Financings Of The Fortnight: Cutting-Edge Biomedical Technology Drawing Big Investments

Juno Therapeutics and Moderna Therapeutics both leveraged promising technologies to bring home venture rounds of more than $100 million in recent weeks. Plus news on recent financings by Argos Therapeutics, Xencor, Sitari and 5am Ventures.

Digital future? Sounds both expensive and confusing! Instead, let’s talk about the recent past. What stood out for FOTF in this latest fortnight-plus – extended a bit to accommodate the Thanksgiving holiday – were two vast sums of money for companies plying cutting-edge biomedical technologies that, despite some successes in previous permutations, are still high-risk.

Let’s start with the second, because it’s a more obvious case. The company is Juno Therapeutics, which has rounded up a few programs of cancer immunotherapy under one corporate roof. None of them use the infused-antibody paradigm of Yervoy (ipilumumab), the Bristol-Myers Squibb Co. product approved for melanoma treatment, but the much more complicated dance of autologous cell therapy that Dendreon Corp., with its prostate cancer treatment Provenge (sipuleucel-T), showed a few years ago could make it to market.

Dendreon also ran into trouble, however, because the process – removing blood from patients, isolating T-cells, shipping them to a lab, re-engineering them, shipping them back and re-infusing them into the patient – involved more than just putting your feet on the floor in the right sequence. Juno’s backers, to the tune of $120 million and, soon, a lot more (see our blurb below), think the Seattle/New York startup has all the right moves, including improvements to the process and stunning (but small sample size) Phase I data from one of its programs.

The other technology-driven story is the second massive cash infusion for Moderna Therapeutics LLC, the Flagship Venture funded company that wants to inject modified messenger RNA into patients to spur them to produce their own therapeutic proteins. Moderna simmered below the radar within Flagship for a couple years until late 2012, when it emerged with a $40 million commitment (Also see "Venture Creation Story: The Early Days Of Moderna" - Scrip, 18 Jun, 2013.). Still years away from clinical proof of concept, it almost immediately secured a licensing deal with AstraZeneca PLC with a $240 million upfront that gives the pharma rights to cardiovascular and metabolic programs that emerge from Moderna (Also see "AstraZeneca Bets Big On Moderna’s Preclinical Messenger RNA Technology" - Pink Sheet, 21 Mar, 2013.).

Which brings us to the week before Thanksgiving, when Moderna added to the pile with a $110 million Series B round from Flagship and a raft of undisclosed backers (Also see "In Quest To Transform Biotech, Moderna Secures $110M To Get Into Clinic" - Pink Sheet, 20 Nov, 2013.). The industry is a long ways from learning if Moderna’s ambitious idea works, but if it does, it will have to overcome a hurdle that has bedeviled many other companies – often extremely well-funded, too – using RNA-based therapeutics. Those oligonucleotides don’t hold up well in the body. Delivery is hard.

When two researchers won the Nobel Prize in 2006 for their discovery of RNA interference, the biotech world seemed well on its way to developing therapeutics based on the gene-silencing technique. Two companies in particular, Sirna Therapeutics Inc. and Alnylam Pharmaceuticals Inc., seemed poised to battle for years. Not quite. Merck & Co. Inc. bought Sirna for a cool billion dollars, and it was never heard from again (Also see "Merck Nabs Pole Position in RNAi With $1.1 Billion Sirna Buy" - In Vivo, 1 Nov, 2006.). Alnylam’s rich alliances with big pharma came to a crashing halt at the end of last decade (Also see "Roche Exits RNAi, Raising Questions For Stalwarts " - In Vivo, 1 Dec, 2010.).

Alnylam was left to clean up the mess with a big restructuring, but steadily has rebuilt value, and it recently scored notable Phase I data for a program based on its subcutaneous delivery technology (Also see "Alnylam Validates Subcutaneous Delivery Technology With Strong Phase I Results" - Pink Sheet, 11 Jul, 2013.). Its share price has rebounded and at $62.98, it’s nearly twice as high as it flew in the heady days of last decade, before its pharma partners abandoned ship.

So what to make of these new blockbuster financings? Juno is building upon the rollercoaster experience of Dendreon, even hiring Dendreon’s former chief operating officer as its CEO. Its investors apparently think nothing short of a full financial blitz will make autologous cell therapy 2.0 a winning version. And Moderna has enough cash now to hand-deliver every dose to every patient on a gold-embossed platinum serving tray. And to get into patients’ bodies, they might be able to use a subcutaneous approach, too.

Juno Therapeutics/Argos Therapeutics

The big Series A financing news this week, and maybe this year as well, was Juno’s $120 million haul to help the company develop and commercialize not one, not two, but three autologous immunotherapy platforms from two rival research institutions. Autologous is like the high-profile Dendreon: T-cells are removed from the patient, genetically souped up in a lab to recognize and kill cancer cells, then re-infused into the patient.

