Financings of the Fortnight Looks for Its Shadow

We are always on the lookout for leading indicators, no matter how faint the signal. If you tend an herb garden on your back porch, you might prefer the "green shoots" metaphor. Ever hopeful that the second law of thermodynamics isn't really the guiding principle ruling our lives, we humans also imbue natural events and public rituals with significance. Earthquakes as divine punishment! The groundhog's shadow! That said, we should say right off the bat that Genmark Diagnostics is no Punxsutawney Phil.

Yes, Virginia, there was an IPO last week, and its name was Genmark. But it wasn't the sort that necessarily means a damn thing. An obscure UK diagnostics firm formerly known as Osmetech that creates a US subsidiary, reverse-merges into it to reach US shareholders -- and only pulls in $28 million after shooting for as much as $45 million, for that matter -- is only that. An N of one.

Yet it came at a time when we were already thinking about diagnostics, and funding, and the funding of diagnostics. The low-profile offering, tucked just in front of the long holiday weekend, was also sandwiched between two conferences that opened different windows on the application of genetic information. At a consumer genetics show in Boston this week, funding strategies weren't explicitly on the menu, but as our correspondents noted, it's becoming ever more clear that cost breakthroughs in sequencing will lead to identification of medically significant genetic variations in patients. The question then becomes, what do you do with them?

That was the topic last week at the C21 venture conference in California's Napa Valley, where the diagnostics panel drew an eager crowd looking for ways to put money into -- buzzword alert! -- low-cost innovation. (That is, really cool stuff that doesn't cost a lot to make.)

And as our colleague Mark Ratner noted in his recent IN VIVO feature, despite the early days of most genetic research, a trio of well-known VCs -- Kleiner Perkins Caulfield & Byers, Mohr Davidow Ventures, and TPG -- have spread their diagnostic bets further, particularly into cardiology, after hitting the jackpot with breast-cancer test maker Genomic Health. Genmark isn't in their portfolios, but as we've seen on the drug side, any IPO activity after the long dry spell of 2008-2009 is worth scrutiny, not just as an indicator for current portfolio companies but for investors looking to jump in. One of the keys to diagnostics is getting pharma's attention in a variety of ways, such as using tests as a marketing tool when a drug rep is out detailing. We'll let Ratner explain:

The raison d'etre of new molecular tests is to significantly add to the information available to physicians to enable or change critical clinical decision-making. Especially at a time when the pace of new drug introductions is slowing and the opportunities to meet face-to-face with physicians therefore diminishing, as molecular diagnostics moves into new and broad markets like cardiology and metabolic disease, pharma could use this opportunity to its advantage in many settings.

In the case of a specific cardio test called Corus CAD, Ratner writes, "There's sufficient novelty and interest in genetics and genomics associated with coronary disease that [drug reps] could start a dialog with a physician about Corus CAD and at some point change to their drug-oriented message."

Diagnostic brethren such as LabCorp, Roche and Qiagen make splashy acquisitions; pure-play pharmas probably won't, though some are keeping their options open. Other deals will come from industrial giants such as General Electric and Procter & Gamble. But with massive hoards of cash to spend, any sign of pharma opening its coffers for diagnostics deals could mark a big change in the way VCs invest, which despite a few high-profile deals hasn't been that stunning. According to the Elsevier Strategic Transactions database, investment in diagnostics, over $1 billion annually for most of the past decade, is trending lower this year with $273 million through May.

Then again, life-science investing is down across the board this year. Have no fear, there's always plenty of material to bring you...



Tetraphase Pharmaceuticals: The antibiotic developer pulled in a $45 million Series C round to push its lead candidate into Phase II trials later this year, marking another step toward filling what public-health officials say is a ever-growing need: next-generation treatments to fight drug-resistant Gram-negative bacteria, as noted by our colleagues at START-UP. Tetraphase starts with a tetracycline backbone and then modifies the molecule at multiple positions to create an extremely large library. These molecules then can be screened for both their anti-infective properties and their potential to cause off-target toxicities. The lead compound, the intravenous TP-434, will likely focus initially on intra-abdominal infections. The Series C cash will also help push two more compounds -- TP-2758, for complicated urinary tract infections and TP-834, for the treatment of community acquired bacterial pneumonia -into Phase I. Excel Venture Management, a new investor for the biotech, led the round joined by existing backers: CMEA Capital, Fidelity Biosciences, Flagship Ventures, Mediphase Venture Partners and Skyline Ventures. Steve Gullans, managing director of Excel Venture Management, will join Tetraphase's board of directors. -- Carlene Olsen

