LLS funding has ended. The largest subsidy to date is $12 million, and the development timeline of interest is from late preclinical through Phase III.

LLS does not ask for equity or take a typical private-sector return; it seeks comparatively small milestone payments tied to approval of the drugs it funds in major markets, as well as a small royalty. The aim is to provide enough capital for companies to advance a compound to the point where they can attract private-sector funding. Nor does LLS retain intellectual property on the products it funds; it wants the asset to be unencumbered when its owners look for outside financing, he added.

One LLS relationship in particular, with Celgene Corp., continues to expand. About a year and a half ago, the organizations entered into a partnership, which Celgene is supporting, and which LLS and Celgene are administering. In its simplest terms, the partners use a grant program to vet and fund early-stage research, and Celgene gets first right of negotiation for intellectual property coming out of the programs over a protected period of time. If it is interested, the big biotech then has the right to negotiate with the academic investigator and his or her institution. LLS does not participate in any deal Celgene works out.--WD

Cancer Research Technology/ Chroma Therapeutics: Cancer Research Technology (CRT), the commercial arm of the charity Cancer Research UK, is accelerating its support of early biotech research through a deal with the U.K.'s Chroma Therapeutics Ltd.

With funding from the CRT Pioneer Fund (CPF), Chroma will move a lead molecule, a mitogen-activated protein kinase (p38) inhibitor, towards clinical trials, with the CPF receiving rights to further develop and commercialize any resulting products, CRT announced Oct. 31. Chroma attaches chemical motifs onto drugs that are freely transported into cells but then cannot exit. The therapeutic molecule then accumulates within tumor-associated macrophages, reprogramming them to attack tumors, the company explained. The deal is the third made by the $80 million asset-centric CPF, which was set up in 2012 by CRT, the charity, and the European Investment Fund.--Sten Stovall, John Davis
 

Adimab/ Alector: The formation and financing of Alzheimer’s disease-focused Alector LLC ties what its founders call “unique biological insight” with the prolific antibody discovery platform of Adimab LLC – and demonstrates private investors’ appetites for making distinct bets on discovery and development opportunities.  

Alector, which announced an undisclosed amount of Series A financing Oct. 31, is the second R&D-focused biotech to spring in part from Adimab’s antibody discovery engine. The company is not a spin-off of Adimab; instead it holds a license to Adimab’s technology and aims to exploit novel biology elucidated by co-founders Asa Abeliovich and president and CEO Arnon Rosenthal.

The terms of the deal between Adimab and Alector are extremely flexible. In the near term, Alector will cover fee-for-service costs associated with Adimab’s discovery process. But it essentially accesses Adimab’s antibody discovery technology for free. Downstream there are different flavors of project-specific licensing options depending on Alector’s financial and strategic priorities. These range from heavy upfront and milestone deals that are royalty free through to all-royalty deals that are back-end loaded.

Alector and Adimab are separate companies, but the newco is part of the Adimab family tree. Alector’s chairman and co-founder is Tillman Gerngross, co-founder and CEO of Adimab, and co-founder of Arsanis  (a similar Adimab-offshoot in the infectious diseases space) and other companies. Adimab co-founder and COO and Arsanis director Errik Anderson is also an Alector co-founder. And Alector’s backers – the company simultaneously announced an undisclosed Series A financing – are Adimab investors Polaris Venture Partners and Orbimed Advisors; Polaris general partner Terry McGuire and Orbimed general partner Carl Gordon, both Adimab directors, also sit on the Alector board.--Chris Morrison

 

And then there's the:

Numab/Sucampo: Yes, there’s another “No Deal” this week. The Zurich, Switzerland-based company Numab AG announced Oct. 29 that it had reacquired rights to an investigational bispecific antibody fragment, ND003, from its collaborator, Sucampo AG, a subsidiary of Sucampo Pharmaceuticals Inc., and intended to develop the compound further as an inhaled therapy for severe asthma. Further financial details of the agreement were not disclosed.

The two companies entered into a multi-target collaboration in 2011, just months after Numab was founded, aimed at discovering high-affinity antibodies with sub-picomolar affinities against difficult-to-reach targets. Sucampo would retain exclusive commercial rights to any potential products identified, in return for research funding and other potential payments.

