Life Science Companies Get Boost from Capital Markets

by: The Burrill Report


During the first week in June, small biotech companies continued to struggle, doing what they must to conserve cash and keep their most promising programs alive and on track. The capital markets, though, were starting to show signs of a shifting tide as public financings of life sciences companies took center stage, alongside some interesting collaborations. Pfizer's (NYSE:PFE) private European offering of $10.5 billion in senior unsecured notes in four separate issues turned it into a big fundraising week. The company said it would use the money to terminate the credit agreement it had taken out to fund the $68-billion buyout of Wyeth. As a backdrop to this activity, the unemployment rate in the United States reached 9.4 percent, the highest figure in the past 25 years, but the U.S. Department of Labor released figures that showed an easing of job losses.
Valeant Pharmaceuticals (NYSE:VRX), an international specialty pharma company developing treatments in neurology and dermatology, announced a private placement of $365 million. The principal amount was increased from the previously announced $300 million.
Two healthcare service companies also issued large debt offerings. US Oncology, an oncology services company, raised $465 million and Express Scripts (NASDAQ:ESRX), one of the largest pharmacy benefit management companies in North America, raised $2.5 billion in debt and $1.4 billion through the sale of 23 million shares of its common stock through a public offering. The money will be used to finance a portion of its previously announced $4.7-billion purchase of WellPoint's (WLP) pharmacy benefit management business.
With its coffers of cash, Big Pharma still dominates the partnering arena and seems to be less averse to doing earlier stage deals. For its first partnership deal, Massachusetts biotech Concert Pharmaceuticals signed an agreement with GlaxoSmithKline (NYSE:GSK) that could be worth up to $1 billion for the company over the next few years.
The companies will collaborate to develop and commercialize deuterium-containing medicines. The deal includes three of Concert’s research and development programs; namely, CTP-518, a protease inhibitor for the treatment of HIV, expected to enter Phase I clinical trials in the second half of 2009, a preclinical compound for chronic renal disease, and a third research product in Concert’s pipeline. Concert will also provide GSK with deuterium-modified versions of three GSK pipeline compounds for GSK to develop.
For its part, Concert will receive $35 million in upfront payments, including a $16.7-million equity investment by GSK. Concert is also eligible to receive milestones and tiered, double-digit royalties based on deuterium-containing products arising from both the Concert pipeline programs and the GSK pipeline compounds.
Concert will be responsible for research and development for each of its three programs, with GSK maintaining the option to obtain an exclusive, worldwide license to product candidates within the program and assuming responsibility for development and commercialization. Concert retains full rights to further develop and commercialize its product candidates in any program GSK chooses not to license.
GSK is already a strong player in the HIV arena, and recently formed a partnership with Pfizer to develop and market HIV drugs. For Concert, the partnership could be the first of many, a strong boost for its chemistry technology that can exchange some of the hydrogen in existing drug molecules with deuterium. Deuterium is a hydrogen-relative that can result in drugs with unique chemical composition that are potentially more effective than the original versions.
A chance meeting in an airport security line in Dublin led to an unusual agreement to investigate a novel combination anticancer regimen between pharmaceutical powerhouses AstraZeneca (NYSE:AZN) and Merck (NYSE:MRK). The companies will collaborate to research the combination of two investigational compounds, MK-2206 from Merck and AZD6244 from AstraZeneca to see if the combined administration can enhance their anticancer properties. Both compounds are designed to inhibit a protein known to be abnormally activated in human cancers. All development costs will be shared equally through the Phase I trial, after which the companies will consider opportunities for further clinical development.
Microsoft (NASDAQ:MSFT) stepped further into the life sciences arena with its purchase of Rosetta Biosoftware, a business unit of Rosetta Inpharmatics, which is owned by Merck. The deal will allow Microsoft to incorporate genetic, genomic, metabolomic, and proteomics data management software into the Microsoft Amalga Life Sciences platform for enhanced translational research capabilities. Merck also agreed to become a customer of the Amalga platform. This deal gives Microsoft a bioinformatics platform that is already developed and profitable, an existing customer list of almost 100 names in academia and industry.
Not all the news was positive, as small companies continue to struggle to maintain viability. Two San Diego biotech companies are shutting down. Nanogen will lay off all 89 employees based in San Diego by July 14, as the company moves forward with the sale of its assets to French firm Elitech for $25.7 million. The molecular diagnostics company filed for Chapter 11 bankruptcy protection, saying it was "unable to secure sufficient working capital or alternative corporate transactions to enable the company to service its debt obligations and fund its operations." The company's Italian affiliate will also be acquired by Elitech.
TorreyPines Therapeutics' board voted to liquidate the company’s assets after failing to find a buyer or to negotiate other alternatives allowing it to remain in business, even as it said it “continues to seek and will consider any reasonable alternative strategic or financing proposals presented to the company.” The company had laid off all but three employees in March. The company had been in trouble since October 2007 when it revealed unimpressive data on its acute migraine headache drug.
StemCells (STEM) decided to close its Australian division, Melbourne's Stem Cell Sciences, which had been the country's first dedicated stem cell biotech firm. Palo Alto-based StemCells had already acquired all of SCS intellectual property that included a portfolio of more than 20 patent families.
Finally, with no partner at hand, Anadys Pharmaceuticals (NASDAQ:ANDS) raised money and cut staff so that it could move its hepatitis C drug candidate ANA598 into mid-stage clinical trials. The company reduced its work force by 40 percent and suspended development of its second drug candidate for cancer. It also raised $17.5 million through private offering of common stock and warrants.