Two Life Science Companies Manage to Pry Open IPO Window

The Burrill Report submits: by Marie Daghlian Two life sciences managed to crack open the IPO window this week, although neither was a biotech company and both were backed by private equity firms rather than venture capital. Also, it’s worth noting, both were profitable. But the flood of secondary offerings initiated as a response to positive clinical trials data may portend the likelihood of a biotech IPO by the end of the year. A recently published Bio/Thomson Reuters investor perception study forecast a rebound of the biotechnology industry, but underestimated the degree to which positive clinical trial data would drive the sector higher. The survey also found that the increase in market volatility and uncertainty has lowered investors’ tolerance for risk and has raised the thresholds companies must clear for each risk measure. That said, it is easy to understand why the first life science IPOs in nearly two years come from a specialty pharma company and a healthcare industry services provider. On August 11, the specialty pharma Cumberland Pharmaceuticals (CPIX), which had waited two years to consummate its coming out, priced an initial public offering of 5 million shares at $17 per share, $2 below its estimated price range. The company is raising $85 million in gross proceeds. Cumberland has two marketed products and is about to launch Caldolor, the first injectable treatment for pain and fever available in the United States. UBS Investment Bank, Jefferies & Company, and Wells Fargo Securities acted as book-running managers for the offering, and Morgan Joseph acted as co-manager. Wall Street’s reception was tepid and the stock closed its first day of trading on Nasdaq at $16.83, down 17 cents a share, after earlier rising as high as $17.75. The following day, healthcare IT company Emdeon (EM) had a stronger debut on the New York Stock Exchange, coming out at $15.50 per share, the top of its range. Emdeon sold 23.7 million shares, 2 million more than expected, to raise $365.7 million in an IPO led by Morgan Stanley, Goldman Sachs, UBS Investment Band, and Barclays Capital. Emdeon provides medical claims processing services to U.S. healthcare providers. Seen as likely to benefit from the Obama Administration’s healthcare reform initiatives, investors were bullish on the company, and the stock closed the first day of trading at $16.52 a share, up 6.6 percent from its initial public offering price. The strong tide of follow-on offerings continued during the week. Seattle Genetics (SGEN) raised $136 million as the underwriters of its public offering exercised in full their option to purchase additional shares. The company sold an aggregate of 12.65 million shares at $10.75, before underwriting discounts and expenses. J.P. Morgan Securities and Goldman, Sachs acted as joint book-running managers of the offering. Needham & Company, Oppenheimer & Co., RBC Capital Markets, and William Blair & Company acted as co-managers of the offering. Seattle Genetics has developed an “empowered antibody” against Hodgkin’s disease and is currently recruiting patients for a pivotal study. The company hopes to get its drug on the market as soon as the end of 2011. Life science venture capital investment has continued to maintain a steady growth momentum. The past week saw money flow into a wide range of companies. Pacific Biosciences raised an additional $68 million in financing. New investors Monsanto, the Wellcome Trust, and Sutter Hill Ventures joined many of the company's previous investors in this latest financing round. Including this round, Pacific Biosciences has raised $188 million in slightly over a year. The company’s long list of previous investors includes: Deerfield Management, Intel Capital, Morgan Stanley, Redmile Group, T. Rowe Price, Mohr Davidow Ventures, Kleiner Perkins Caufield & Byers, Alloy Ventures, Maverick Capital, AllianceBernstein, DAG Ventures, Teachers’ Private Capital, and Blackstone Cleantech Venture Partners. The Menlo Park, California-based company is one of a handful of small biotechs developing “third-generation” single molecule sequencing technology that are racing to develop the $1,000 genome. The new financing was announced just days after Stephen Quake, co-founder of Helicos BioSciences, published a paper in Nature Biotechnology where he used single molecule sequencing technology from his company to sequence his entire genome for $48,000. There have only been eight individual genomes published until now. Pacific Biosciences claims that its platform, which it plans to launch commercially in the second half of 2010, will cut the time it takes to sequence a genome from eight to 10 days down to five to 30 minutes. The company has received an Advanced Sequencing Technology Award grant from the National Human Genome Research Institute to develop the $1,000 genome. Enobia Pharma, a privately-held Montreal based biotech company focused on developing novel therapeutics for serious bone disorders, raised $50 million in a series C financing from current investors OrbiMed Advisors of New York, CTI Life Sciences Fund of Montreal, the Fonds de Solidarite FTQ, Desjardins Venture Capital, and Lothian Partners. Previously, Enobia raised $36.5 million in a series B financing in August 2007. Most of the current financing will be used to support an ongoing development program for ENB-0040, Enobia's enzyme replacement therapy for hypophosphatasia, a rare and potentially deadly genetic bone disorder for