Numab says it is now raising Series A financing to advance ND003 and another compound, the potential anti-inflammatory ND007, to the next value inflection point.  ND003 is expected to be administered by inhalation, thereby attacking lung-resident eosinophils that play a role in severe asthma but are difficult to reach with systemic-administered antibody-based products, the Swiss company noted. ND003 targets interleukin-5 receptors on eosinophils, rapidly depleting their number. --SS, JD

Single, Early-Stage Financings of the Fortnight Seeks Attractive Exit Correlation

One month ago, as the government shut itself partially down, this column wondered if the IPO window might undergo a similar fate.

Since then, the same number of biopharmas has gone public (one) as has withdrawn their registration. The former is Aerie Pharmaceutical, and the latter is GlobeImmune, which said in its SEC filing, “The terms currently obtainable in the public marketplace are not sufficiently attractive.”

A second life sciences company actually went public, the cancer diagnostic firm Veracyte (see description in the roundup below). And several more companies filed their S-1s in October. And yes, the shutdown's been shut down and we're temporary passed the budget impasse. Six weeks ago, we would have taken GlobeImmune's lawyerese excuse as a fantastic joke -- C'mon, counsel, stop it! You're killing us! -- but as we wait for the likes of Relypsa, Karyopharm and GlycoMimetics to take the plunge, well, let's just say we're still waiting to exhale.

To distract ourselves for a moment, we'd like to draw your attention to an interesting back-and-forth that occurred recently on the high-tech VC side. Well-known investor Fred Wilson blogged in September that the more cash a startup raises in seed and Series A rounds, the less successful it will likely be. Data house CB Insights decided to fact-check Wilson, and it pronounced him wrong: there is no correlation.

This was all about high-tech, though, so START-UP decided to run the numbers for biopharma, where the investment dynamics are worlds apart from high-tech strategies. The article won’t be out for another week or two, but we’ll give you the high level answer: There's no correlation in biotech, either. (See above. R² = 0.0261, in case you're wondering.)

We found other interesting data around that answer, too. For example, of the 307 Series A rounds we found between 2002 and 2007 with disclosed value, 57, or 18.5%, of those companies went out of business. Those that exited via IPO (9%) and acquisition (31%) combined nearly equal those that remain private and independent (41%). Or sliced another way, of the 5-year cohort of companies we looked at, exactly half are still around, either public or private. (We'll save the rest for the Start-Up article, co-authored by Amanda Micklus.)

Since there's no correlation between size of exit (or, in the case of public companies, current market cap) and their Series A commitment, how much cash should an investor group front a new company? That question is driving much of the exploration of new biotech funding models that we're seeing from groups like Atlas Venture, Index Ventures, and Versant Ventures – whose new fundraising efforts we note in our roundup below. (And too late for inclusion here, but, ahem, speaking of fundraising efforts... our Pink Sheet colleagues will have all the details on the OrbiMed news later today.)

Even though venture returns across various timelines showed some improvement halfway through 2013, according to the NVCA, biotech VCs are still under tremendous pressure to shorten their investment timelines and take less risky bets. Tranching rounds, of course, is de rigueur, and sometimes those big Series A numbers announced with great fanfare never fully materialize. That could be a good thing: when Shire bought Lotus Tissue Repair early this year, its sole backer Third Rock Ventures had only funneled a sliver of its $26 million Series A commitment into the company.

Or, the company’s original plan could fizzle, as we note in this week’s note about Calithera in the roundup below.

Of course, how much VCs put into a company, and in what configuration, is driven by how much they’re getting out at the other end. The IPO bounty of recent months has LPs impatient for returns, and VCs need to “put some points on the board,” as Atlas Venture partner and bloguero Bruce Booth puts it in his latest Forbes column. How they manage those post-IPO exits when trading volume is limited, however, is a delicate complicated dance, which Booth explains in detail. (Whether to distribute cash or stock to LPs is just one of many considerations.)