NormOxys: The developer of small-molecule oxygen-enhancing drugs to treat a variety of diseases announced on May 24 a $17.5 million Series B financing. In addition to existing backer Index Ventures, Care Capital participated in the most recent financing round, with partner Argeris "Jerry" Karabelas joining the start-up's board of directors. It brings the firm's total funding to $30 million. With its novel platform technology and top-notch scientific pedigree, NormOxys has raised a sizeable but not extraordinary amount of additional cash from A-list backers and avoided too much dilution. It can now also aim for a more lucrative big pharma partnership -- whether it's a licensing deal or acquisition -- once the lead molecule, and thus the company's platform, have been derisked. The lead molecule is OXY111a, which the firm calls an "oxyren," for its oxygen-releasing capabilities. It changes the offloading capacity of hemoglobin so that more oxygen can be delivered to tissues where needed. If all goes to plan, it shouldn't result in excess oxygen delivery to normal tissue, which can cause damage because of free radical production. Equally important, say officials, is that the molecule triggering the actual physiological changes is oxygen itself, not the oxyren. Thus, potential off-target side-effects that have scuppered artificial blood substitutes such as Biopure's Hemopure, Northfield Laboratories' PolyHeme, and Baxter Healthcare's HemAssist, should be less problematic. OXY111a is entering Phase I trials with a later goal of testing it against chronic heart failure and an undisclosed cancer indication. -- Ellen Foster Licking

Exelixis: The San Francisco Bay Area public biotech is no stranger to all kinds of financing deals, and now it's turned again to debt to help expand the late-stage development of lead candidate XL184. Exelixis said June 3 it has secured loans worth $160 million from two lenders at an aggregate cost of capital under 10%. Part of the cash will pay back a loan from GlaxoSmithKline, a remnant of the firms' broad, six-year license-and-option deal signed in 2002. It will also fund XL184, which should enter Phase III trials for second-line glioblastoma by the end of 2010, with more Phase III trials possibly coming in 2011. XL184 was rejected by GSK before the six-year deal expired in late 2008, but Exelixis pivoted into a lucrative deal with Bristol-Myers Squibb, which pays 65% of XL184 development costs. It is currently in Phase III for medullary thyroid cancer and earlier-stage trials for glioblastoma. Exelixis is tapping Silicon Valley Bank for $80 million with a seven-year term loan at 1% interest. It's also borrowing $80 million from Deerfield Management, a five-year term with a maximum principal of $124 million. Interest is $6 million a year. Exelixis opened a line of credit with Deerfield in 2008 that, at the time, officials said they hoped never to draw down from. But with a 40% cut in staff in March the firm is shifting resources to late-stage development, which is still expensive even with big-pharma partners footing much of the bill. -- A.L.

Constellation Pharmaceuticals: Epigenetics pioneer Constellation added a corporate venture backer, GlaxoSmithKline's venture arm SR One, in a $22 million Series B financing announced June 2. In addition to SR One, previous investors Third Rock Ventures, The Column Group, Venrock Associates, and Altitude Life Science Ventures, which led the company’s $32 million Series A in 2008, all participated in the round. SR One’s cash should help Constellation keep pace with its main competitor, Epizyme, which obtained backing from Amgen Ventures and Astellas Venture Management in its own $40 million Series B last fall. Neither company has reached the clinic. Both are focused primarily on cancer, but Constellation of Cambridge, Mass. hopes to move eventually into diabetes, autoimmune, inflammatory and neurological diseases. Epigenetics focuses on chemical modification to chromatin, the proteins that package DNA, to create therapeutics that influence gene expression. Two classes of such drugs already are on the market: Celgene’s Vidaza and Eisai’s Dacogen, both DNA-methylation molecules approved for myelodysplastic syndromes, and Merck’s Vorinostat, a histone deacetylase (HDAC) inhibitor for T-cell cutaneous lymphoma. At least two other HDAC inhibitors are in late-stage development for oncology indications. -- Joseph Haas

Extra thanks to Mark Ratner for help with this week's post. Photo courtesy of flickr user avmaier.

Financings of the Fortnight Needs a Haircut

The first time we used this awful image to the right was about three years ago, when seemingly well-positioned biotechs destined for snazzy IPOs were running into a wall of scissors and electric razors wielded by public investors.

It turns out that in most cases their arguments that biotech offerings were overpriced were pretty accurate, if you consider how those biotechs that went public during the 2005-2008 timeframe have performed in the market.

