Life Science Looks to Big Pharma for Funding as Caution Still Reigns

Includes: MRK, RHHBY
by: The Burrill Report


Last week's flurry of public-share offerings must have been a blip on the radar screen, as most life sciences companies look to private investors for much needed cash. And while the number of PIPEs and venture-capital financings continues at a fairly good clip, the data reveal that individual deals are smaller and smaller. Partnering with pharma, another important avenue to sustainability, has been improving and can be quite lucrative, but deals remain few. Pharma companies are taking on less risk through smaller upfront fees and more option agreements.
Privately held San Mateo, California-based Bayhill Therapeutics gave up the idea of going public. Instead, it opted to leverage its pipeline through an exclusive worldwide collaboration with Genentech (DNA) (now a division of pharma giant Roche (OTCQX:RHHBY)) to develop and potential commercialize Bayhill's BHT-3021. The compound is a DNA-based antigen specific immunotherapy currently in a phase I/II clinical trial in patients with type 1 diabetes.
Bayhill will get an upfront payment of $25 million in cash and equity from Genentech, with additional development, regulatory and sales milestone payments that could exceed $325 million. Bayhill will also get royalties on any sales of an approved therapy. Bayhill remains responsible for completing the on-going phase I/II trial, and Genentech will be responsible for all future research, development, manufacturing and commercialization efforts. Genentech will reimburse Bayhill the remaining costs of the phase I/II trial and will fund all future expenses. Bayhill retains rights to opt in on future development as well as an option to co-promote in North America.
Interim results for BHT-3021, a plasmid encoding proinsulin, were presented at the recent American Diabetes Association meeting in New Orleans and showed that the drug is safe and well-tolerated. Bayhill develops novel and targeted treatment candidates for autoimmune diseases that are designed to restore patient’s immunological “tolerance” to self antigens to a normal state by selectively eliminating specific, harmful immune responses while leaving the rest of the immune system intact.
Vancouver, Canada-based Xenon entered into a strategic alliance with Merck (NYSE:MRK) to discover and develop novel small molecule candidates for cardiovascular disease. From the start, privately held Xenon has followed a strategy of select partnering of parts of its pipeline in order to continue ownership and development of other programs. In collaboration with Merck, Xenon will perform validation studies using its clinical genetics platform, as well as drug discovery and select preclinical development of small molecule compounds for those targets selected by a joint steering committee.
Under the terms of the agreement, Merck has the option to exclusively license targets and compounds from Xenon for development and commercialization. In return, Xenon receives research funding and is eligible for option exercise fees, research, development and regulatory milestone payments of up to $94.5 million for the first target and up to $89.5 million for each subsequent target selected for drug discovery. Xenon will also receive royalties on sales of products resulting from the collaboration and retains the right to develop and commercialize certain compounds for which Merck does not exercise its option.
Pharmaceutical companies have been active investors of late through their corporate venture funds. Aileron Therapeutics closed a $40-million Series D financing. Investors included several venture arms of big pharma: SR One, the independent corporate venture fund of GlaxoSmithKline (NYSE:GSK), Novartis (NYSE:NVS) Venture Fund, Lilly Ventures (NYSE:LLY), and Roche Venture Fund. New investor Excel Medical Fund and founding investor Apple Tree Partners also participated. The Cambridge, Massachusetts-based company is developing a novel class of therapeutics called Stapled Peptides as a technology platform for historically undruggable targets. Proceeds from the financing will be used to advance Aileron’s lead Stapled Peptide program toward clinical trials in 2010 and to further advance the Stapled Peptide platform and programs in oncology, immune/inflammation, metabolic disease, and infectious disease. Stapled Peptides are synthetically locked, or “stapled”, into an alpha-helical shape to create drug compounds that are uniquely effective for targets that are “undruggable” with currently available drug approaches. In previous financings, Aileron has raised $20 million in funding.
Alios BioPharma, based in South San Francisco, California, also relied on pharma money, closing its $32-million Series A preferred stock financing with $8 million from new investor SR One, the corporate venture fund of GlaxoSmithKline. The first closing was completed in December 2008, led by Novo A/S and Novartis Venture Fund with participation from the Roche Venture Fund. Alios is developing small molecule and protein therapeutics to treat viral diseases by activating pathways in the innate immune system.
Seattle, Washington-based NanoString Technologies closed a $30-million Series C equity financing to accelerate commercialization of its leading expression profiling nCounter Analysis System in the research tools and diagnostics arenas. The round was led by Clarus Ventures, and was joined by existing investors OVP Venture Partners and Draper Fisher Jurvetson.
In Minneapolis, medical device company Inspire Medical Systems completed a Series B financing of $17 million, which was led by Synergy Life Science Partners and included participation from existing investors Kleiner Perkins Caufield & Byers, US Venture Partners, Medtronic (NYSE:MDT), and Dr. Glen D. Nelson through GDN Holdings. Earlier in 2009, Inspire announced the first human implant of its Inspire II system designed to treat Obstructive Sleep Apnea. Since this announcement, Inspire continued to implant patients into parallel clinical trials being conducted in the United States and in Europe with several implants in each location to date. The Series B financing is over two phases with the primary purpose to fund the on-going clinical activity.
While the tide toward economic recovery is slowly turning positive and consumer confidence is rising, many investors remain skittish, worrying that weakening demand for government debt may force Washington to raise interest rates to attract buyers, but at the same time slow the economic recovery. Caution still reigns. Raising capital in the public market continues to remain difficult especially for companies without any revenue generating products. Geneara called it quits after 22 years of failing to bring a product into the market.