With so many biotech exits these days coming via IPO -- have you noticed the dearth of private companies? So have our blogmates at Deals of the Week -- it makes us curious to see if the correlation between Series A size and exit success will shift in a few years, when we use a different cohort of companies that weren't forced to brave the Great Recession. We certainly acknowledge that the times we live in, and the data we collect, could be of our moment. Or, there could be a shift in correlation with more acquisition-heavy exit data if the IPO wave recedes -- perhaps we should say “when,” since all waves must eventually recede from the shore. We’re keeping an eye on the surf line, because, as anyone who grew up along the Pacific Coast knows, the worst time to gather shells is when the water suddenly disappears.

Where else can you get your safety tips and Zen koans all at once? Sit down, grasshopper, and open your mind to…

Veracyte: The diagnostics firm launched an initial public offering of its stock October 30 and raised $65 million by selling 5 million shares at $13 each. It’s one of the few diagnostics companies to tap the public markets this year, as most of the life-science activity has benefited the biopharmaceutical sector. (Foundation Medicine is another exception.) As we described in detail in February’s IN VIVO, Veracyte of South San Francisco, Calif., was founded to help resolve the ambiguity that often comes from a cytology sample of thyroid nodules that are possibly malignant. When looking at the cells isn’t enough to determine course of action – about 25% of the time -- Veracyte’s test is meant to guide an endocrinologist in the decision for or against surgery, which otherwise is recommended for cancerous, suspicious, or even indeterminate modules. Its test, Afirma, uses 167 biomarkers, and has also begun to identify rare types of thyroid cancer that aren’t evident under the microscope but reveal themselves in genomic analysis. Veracyte launched Afirma in 2011, and in the twelve months leading to June 30, 2013, the company tallied revenues of $17 million but with a net loss of $23 million. Its main shareholders before the offering were Kleiner Perkins Caufield & Byers (22%), TPG (22%), Versant Ventures (23%), and Domain Associates (19%). Just before the IPO, on October 9, Veracyte enacted a 4-to-1 reverse split of its common stock. Underwriters were led by Morgan Stanley and have the option to buy up to 750,000 more shares in the 30 days after the IPO date. It closed on its first day of trading up 2% to $13.25 a share. – Alex Lash and Mark Ratner

Calithera Biosciences: Calithera is hardly the same company that announced a $40 million Series A round of funding in 2010. The high-flying start-up, which made our A-List that year, is now heading in a different direction. As announced October 29, the company is shifting focus with $35 million in fresh cash in a Series D round that includes some, but not all, of its original investors. Moreover, the company never raised the full $40 million initial round, designed to arrive in tranches. Founded by University of California, San Francisco professor Jim Wells to commercialize research on the role of caspases in inducing apoptosis of cancer cells, Calithera is now turning to an oncology program centering on glutamine metabolism that CEO Susan Molineaux tells FOTF was internally developed. Meanwhile, scientific co-founder Wells has left Calithera’s board of directors, as has U.S. Venture Partners’ Larry Lasky, an early investor. Another Series A backer, Mission Bay Capital, also did not participate in the new round; USVP and Mission Bay area still shareholders, however. In addition, Molineaux described the interim Series B and C rounds in an email as “tranches of the original $40 million Series A financing in June 2010,” and added that the total amount Calithera raised in all three rounds amounted to just $30 million. Two first-time investors, hedge fund operator Adage Capital Partners and VC firm Longwood Fund, joined existing backers Morgenthaler Ventures, Advanced Technology Ventures and Delphi Ventures in the Series D funding. Since backing Calithera initially, Morgenthaler and ATV’s life sciences teams have created Lightstone Ventures; Morgenthaler and ATV have ceased making new life sciences investments. – Paul Bonanos

Spark Therapeutics: For the first time, the non-profit Children's Hospital of Philadelphia has spun out a privately held, for-profit company. As our colleagues at "The Pink Sheet" described, the hospital has budgeted $50 million to support the launch of Spark Therapeutics, created to house a pair of gene therapy programs that the hospital’s Center for Cellular and Molecular Therapeutics has been working on for several years. CHOP chief executive Steve Altschuler said the hospital will supply Spark with cash when needed, and only when Spark executives can justify expenditures. Spark has a Phase III program for a type of inherited blindness attributable to a malfunctioning RPE65 gene, and a Phase I/II program for hemophilia B. Spark CEO Jeffrey Marrazzo said it also holds rights to other preclinical programs, including at least one in-licensed from another source. The cash commitment is designed to fund the opthalmological program all the way to the market, Marrazzo said. While considerable uncertainty remains in the gene therapy field, barriers have begun to fall, leading to more fundings recently. Paris-based GenSight Biologics, another ophthalmological gene therapy developer, received one of 2013’s largest Series A rounds to date, a €32 million ($41.4 million) commitment in April. – P.B.