We presented the data below (click image to enlarge) at our Pharmaceutical Strategic Outlook meeting this week in New York. An investment in the collective IPOs from 2005-2008 would have returned only 6% as of this Tuesday. Keeping in mind the market value performance illustrated in this chart comes after the steep discounts demanded by public investors, it's an ugly picture indeed. The success stories (among which we'd include Pharmasset, the subject of that 2007 post) are few and far between. In addition to the companies represented by the bars below, eleven were acquired, but the vast majority of those deals were done at valuations well below where companies were when they IPO'd.

Which brings us around to this week's non-debut of Anthera, a closely watched pricing event that wasn't. Anthera was due to raise up to $64 million by selling shares to the public at $13-15 per. That offering was postponed on Wednesday, while investors chewed over a new $8-9 per share price tag that could raise $54 million for the company.

It didn't take long for Anthera to trim that price yet again. Today an amended filing says the biotech will raise up to $42 million by selling shares at $7 apiece. For those of you keeping score at home that's a 50% haircut from the midpoint of its initial range.

Anthera is being watched closely as a barometer for investor interest in biotech IPOs. It's not hard to see that interest isn't exactly rabid.

Eleven Biotherapeutics: This me-better biologics play raised $35 million in a Series A round led by Flagship Ventures and Third Rock Ventures on Feb. 17. Asked to describe whether this was the entirety of the Series A of if more was to come, CEO David St. Hubbins* replied* "Well, I don't really think that the end can be assessed as of itself as being the end because what does the end feel like? It's like saying when you try to extrapolate the end of the universe, you say, if the universe is indeed infinite, then how - what does that mean? How far is all the way, and then if it stops, what's stopping it, and what's behind what's stopping it? So, what's the end, you know, is my question to you." (*For a more accurate version of what Eleven's management actually said, check out this piece in "The Pink Sheet" DAILY.)--CM

Labopharm: Just two months after agreeing to a $25 million standby equity distribution agreement with Yorkville Advisors, this Laval, Quebec, firm took a more conventional route to fundraising, closing a follow-on public offering Feb. 18 that including the overallotment netted $21.6 million. Labopharm, which specializes controlled-release technologies will use the funds largely to prepare for launch of its second US product, Oleptro, a once-daily formulation of trazodone approved by FDA for major depressive disorder on Feb. 3. The company has said it is opening to licensing out the drug or doing some form of co-promotion, and that its FOPO cash would support those efforts as well as launch. Like many FOPOs of recent months, Labopharm’s deal is somewhat warrant-heavy. It sold 13.5 million shares at $1.70 per unit, with each unit comprising a full share and a warrant for half a share. During a 30-month period beginning six months from closing, warrant holders can redeem their warrants for up to 5.9 million additional shares in Labopharm, at $2.30 per share.--Joseph Haas

Tioga Pharmaceuticals: Just over four years after pulling in $24 million via its Series A financing, GI drug player Tioga Pharmaceuticals completed its Series B round on February 17, raising $18 million from new investor Genesys Capital Partners, which participated with previous backers Forward Ventures, New Leaf Ventures, and BB Biotech Ventures. Tioga is placing all bets on asimadoline, an oral selective kappa opioid agonist it obtained when it spun out of Merck KGAA in 2005. The European pharma had been developing the candidate for musculoskeletal pain, but it failed to show efficacy in early studies. Merck eventually saw more potential in treating the visceral pain and bowel motility associated with IBS and as part of a reorganization to focus on cancer and cardiometabolic diseases, sold the asset to Tioga (for more history on Tioga, see our START-UP profile). Since asimadoline had been extensively tested in the past, Tioga had an advantage that other start-ups typically don’t have, which is to almost immediately start a large-scale efficacy trial, and at a much lower cost. The Series B money will support a US Phase III trial--one of two registration trials needed to get the drug approved in the US—slated to begin in March in 600 patients with diarrhea-predominant IBS. Perhaps Tioga is following in the footsteps of Movetis, another GI-focused company that began operations with discarded large pharma GI assets; and that wouldn’t be such a bad thing–Movetis has managed to bring its chronic constipation drug Resolor to the market in Europe. It also pulled off a successful IPO this past December and is still trading above its IPO price.--Amanda Micklus

Financings of the Fortnight's Symphonic Overtones

Not to hijack FOTF for what is clearly DOTW territory, but how about that Alexza deal with Biovail, eh?

Alexza licensed its novel loxapine formulation, which is being developed for schizophrenia and bipolar patients with acute agitation and is delivered via its Staccato single-dose inhaler, to serial CNS in-licensor Biovail yesterday for $40 million up-front and--you know what? You'll have to wait for DOTW to get the rest of our take on the deal (or read up on it in Thursday's Pink Sheet Daily). [You could also come to our annual Pharmaceutical Strategic Outlook confab (Feb. 24th and 25th in NYC) and get the skinny straight from Alexza's CEO Tom King.]

