VC Financings Boost Interest in Biotech

by: The Burrill Report

Positive clinical trial results, strong venture capital investments and a billion-dollar buyout boosted biotech companies this past week. Although venture capitalists are having trouble raising money and have cut back on investing, biotechnology and medical device companies accounted for $1.5 billion of a total $3.7 billion invested in start-up companies in the second quarter of 2009, the highest percentage of total VC investment ever, according to the National Venture Capital Association and PricewaterhouseCoopers.

The week started off with positive drug data on Monday from Human Genome Sciences (HGSI) on its experimental lupus drug, nearly quadrupling the price of its shares, and raising investor interest in the battered arena of small-cap biotech companies, which are now seen as value plays. Then on Tuesday, Orexigen (NASDAQ:OREX) said its diet drug Contrave, a longer lasting form of two generic compounds, helped people lose weight in all three of its big clinical trials. That should clear the way for the San Diego biotech to file for approval to market the drug with the U.S. Food and Drug Administration within the next year. Onyx’s (NASDAQ:ONXX) encouraging mid-stage breast cancer results for Nexavar on Wednesday also whetted investors’ appetite for biotech.
Then on Thursday, Medarex’s (MEDX) shares soared 89 percent when Bristol-Myers Squibb (NYSE:BMY) announced that it was buying the Princeton, New Jersey-based biotech for $16 per share in cash, a 90 percent premium to its closing price on Wednesday. The total deal value of $2.4 billion includes Medarex’s projected $300 million in net cash and marketable securities at closing and the implied purchase price of approximately $2.1 billion.
The strategic acquisition, approved by the boards of directors of both companies, strengthens Bristol’s position in biologics and takes the sting out of its failed attempt to buy ImClone Systems (IMCL).
“Medarex’s technology platform, people and pipeline provide a strong complement to our company’s biologics strategy, specifically in immuno-oncology,” said James M. Cornelius, chairman and chief executive officer, Bristol-Myers Squibb. “With its productive and proven antibody discovery capabilities, ability to generate interesting therapeutic programs and unique set of pre-clinical and clinical assets in development, Medarex represents what we’re looking for in terms of our String of Pearls strategy. This acquisition is another important step in our BioPharma transformation.”
With the acquisition Bristol-Myers Squibb gains full rights to ipilimumab, an experimental drug for metastatic melanoma in late stage testing. The companies together have been developing the drug, which is also being studied in lung and prostate cancers. Bristol also gains rights to seven antibodies in clinical trials under Medarex’s sole sponsorship and three other antibodies being co-developed with other partners, and rights to pre-clinical assets in various stages of development by Medarex – in particular, monoclonal antibodies focused in oncology and immunology.
Bristol-Myers Squibb will finance the acquisition from its existing cash resources, estimated at about $9 billion. The deal is expected to close approximately 30 days after commencement of the tender offer.
Following up on the positive trial results of its experimental obesity drug Contrave, Orexigen Therapeutics priced an underwritten public offering of 10 million shares of its common stock at a price of $7.50 per share, a discount of 10 percent to its closing price on the previous day. The company expects net proceeds of approximately $70.9 million after expenses and has granted the underwriter a 30-day option to purchase up to an additional 1,500,000 shares of common stock to cover overallotments, if any. Shares of the company fell 5 percent to $7.88 on the news.
Cell Therapeutics (NASDAQ:CTIC) priced an underwritten public offering of approximately 37 million shares of common stock and warrants at a price to the public of $1.30 per share of common stock and warrant to purchase 0.25 shares of common stock, for gross proceeds of approximately $38.1 million. Cell Therapeutics hopes to use the money to pay down some of its debt and preserve cash long enough to win FDA approval of its lead cancer drug candidate. According to its stock prospectus, the Seattle, Washington-based company only had enough money left to operate into September.
Oraya Therapeutics, a Newark, California medical technology company developing radiosurgical treatments for eye diseases, raised $42 million in series C financing led by Scale Venture Partners and Domain Associates with current investors Essex Woodlands Health Ventures and Synergy Life Partners participating. Oraya will use the financing to expand its clinical trials with two independent international studies to support worldwide regulatory approval and commercial efforts for its treatment of wet age-related macular degeneration. Oraya has raised $22 million to date.
Another Newark, California medtech company, Novasys Medical, received $18.95 million in the second tranche of a series D preferred stock financing. Lead investor Versant Ventures was joined by new investors ThreeArch Partners and Skyline Ventures. and existing investors Alloy Ventures, Delphi Ventures, GBS Venture Partners and Hercules Technology Growth Capital. Novasys Medical develops innovative therapies in women's health. The company's initial focus is the development and commercialization of the Renessa System, a proprietary, non-surgical approach to the treatment of female stress urinary incontinence.
Not all biotech companies fared well during the week. Celera (NASDAQ:CRA) cut 80 employees, or 13 percent of its workforce, as it reported that it expects revenue for the second quarter of 2009 in the range of $40 million to $42 million, down from $42.8 million in the second quarter of 2008.
Finally, Epix Pharmaceuticals (NASDAQ:EPIX), which entered bankruptcy last week, says it is winding down its operations. The company does not believe there will be any money left for shareholders after the creditors are paid. All of its employees have been terminated, with the CEO staying on to wrap up.
[click to enlarge]
Click to enlarge