Versant Ventures: The life science firm headquartered in Silicon Valley slipped toward the bottom of this year’s annual VC “gas tank” chart in Start-Up, not having raised a fund since 2008.

That’s apparently about to change. According to a regulatory filing, the firm is aiming for a fifth fund of at least $250 million, which would be half the amount of its 2008 vintage fund. If successful – the October 18 filing says none of the offering has been sold -- the new fund would come after a couple years of big changes at the firm. In late 2011 Start-Up reported the firm would head into fundraising mode without four veteran partners, two each from the biopharma and device sides of the firm. In the interim, its biopharma team began a shift toward smaller scale investments by building an unusual investment-R&D hybrid called Inception Biosciences. Inception is run by a drug discovery team that scouts for early-stage programs and works them into assets that could move forward in spun-out entities, some with pharma partners holding acquisition rights, some with more traditional backing. With the pharma team building Inception in San Diego and expanding it to Vancouver, the device team got START-UP’s attention with an industry-high quartet of Series A investments in 2012. Assuming Versant’s new $250 million target is a ceiling, not a floor, it stands to reason the biopharma side will continue to explore cost-sharing (and -saving) models like Inception. (Managing director Brad Bolzon declined to comment on the document or the new fund.) The SEC document, which you can view here, has other interesting tidbits. The firm is using three names: Versant Venture Capital V, Versant Affiliates Fund V, and Versant Ophthalmic Affiliates I. Our colleagues reported this spring that the first spin-off from the Vancouver team was in the works, so perhaps that last name holds a clue to what Versant’s Canadian team has been eyeballing. – A.L.

Best of the Rest (Highlights of Other Financing Activity This Fortnight): Immune Design headed up the late-stage venture financing category with its $49mm Series C round led by the Column Group and Topspin Partners (and five additional backers, including Sanofi-Genzyme BioVentures, also participated); the funds will progress proof-of-concept studies for its lead solid-tumor candidates IDLV305 and IDG305…with a $31mm private placement including a debt conversion and a 1-for-8 reverse stock split, another oncology drug developer, Arno Therapeutics, hopes to advance its breast and prostate cancer compound onapristone into the clinic…Dynavax Technologies raised funds to support Phase III development of its Heplisav hepatitis B vaccine, netting a total of $125mm through concurrent offerings: in a FOPO it sold 79.6mm shares at $1.075 (for $81mm) and brought in another $44mm through the sale of 43k shares of Series B convertible preferred stock at $1,075…Aerie Pharmaceuticals (ophthalmology therapeutics) netted $71.8mm in its IPO, selling 6.72mm shares at $10, below its anticipated $12-14 range. – Maureen Riordan

DOTW Wonders: Where Have the Private Biotech Take-Outs Gone?

We do like a nice, frothy biotech IPO market. But is it coming at the expense of stellar acquisitions of private biotechs? We miss the kind of M&A that got VCs boasting about multiples and sent ripples of excitement through the industry.

So, being the data geeks that we are, that sent us rifling through recent deals. Turns out that there have indeed been fewer decent-sized acquisition of private biotechs. This year there were only 16 worth more than $50 million, down from 26 at this time last year, according to Elsevier’s Strategic Transactions database.

And the really eye-popping deals are largely absent. Only three of this year’s private biotech acquisitions even had the biobuck-aided potential to be worth more than $500 million. Through October 2012, there were at least 10 take-outs that fit that description – although to be fair, a couple of those were of big, private specialty pharmas that were long-past any venture investment. And among this year’s biotech IPO class, 12 out of the 38 already have a market cap of more than $500 million.