But this being a financing post, what interests us most for now is how Alexza was able to get its drug candidate through the clinic in the first place. (It awaits an FDA decision later this year). The answer: project financing.


But here's the rub. Even though Alexza's drug has been quite successful in the clinic--and now on the deal front--the biotech's arrangement with Symphony didn't have its financier singing the sweetest of tunes.

In 2006 Alexza got $50 million from Symphony to push forward two projects, effectively forming a newco to fund their development (Symphony Allegro). Symphony also got 2 million warrants to buy Alexza shares at $9.91 apiece. AZ-004 and AZ-002 (the latter drug, a Staccato formulation of alprazolam, posted "inconclusive" results in a Phase IIa study in patients with panic attacks) could be repurchased by Alexza following proof-of-concept for a set price--nearly twice what Symphony paid. Alexza whisked 004 through the clinic pretty quickly, but for Symphony's model to work, Alexza's share price needed to rise enough for the biotech to access non-dilutive funding to take the programs back from Symphony (see the deal specs here).

And that didn't happen. Alexza's shares were waaaaay under water, despite the clinical success of 004. For the biotech to buyback its programs from Symphony Allegro, the terms of the deal needed to be renegotiated. In June 2009, the companies did just that: Alexza bought back 004, 002 and 104 (a low dose version of 004 for migraine, added to the deal in 2007) for about $18 million in a stock transaction that gave Symphony about a 23% stake in the biotech.

Symphony still hasn't earned back its $50 million, even on paper. Its 23% stake is valued somewhere around $33 million (its warrant coverage--under the renegotiation that's 5mm warrants to buy shares at $2.26 for five years--has bobbed above and below the surface since the terms were amended). Even the Biovail deal didn't seem to move investors, who pushed shares of Alexza lower on the news, to close at $2.62 on the day.

For more on Symphony's model--and the hard times it faces as investors are increasingly unmoved by positive clinical news--see this January 2009 IN VIVO feature and this June 2009 story from "The Pink Sheet".)

Symphony had seen the model work before (its deal with Isis, for example) but without help from the public markets, it was dead in the water. AZ-004 may get the nod from FDA later this year and turn into a success for all concerned, and a relief for Symphony. Allegro was much more of a project than it bargained for.


Ironwood Pharmaceuticals: Is it one of the financings of the fortnight? For sure. Have we already given you our take on this deal? Yes (blog), yes (Pink Sheet Daily) and yes (Pink Sheet). Are we going to do it again? Not so much. Eh, not yet, anyway.--CM

Alnara Pharmaceuticals: This Cambridge, Mass.-based biotech really brought home the bacon for liprotamase, its Phase III recombinant, non-porcine pancreatic enzyme replacement therapy, by raising $35 million in a Series B round that closed Jan. 28. (Click here for our Strategic Transactions deal record.) Liprotamase, being developed as an oral, non-systemic tablet for exocrine pancreatic insufficiency in cystic fibrosis patients, successfully completed its Phase III development program last fall. Currently available PERTs are made by harvesting pancreatic enzymes from pigs. MPM Capital, which led the Series B round, sees great potential in the product and will place its managing director, Ashley Dombkowski, on the company’s board. MPM was joined in the round by returning investors Third Rock Ventures, Frazier Healthcare and Bessemer Venture Partners. Noting that Alnara remains on track to file an NDA for liprotamase this quarter, Dombkowski hailed the medicine's “positive long-term safety and nutritionally relevant data” and said the filing will place Alnara “on the cusp of significant value creation opportunities.” In addition to the imminent filing, Alnara also is developing a second formulation of liprotamase for the pediatric CF population. --Joseph Haas

Syndax Pharmaceuticals: When START-UP profiled Syndax Pharmaceuticals in the 2007 A-List group, the young biotech had essentially just started operations with an HDAC inhibitor program in-licensed from Bayer Schering AG, and a platform built on theory that epigenetic changes to the tumor phenotype would restore targets that sensitize tumors to treatment and reduce resistance to targeted combination therapy. A few years later, investor interest in this cancer player has not waned--on February 3, Syndax filed a Form D revealing it’s raised an additional $9 million on top of the $40 million Series A from 2007. (MPM Capital, Domain Associates, and Pappas Ventures are among the company’s previous backers.) And Syndax could still draw down another $7 million in this tranche, bringing the Series A total potentially to $56 million. Syndax is still awaiting Phase II data on entinostat (SNDX275)--its lead candidate from the Bayer deal targeting the HDAC isoforms 1, 2, and 3--in combination with a number of drugs including erlotinib and azacitidine. Trial results are expected at the end of 2010. For venture backer MPM, this is the second big investment in epigenetics; the VC has also heavily backed Epizyme, which in October '09 announced its $40 million Series B.--Amanda Micklus