which there is no currently approved therapy. ENB-0040, the company’s lead program, was awarded orphan designation in the United States and European Union in 2008 and Fast Track status from the FDA in 2009. Constellation Pharmaceuticals is developing an epigenetic platform, focusing on selective regulators of gene function and expression, to discover novel compounds that can be applied to many therapeutic areas. The Cambridge, Massachusetts biotech closed a $17.2-million third tranche its $32-million series A financing round from Third Rock Ventures, The Column Group, Venrock, and Altitude Life Science Ventures. Chimerix, a North Carolina-based biotech developing orally available antiviral therapeutics, completed a $16.1-million series E financing from previous investors Canaan Partners, Alta Partners, Sanderling Ventures, and Asset Management Company. Proceeds from the financing will primarily be used to expand Chimerix’ clinical development program for its lead drug candidate, CMX001, a broad-spectrum antiviral drug, currently being evaluated for the treatment of cytomegalovirus and BK virus in Phase II clinical trials. CMX001 is also being developed as a biodefense agent for the treatment of smallpox and complications associated with smallpox vaccination. Activity was sparse in the M&A and partnering arena. Forest Laboratories (FRX) entered into a definitive collaboration and distribution agreement for Swiss pharmaceutical company Nycomed’s Daxas (roflumilast) in the United States. Nycomed submitted an NDA with the FDA in July for Daxas for the treatment of COPD (chronic obstructive pulmonary disease). Under the terms of the agreement, Forest will make an upfront payment to Nycomed of $100 million and will pay future, undisclosed milestone payments. In addition, Nycomed will receive royalties based on Daxas sales. Forest will assume responsibility for the US regulatory approval and commercialization of Daxas in the United States and the companies will collaborate on future development programs. COPD ranks as the world’s fifth biggest cause of death. Daxas represents the first in a new class of COPD treatments and would be the first oral therapy to be approved for the disease. If approved, Daxas has blockbuster potential and would compete directly with GlaxoSmithKline’s (GSK) Advair which earned more than $6 billion in 2006. Massachusetts biotech CombinatoRx struck a collaboration and licensing deal with Clinical Data (CLDA) to develop an adenosine A2A agonist compound in a combination therapy for multiple myeloma and other B-cell cancers. Under the agreement, Clinical Data licensed its highly selective adenosine A2A agonist, ATL313, to CombinatoRx in exchange for the potential to receive up to $252 million in clinical, regulatory, and commercial milestones, as well as royalties on product sales. Clinical Data also retains a co-development option, which is exercisable after review of any Phase IIa study results. As part of the agreement, Clinical Data will contribute ATL313, a promising late-stage, preclinical compound, while CombinatoRx will take responsibility for the preclinical and clinical development of ATL313 to potentially treat B-cell malignancies. Martek Biosciences (MATK), a leader in the development and production of high-value oils from algae and other microbial sources for the nutraceuticals market, signed a joint development agreement with BP, one of the world’s largest energy companies, to work on the production of microbial oils for biofuels applications and advance the development of a step-change technology for the conversion of sugars into biodiesel. The companies will work together to establish proof of concept for large-scale, cost effective microbial biodiesel production through fermentation. BP has agreed to contribute up to $10 million to this initial phase of the collaboration. Martek will perform the biotechnology research and development, while BP will contribute to its integration within the biofuels value chain. All intellectual property owned prior to the execution of the JDA will be retained by each respective company, and all intellectual property developed during the JDA will be owned by BP, with an exclusive license to Martek for application and commercialization in nutrition, cosmetic and pharmaceutical applications. Finally, many small biotechs are still struggling. In its second quarter financial report, DeCODE Genetics (DCGN) said that it had only $3.8 million in cash reserves, but was burning $12 million per quarter, and “believes it has sufficient resources to fund operations only into the latter half of the third quarter.” The company is looking for buyers or licensing partners and new equity financing. DeCODE was a pioneer in the field of complex trait genetics but since its launch in 2000, the company has burned through $600 million and has never made a quarterly profit. It has, however, generated a large number of publications in Nature Genetics. Massachusetts biotech Altus Pharmaceuticals (ALTU) is looking for $10 million to finish a clinical trial. Its $8.1 million in cash will only see the company through to September. Xtent, based in Menlo Park, California, is going out of business. The company filed a certificate of dissolution effective August 27. And publicly held Targeted Genetics, a Seattle-based developer of gene therapies, said in its recently filed quarterly financial report that needed to raise additional capital to remain in business beyond August.

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