Perhaps the longstanding truism that the best biotechs get bought and the rest go public has been turned on its head for a bit. Maybe IPO valuations are so rich that they’re driving up private company comps, giving potential strategic buyers pause.

There is one big biopharma buyer who’s been relentlessly active this year: AstraZeneca . It’s bought three private biotechs so far; all of them among the largest private acquisitions in 2013. Not that this comes as a huge surprise. DOTW wondered in January if then-new AstraZeneca CEO Pascal Soriot would go on a buying spree and expand into earlier stage deals.

Earlier this month, AstraZeneca bought antibody-drug conjugate oncology company Spirogen, which was in Phase II with its lead candidate, for $200 million upfront and up to $240 million in milestones. In August, it bought immune-stimulatory cancer company Amplimmune for $225 million upfront and up to $275 million in milestones.

In June, the big pharma made its biggest buy and the only private biotech acquisition this year potentially worth more than a billion when it acquired Pearl Therapeutics. Terms included $560 million upfront and up to $450 million in clinical and regulatory milestones, with an additional up to $140 million in sales-based milestones. (In total that’s up to $1.15 billion for those of you keeping score at home.) Pearl was a Phase III respiratory disease company.

While AstraZeneca is alone in its level of activity right now, recently industry’s larger companies have whole-heartedly embraced a deal structure that locks up promising early-stage assets at a reasonable price. This, of course, is the “exclusive option to acquire.” One big biopharma in particular has warmed to this approach – doing at least five of this kind of deal with private biotechs in the last couple of years. (Celgene, you know we’re talking about you.)

Celgene’s most recent option to acquire a private biotech was divulged earlier this month when it did a deal alongside a Series A round for PharmAkea Therapeutics, a small molecule cancer and fibrotic disease company that the biopharma seeded with funding last year. This time, Celgene paid $35 million for a three year discovery and development deal, and it also bought an undisclosed equity stake, alongside Bay City Capital, which invested $10 million. Celgene has an exclusive option to buy PharmAkea, which was founded by three execs from fibrotic disease play Amira Pharmaceuticals, which sold to Bristol-Myers Squibb for up to $475 million in 2011.

This week, a similar option-to-acquire deal together with a Series A came along. Sideris Pharmaceuticals garnered a partnership with Novartis worth up to $300 million, which includes the exclusive option to acquire the biotech. It also landed a $32 million Series A round from MPM Capital, Hatteras Venture Partners and Osage University Partners. Sideris is focused on developing drugs to treat transfusion-related iron overload; the partnership and the financing are intended to get its lead candidate through Phase II.

Novartis did another option-to-acquire deal alongside a Series A round with inflammatory and thrombotic diseases company Selexys Pharmaceuticals last year.

We see how an option-to-acquire deal alongside a Series A financing would be attractive. For big biopharmas, it sews up good-looking assets without fully committing, thereby providing more time to wait and see without risking losing out. For VCs, it lines-up a strong potential buyer and helps defray R&D costs from the outset in exchange for a known, possible outcome.  For biotechs, it greatly lessens financing risk, ties it close and early to a partner that can help define how it conducts its trials and gives it a built-in potential exit.

Plus, it takes the vagaries of the IPO and the M&A markets almost entirely out of the equation.  While companies and VCs risk losing out on the tantalizingly highest highs, they also can follow a known path to an exit. And while froth may be fun, it’s not at all stable.

What is entirely reliable is your DOTW team, who has yet again brought you a delightful sampling of this week’s heartiest deals. Quaff deeply of this week’s edition of  . . . .

Mesoblast/Intrexon/Ziopharm: Three partners – Mesoblast, Intrexon and Ziopharm Oncology – will be involved in an oncology drug discovery and development collaboration that could evolve into a joint venture, the firms announced Oct. 23. The initial deal is less of a commitment, however. Under the technology sharing arrangement, the partners will bring their respective expertise to the table to develop new treatments, with a first focus on lung cancer. The team will use Mesoblast’s Mesenchymal Lineage Cells and Intrexon’s RehoSwitch Therapeutic System (RTS) platform to co-develop complex transgene-enabled cell-based treatments. The resulting products should have both tumor targeting characteristics and controlled gene expression. Financial details were undisclosed. The deal is actually a 50/50 collaboration between Mesoblast and Ziopharm because Ziopharm is previously partnered with Intrexon on the technology to design and optimize therapeutic gene expression in the MLCS under a 2011 collaboration. - Jessica Merrill