Merus BV: Corporate venture continues to be a relatively reliable source of funding for early-stage biotechs. (For our takes on corporate venture, see here and here). One of the most active corp VCshas struck again: the Novartis Option Fund (part of the Novartis Venture Funds) was a lead investor on Merus BV’s €21.7 million ($30.7 million) Series B financing, announced on January 29. Pfizer, Bay City Capital, Life Science Partners, and Series A backer Aglaia Oncology Fund also participated. Merus, a seven-year-old Dutch biotech, has two platforms (both derived from the MeMo transgenic mouse): one produces full-length bispecific antibodies; the other, called Oligoclonics, generates combinations of three to five monoclonal antibodies sourced from one clonal cell line (the PER.C6 line, exclusively licensed from Crucell NV in 2004). Merus believes this Oligoclonic mixture of multiple antibodies, which have the same immunoglobulin light chain variable so that all binding sites are functional, will be more efficacious than a single monoclonal antibody. The Series B is the first disclosed amount of venture financing for the company (it raised an undisclosed sum in its January 2006 Series A). With the current round, Merus expect to have enough cash to move its candidates for oncology, inflammation, and infectious disease into Phase I. Meanwhile, as is its M.O., NOF has secured an exclusive option to the cancer program in exchange for an up-front payment and milestones, all of which could total $200 million, plus sales royalties.--AM

flickr image by Lady T 220 used under a creative commons license

DotW: IPO Medicine

The big news this week for early stage biotechs and their VC backers: The IPO Window is Officially Open!

Or maybe not.

As my colleague Alex Lash describes in this week's issue of "The Pink Sheet", Ironwood Pharmaceuticals' $188 million IPO is the proverbial elephant among the blind men. How you perceived it, depended upon where you touched it.

Let's start with the good news. Ironwood raised more money with this offering than any U.S. biotech in the past 10 years, nabbing a $1 billion post money valuation. (Only Eyetech Pharmaceuticals' 2004 $150 million raise comes close.) The company's stock price has even increased, albeit only modestly since the debut.

But for investors and would be IPO candidates, the offering was a lesson in caution. Several weeks prior to Wednesday's debut, Ironwood made the gutsy move of actually increasing its offer price 28%, confident that investor appetite for its shares would be robust based on the pre-come-out road show.

Let's just say things didn't exactly go as forecast. On Feb. 3, the company sold 16.7million shares at $11.25, significantly below its revised target range of $14 to $16 a share, and modestly below the $11.75 target predicted in SEC filings in November 2009. Moreover, nearly half the offer went to Morgan Stanley, one of Ironwood's top private investors and a banker on the deal. "There were unorthodox methods used to place shares," Cabot Brown, of San Francisco boutique bank Seven Hills, which had no connection to the deal, told our sister pub "The Pink Sheet" DAILY. "This was half a public offering."

Indeed, taken together, Ironwood's close shave and the apparent lack of widespread interest in the offering suggest investors pushed back hard or Ironwood's attempts to hit a grand slam instead of a home run.

And that could be a problem for IPO wannabees in the queue. After all few venture-backed, pre-commercial biotechs can match Ironwood's profile. The 10-year-old company's Phase III compound, linaclotide, is backed by strong clinical data and partnered on three different continents. It faces only two competitors, one in the U.S. (Amitiza from Sucampo and Takeda) and one in Europe (Resolor from Belgian firm Movetis, which incidentally managed a lucrative IPO last December).

So if investors aren't lapping up Ironwood's offering, will they have greater interest in a company like Tengion or Trius Therapeutics or Anthera, or any of the other 7 biotechs that have declared their intent to go public? (On the same day as Ironwood's debut, Anthera priced its offering at $13 to $15 a share, for a total expected raise of slightly less than its original $70 million target. It's slated to debut the week of Feb. 22.)

And should these subsequent offerings fall flat--or worse--how will that, in turn, impact the IPO climate? According to Elsevier's Strategic Transactions database, there are at least 10 privately-held biopharmas with compounds in Phase II development or later who are--how can we put this delicately?--long in the tooth when it comes to fund raising. Indeed it wouldn't surprise IN VIVO blog at all to learn companies like Portola Therapeutics, Helicon Therapeutics, and Biolex were mulling potential IPOs.