deCODE/NextCODE: Like any classic Icelandic saga, the story of deCODE Genetics seems endless. The genetic diagnostics company has new life as NextCODE Health, with $15 million in Series A backing from Polaris Partners and ARCH Venture Partners. deCODE was a dot-com era high flier that aimed to mine blood samples from Iceland’s homogeneous population and meticulous record-keeping for clues to the genetic factors of disease. Following a $170 million IPO in 2000 deCODE spent a decade chasing the dream of developing its own drugs. It filed for bankruptcy in late 2009. A consortium of investors led by Polaris and ARCH, who were original deCODE investors and cashed out after the IPO, spent about $14 million to take deCODE private in 2010. Back at the helm, they did away with the drug-development ambitions and turned back to genetic research and diagnostics. They were rewarded when Amgen bought the recapitalized deCODE in 2012 for $415 million in cash up-front. Now, with Amgen focused on applying the deCODE technology to drug discovery, NextCODE has a five-year exclusive license to clinical diagnostics applications. The company says it already has contracts with clinical centers affiliated with Queensland Hospital in Australia, Boston Children’s Hospital in the U.S., Newcastle University in the UK, and Saitama University in Japan. Two top executives from the early days of deCODE, Hannes Smaranson and Jeff Gulcher, have returned to run the company as CEO and president/CSO, respectively. - Alex Lash

Amgen/Roche: As part of its international expansion and to shore up product revenues, Amgen reacquired rights from Roche to Neupogen (filgrastim) and Neulasta (pegfilgrastim) in about 100 markets for an undisclosed amount. Roche had held rights to the pair since 1989, under a license with Kirin-Amgen, a joint venture between Amgen and Kirin Holdings., in Eastern Europe, Latin America, Asia, the Middle East and Africa. Amgen is working toward building a presence in 75 countries and it will exceed that with this deal. In 2012, Neupogen and Neulasta generated about $200 million in sales in those territories. In the third quarter, Amgen reported $1.1 billion in Neulasta revenues and $466 million in Neupogen revenues. These were up 9% and 50%, respectively, from the same quarter during the prior year. (The big boost for Neupogen was entirely attributable to a $155 million order from the U.S. government during the quarter.) Both are used during chemotherapy to boost white blood cell count, thereby reducing the risk of infection for chemotherapy patients. The deal will become effective Jan.1, 2014. Amgen expects it will start to be accretive in 2014. In places where Amgen doesn’t have a presence, Roche or its distributors will continue to market products for an interim transition period. Kyowa Hakko Kirin will continue to market the drugs in some Asian territories, including China and Japan. - Stacy Lawrence

Alzheon/Bellus Health: A new neurodegenerative disease start-up is being built on the back of a failed Alzheimer’s disease compound. Start-up Alzheon has exclusively licensed a pro-drug of tramiprosate, ALZ-801, from Bellus Health, formerly Neurochem. Tramiprostate completed Phase III clinical testing in 2007 and the data were inconclusive. Alzheon plans to start a Phase II trial in Alzheimer’s disease patients, which it says will be aided by the clinical data and sub-population analyses from the more than 2,000 patients in Phase III studies of tramiprosate. The license includes rights to a family of analogs, along with an associated platform of chemotypes and clinical datasets. Alzheon expects this will provide the company with a drug development platform, as well as clinical and biomarker datasets in this patient population. Beyond ALZ-801, Alzheon expects to build a pipeline that includes additional prodrug candidates from this platform, as well as in-licensed programs.The idea is to take compounds that have demonstrated clinical proof-of-concept and apply improved clinical trial design, informed by existing patient sub-population data, more appropriate clinical endpoints and biomarkers. The newco will be led by Martin Tolar, who is its founder, president and CEO. He has previously headed biotechs including human genome interpretation system company Knome and cancer therapeutics play NormOxys Tolar was also chief business officer at Alzheimer’s-focused CoMentis, which licensed its lead beta-secretase inhibitor, then only in Phase I, to Astellas Pharma AS in 2008 $100 million up front. No financial details of the deal were disclosed; Alzheon hasn’t given any financing details yet. - S.L.