Still, venture's inability to finance itself adequately means there could be a movement to push some of these fledgling biotechs out of the financing nest before they are ready to fly solo. And rest assured, a few lackluster offerings won't just close the IPO window for brave biotechs. It will slam shut faster than Washington D.C. in a snowstorm.

Big questions to ponder as the snow falls--#snOMG!--and you rate the ads from Careerbuilder.com, Budweiser, and Frito-Lay. (Wait, there's a game?) For now, it's on to Deals of the Week.


GlaxoSmithKline/Apeiron: GSK continues to access early stage innovative programs through small, back-end weighted licensing agreements. This week the big pharma inked a deal with privately-owned Apeiron worth $17.5 million in upfront cash and equity for full rights to the biotech’s Phase I biologic for acute respiratory distress syndrome (ARDS), an adverse event associated with sepsis, trauma, and post-operative complications that affects approximately 1 million people annually in emerged markets. Glaxo could be on the hook for another £207 milllion in development milestones as well as sales royalties should Aperion’s asset, APN01, a recombinant human Angiotensin Converting Enzyme-2, succeed in three indications. Although this is far from big money for GSK, the upfront payment exceeds the £10 million Apeiron has raised from Austrian and European grants and angel backers. (Apeiron is one of a growing number of companies eschewing VC.) GSK’s respiratory CEDD, one of the half-dozen semi-autonomous therapeutic areas focused units comprising GSK’s R&D operations, gets credit for the deal. But it may have its hands full when it comes to APN01’s development. As “The Pink Sheet” DAILY notes, the track records for drugs for similarly complex—and associated—conditions such as sepsis show why the unmet medical need remains high. (Xigris anyone?)—Melanie Senior

Cephalon/Mepha: Generics, that low margin, but inherently stable business, remains a sexy proposition. Any doubts look no further than Cephalon’s purchase this week of the private Swiss generics firm Mepha for $590 million. One year after it launched the option-to-acquire party with its $100 million bid for Ception, a privately held biotech developing the Phase IIb/Phase III reslizumab for the rare autoimmune condition eosinophilic esophagitis, Cephalon is now talking up diversification and internationalization. (Or is the internationalisation?) “This is about growing top-line and bottom line, and generating cash,” Cephalon CEO Frank Baldino said on a conference call announcing the deal. Like other drug makers (including Pfizer), Cephalon’s late stage pipeline is thin and the specialty pharma faces revenue pressure given the 2012 genericization of its juggernaut, Provigil. In addition to providing much needed near-term revenue, this deal is also about building a European commercial infrastructure. Thanks partly to Mepha, 30% of Cephalon’s global sales will now be ex-US. Bidding for Mepha, owned by Germany’s Merckle family and sister to ratiopharm, another generics firm on the auction block, was apparently competitive. Still the ultimate price tag for the deal was just 1.5 times Mepha’s 2009 sales.—Jessica Merrill and Ellen Licking

Medco/DNA Direct: On Feb. 2, the pharmacy benefits manager Medco announced the acquisition of privately-held DNA Direct, a decision support services outfit for payors, providers, and patients to help ensure the appropriate use of more than 2,000 available genetic and molecular diagnostic tests. Financial terms of the deal were not disclosed. Five-year-old DNA Direct, which had backing from Firefly Investment and Lehmi Ventures, will become a wholly-owned Medco subsidiary and its current prez, Ryan Phelan, will remain at the helm. The deal was apparently driven by Medco’s need to bolster its commercial side rather than its R&D capabilities, according to “The Pink Sheet” DAILY. DNA Direct charges fees only for its consulting services; it does not make money on the tests it recommends and supplies to individuals. The company started out focused on the consumer, but has shifted to a B2B model in which it helps health plans choose appropriate genetic tests for their physicians and members. Thus, it’s a good fit with Medco's personalized medicine program. The deal comes approximately three years after Medco reorganized the front end of its pharmacy operations into Therapeutic Resource Centers, a network of six sites each focused on one disease. Medco is not the only PBM to tap into the burgeoning genetic counseling market. In November, CVS Caremark announced a partnership with genetic benefits manager Generation Health.—Mark Ratner

Abbott/Pierre Fabre: Abbott continues to look for alliances or acquisitions in high growth therapeutics areas, this week inking a deal for Pierre Fabre’s preclinical antibody targeting the cMet receptor, h224G11. cMet’s definitely a target that’s caught Big Pharma’s attention. Late last year, Novartis ponied up $150 million (plus $60 million in near term milestones) to acquire Incyte’s Phase III JAK 1/JAK2 inhibitor and its Phase I oral cMet inhibitor. In that transaction, acquiring rights to the late stage JAK1/JAK2 inhibitor clearly drove the deal economics, so it’s a bit surprising to discover Abbott is paying $25 million upfront, plus two years of research expenses and undisclosed milestones to get its hands on Pierre Fabre’s not yet studied in humans mAB. (Who says you have to get to POC to make money on a deal?) Under the terms of the collaboration, Abbott will be responsible for all further development of h224G11, which has shown promising results in treating a range of solid tumors (including prostate, lung and gastric cancers), as well as the mediation of chemotherapy resistance. The addition of h224G11 bolsters the Big Pharma’s oncology pipeline, which also includes a PARP inhibitor and a monoclonal antibody targeting a unique epitope of the epidermal growth factor receptor. Beyond oncology, other priority therapeutic areas include cardiovascular disease, immunology, and pain. In November 2009 Abbott paid $170 million to acquire PanGenetics’ treatment for chronic pain, an antibody targeting nerve growth factor.--EFL

Qiagen/Pfizer: Pfizer has enlisted Qiagen to develop a companion diagnostic for its experimental glioblastoma immunotherapy PF-04948568, which Pfizer licensed from Celldex Therapeutics in 2008. The diagnostic, a real-time PCR assay to detect the EGF receptor variant vIII RNA, was one of the programs underway at DxS, which Qiagen acquired in September and has now established as its Manchester, UK, Center of Excellence for Companion Diagnostics. Terms were not disclosed, but it’s always good news for the field of personalized medicine when a pharma company reaches out for development of a companion diagnostic – especially when it’s done early in clinical trials, in this case at Phase II. Qiagen is among the more interesting emerging players in molecular diagnostics. Historically a supplier of kits and reagents, not a developer of tests (at least that was the case prior to its acquisition of Digene), Qiagen’s emphasis has always been on simplicity of processes and procedures. It appears to be adopting the same philosophy with molecular diagnostics development: in the press release announcing the deal, it specifically noted that the new test was designed for a simple workflow.--MR

Image courtesy of flickrer higlu via a creative commons license.

Venture Round: An IPO To Do List

KPMG LLC released a survey this week declaring that a venture capitalist don't expect to see a "consistent flow" of IPOs until 2010.

Odd, dire predictions like that coming from an industry populated by eternal optimists. (We later learned the survey of 297 included venture capitalists, corporate buyers, bankers and entrepreneurs.)

Ah well, as we've discussed in the past, times are tough. However, our own private survey of a few investment bankers paints a slightly brighter picture for life sciences IPOs. But it's only slightly brighter.
However, as we noted in our upcoming IN VIVO magazine, predicting when the IPO window will open is not unlike trying to predict when the winter's snow will melt. Yes, it'll happen eventually, when the weather gets warmer, and if you project out far enough into the spring calendar you've got a greater chance of being correct.

But so many macro-economic factors must be taken into account when crystal balling the IPO market. Fortunately for us, investment bank Jefferies & Co. Inc. presented us with a clear road map of what must happen for medical device and biopharmaceutical IPOs to return.

(Jefferies also provided us with some fascinating data tracking IPO success with stage of company. The results will surprise. Check out the magazine.)

Bottom line, our gurus are hoping to see things coming around sometime next year. But so many balls still hang high in the air.

***

Not surprising but certainly worth noting: SR One Ltd., one of the more if not the most venerable of corporate venturing programs, has seen its last days as an independent entity. It's merging into the new GSK Ventures, according to this morning's VentureWire Lifescience.

We suggested this would happen when we broke the news on GSK Ventures back in May. True, SR One had staying power. The unit has existed since 1985 when Peter Sears started to invest on behalf of SmithKline Beckman.

But the group's West Conshohocken office must have been equipped with a revolving door to handle all the changes in management since Sears' retirement a decade ago. The units managers have swung in and out of the place leaving for opportunities in the venture world or back at Daddy corporate.

GSK Ventures new manager Russell Grieg, a direct report to Andrew Witty, the new GSK CEO, will work from the group's office in Pennsylvannia, according to the report. SR One's web says the group has moved to East, we presume, to Conshohocken.