AstraZeneca/Evotec: AstraZeneca and the German drug discovery services company Evotec entered into an agreement Oct. 21 to discover novel targets and compounds with disease-modifying activity for the treatment of chronic renal disease, one of the key research areas for the restructured R&D efforts at the UK multinational. AstraZeneca will fund research on a series of molecules identified by Evotec in a program designed to explore a key mechanism of chronic kidney disease. In return, Evotec has received an undisclosed upfront payment and will receive clinical and regulatory milestones, and additional payments if products are commercialized. Renal diseases such as diabetic nephropathy, end-stage and chronic kidney disease are key targets within AstraZeneca's research effort into cardiovascular and metabolic diseases, one of three core areas for the company and based at its facilities in Molndal, Sweden. The agreement with Evotec comes just three months after AstraZeneca entered into a strategic collaboration with the private U.S. company FibroGen to develop and commercialize that company's FG-4592, a late-stage potential oral therapy for anemia in chronic kidney disease and end-stage renal disease in selected markets including China and the U.S. Evotec has a number of other big pharma collaborators for its drug discovery services, including with Roche and Boehringer Ingelheim, and a 2010 diabetes collaboration with AstraZeneca's biologics division, MedImmune, extended by the two companies at the start of 2013. - John Davis

Depomed/PDL: As it transforms from a research-oriented company to a product-focused one, Newark, Calif.-based Depomed is planning additional acquisitions to fortify its pain and neurology portfolio. Thanks to the $240.5 million sale of its type 2 diabetes royalties to PDL BioPharma, it will have plenty of cash to spend. Depomed sold milestone and royalty streams for marketed products and pre-approval compounds in the Oct. 21 deal. Most of the value currently lies in escalating royalties from Santarus’s sales of Glumetza (metformin HCL extended-release tablets), which generated $42.8 million in royalties during 2012 and $27.5 million during the first half of 2013. It also includes royalties from Merck’s sales of Janumet XR (sitagliptin and metformin), potential streams from investigational programs in the hands of Boehringer Ingelheim and Janssen Pharmaceuticals, and geographic royalties from LG Life Sciences in Korea and Valeant Pharmaceuticals  in Canada. Depomed built its own sales force to market Gralise (gabapentin) for shingles pain after it reacquired rights to the compound from Abbott Laboratories in 2011, and has since added pain drugs Zipsor (diclofenac potassium) and Lazanda (fentanyl) via acquisition. CEO Jim Schoeneck told conference call participants it would look to buy products already on the market or “those that are beyond clinical risk” at the registration stage. PDL once discovered antibodies, but now reaps royalties from license agreements based on its patents. The last of a key set of patents expires in 2014. If royalties from the new deal reach a total of $481 million, or twice the sale price, PCL and Depomed will split further royalties 50/50. - Paul Bonanos

Roche/Samsung: Samsung Group and Quintiles may have created their Samsung BioLogics joint venture primarily to develop and manufacture biosimilar drugs, but the Incheon, Korea-based drug factory operator is now striking new partnerships as a contract manufacturer for pharmas. An Oct. 22 deal with Roche calls for a long-term manufacturing partnership covering proprietary commercial biologics, which Samsung BioLogics will craft at two local facilities, one of which is still under construction. Financial terms weren’t disclosed and Roche didn’t reveal which medicines Samsung BioLogics will manufacture. It’s the second CMO deal since the summer for Samsung BioLogics, following a 10-year agreement with Bristol-Myers Squibb announced in July, covering an unnamed cancer antibody. Since the creation of Samsung BioLogics, Samsung forged a second JV with Biogen Idec in February 2012, creating Samsung Bioepis to develop biosimilars; it has since clarified that Samsung BioLogics will operate a CMO business while Samsung Bioepis will focus on biosimilars. - P.B.

(Thanks to Vault Brewing in Yardley, Penn. for use of their photo of a draft of Rye Pale Ale. It’s a favorite of EBI’s Chris Morrison – who hopes this mention will get him a free pint this weekend.)