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Is the out of control locomotive starting beginning to slow? VentureWire reported this week that first half investments in healthcare companies dropped 30% compared to the same period last year. Overall venture capital dropped only 12.4%

The $1.97 billion Q2 total is off 22.1% from the $2.53 billion invested in the corresponding period in 2007, a year in which VCs funneled a record $10.17 billion into the sector. So far this year, firms have invested a total of $3.8 billion in health care, down from the $5.5 billion they had funneled into the sector by the end of June 2007.

[In the biopharma sectors VCs] invested $1.07 billion last quarter, down 15% from the $1.26 billion sunk into the sector in Q2 of 2007. This year's first-half biopharma total of $1.88 billion is down 41% from the $3.1 billion in the first half of 2007, and is the lowest since 2005, when firms had invested $1.73 billion into biopharmaceutical concerns through two quarters.

Medical-device funding is also down. Investors put $797.6 million into devices companies in the second quarter, down from $1.05 billion in second quarter of 2007. Device investing stands at $1.6 billion for first two quarters, down from $2.07 billion last year.

We generally agree with the VCs quoted in the artice. This seems like a healthy correction and a wise one given the current economic state. But we'll provide deeper analysis of our own fund-raising data in the September Start-Up.

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VentureWire Lifescience also confirmed what we reported a few weeks ago. Foundation Medical Partners is raising a fund. VWLS puts the target at $150 million which sounds about right to us....VWLS also says that OrbiMed Advisors has hit the $150 million for its Pan-Asian health care fund, Caduceus Asia Partners LP. OrbiMed added to its Asia-based team with the hiring of Sunny Sharma, a private equity partner in Mumbai. Sharma joins managing directors Nancy Chang and Jonathan Wang. Sharma previously had been managing director of Easton Capital.

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Remember the VC Comic? They brought a little bit of laughter to an otherwise dreary day of venture capital reporters who covered the stone-cold life sciences industry rather than the red hot Internet investments. Of course, we got the the most important laugh--the last one--a few years later. (Thanks to HEC Paris Private Equity and Venture Capital Club blog.)

The Euro-Next Biotech Bubble?

Just when Europe’s biotech sector appears to have regained some of the confidence lost after the last boom-and-bust, there are signs that history might be about to repeat itself.

At least, in the Benelux countries and on Euronext. The strong post-IPO performance of a good handful of Belgium, Dutch and French biotechs has prompted some of Europe’s investors to warn of a potential “Euronext bubble”—along the lines of that seen on Germany’s now-defunct Neuer Markt during the late 90s.

Stocks such as TiGenix, which listed in March in Belgium, or Metabolic Explorer which IPO’d in Paris in April are up more than 30%--performing a lot better than their UK counterparts on AIM. “Yet I refuse to believe they’re really worth that much more,” said William Brooks, Senior Investment Manager at Belgium-based Quest Management, at BioEquity Europe in Glasgow yesterday.

Brooks told the IN VIVO Blog that this almost-bubble is being driven by “inexperienced” Benelux banks, and a high proportion of “retail dentists and doctors”, lured by government-driven tax incentives and faced with meagre interest payments on bank savings. Companies are floating too early, and raising sub-optimal amounts—it’s the German Biotech Boom all over again.

So are sensible investors staying away this time? Apparently not. “You can’t not take part,” says one, even if it means dipping in and out in six months. Aspiring biotechs are seizing the opportunity: Amsterdam Molecular Therapeutics yesterday announced its intention to float in Holland—and it’s in gene therapy, hardly the sexiest, or safest, field to play in.

Meantime the UK market has seriously lost its flair, according to Gareth Powell, fund manager at AXA Framlington, in part because UK investors haven’t seen a real winner to get excited about. Any activity there is “is being driven by M&A activity, not by us,” chorus the buy-side investors. As for internationally-focused US investors: they still haven’t forgotten British Biotech, says MPM’s Kurt von Emster.

So with Benelux frothy, and the UK anemic, where should an aspiring young biotech list in Europe? Germany’s treading water. Like the UK, it has painful memories. Switzerland would seem a good bet—home to Europe’s biggest biotechs and plenty of healthcare-savvy investors, and with—as yet—no major disappointments. Addex happily became Switzerland’s newest public biotech earlier this week, raising CHF137 million at the upper end of its range.

If you’re not of Roche or Novartis pedigree, though, Switzerland might not prove a wise choice either. “If I were a VC-backed start-up, I wouldn’t go there, either,” warns William Blair, investment director at Scottish Widows.

Still, there’s always Australia. “We’re seeing now in Asia and Australian biotech what we saw in Europe ten years ago,” remarked MPM’s von Emster. “There’s an Australian biotech in my office almost every day; they’ve taken a huge step,” he says.

Look out, Europe.