The top-line investors in Juno are ARCH Venture Partners and the Alaska Permanent Fund, which invests that state’s oil revenues. Which means Juno – perhaps a clever way to give Alaska and its capital city naming rights? – is cashing in on former Governor Sarah Palin’s successful campaign to raise taxes on oil companies. That tax hike is now the subject of a major political battle, by the way.

Alaska’s fund managers won’t have a Juno board seat, which means ARCH’s Robert Nelsen is the main money man to herd cats as Juno’s riches are disbursed to folks at Memorial Sloan Kettering Cancer Center, the Fred Hutchinson Cancer Research Center and Seattle Children's Research Institute. Nelsen tells us that the groups will continue to run their own cancer immunotherapy programs under Juno’s roof, and “may the best data win.” (The Sloan-Kettering folks are unveiling data at the American Society of Hematology meeting Dec. 7-10 from a study that brings the percentage of Phase I patients treated with MSKCC’s CART-19 immunotherapy who had a complete response to 88%, or 15 of 17: basically their cancer disappeared.) What’s more, Nelsen says a Series B round “larger than the Series A” is about six months away.

Meanwhile, at the other end of the funding rainbow, Juno competitor Argos Therapeutics Inc., which has been plugging away at autologous immunotherapy for more than a decade, also had funding news [See Deal]. It topped up its Series E round to $60 million as it continues a pivotal trial in renal cell carcinoma. The first tranche of the E round came in August and included warrants (Also see "Russian, Korean Pharmas Lead $42.5M Argos Financing, Take Local Rights" - Pink Sheet, 28 Aug, 2013.). Argos withdrew an initial public offering bid in 2012 and instead brought in a Series D round.

Xencor

Dilution was the headline for the IPO of antibody company Xencor Inc. It priced Dec. 3 at one-third of the mid-point of its original range, and to compensate it doubled its shares sold, and then some. It first filed to raise $75 million by selling 5 million shares at a mid-point of $15 each; it actually raised $70 million by selling 12.7 million at $5.50. That’s despite existing investors, which include MedImmune Ventures and HealthCare Ventures, committing to buy about $20.5 million, or 29%, of the IPO.

Investors are demanding deep discounts as the biotech IPO market has softened this fall, so much so that it was a bit of a surprise Xencor made it out at all. Before it got the deal done, Xencor postponed its IPO, as did at least five other biotechs leading up to Thanksgiving. The Xencor offering originally was slated for Nov. 14. The worry for investors is that bankers now are scraping the bottom of the barrel. Perhaps the typical momentum of January’s JPMorgan conference can breathe a bit of life back into IPOs – if the right companies come along. (For a detailed look at the 2013 IPO strategies of OncoMed Pharmaceuticals Inc., bluebird bio Inc. and Ophthotech Corp., check out this Start-Up feature (Also see "On The Road And Through The Window: Inside Three Biotech IPOs" - Scrip, 22 Nov, 2013.).)

At least for Xencor, the immediate investor upside of a deep discount is the potential for money left on the table. In its first day of trading on Dec. 3, Xencor got a 52% bounce, to $8.64 per share. Longer term, Xencor’s fate likely hangs on lead candidate XmAb5871 to treat rheumatoid arthritis, which won’t see a significant milestone until Phase Ib/IIa data due in the second half of 2014. A Phase IIb proof-of-concept trial would follow in the first half of 2015, with partner Amgen Inc. having data in hand in 2017 to determine if it will exercise its option.

Sitari Pharmaceuticals

The joint venture that Avalon Ventures and GlaxoSmithKline PLC announced this spring hatched its first company Nov. 22 (Also see "Venture Firm Avalon Turns To GSK To Share Biotech Risk" - Scrip, 3 May, 2013.). The two staked Sitari Pharmaceuticals, which will focus on developing a drug therapy for celiac disease based on research at Stanford University, to a $10 million Series A financing (Also see "Avalon/GSK Incubation Project Launches First Company, Focused On Celiac Disease" - Pink Sheet, 22 Nov, 2013.). The $10 million is not a straight cash investment, said Avalon Managing Director Jay Lichter. Avalon provides $3 million in cash, while GSK will provide up to $7 million in both cash and in-kind services.

Using intellectual property licensed from the Stanford lab of Chaitan Khosla, Sitari will attempt to address celiac, an autoimmune digestive disease caused by intolerance to gluten, by inhibiting the transglutaminase 2 (TG2) pathway. Avalon will transfer tools from the Stanford labs to Sitari’s La Jolla, Calif., location where the GSK chemical libraries will be screened for potential TG2 inhibitors. That will be the starting point of the discovery work, along with considering compounds discovered by Khosla’s team, to determine which chemical scaffold might work best along with other pharmacodynamic factors, Lichter said.

The company is years away from selection of a clinical candidate, however. At the time of selection, GSK will have the option to acquire the company or let Avalon take it forward on its own, said Pearl Huang, GSK’s global head of Discovery Partnerships with Academia (DPAC) unit. Huang said $10 million likely will be the standard A round for the companies co-founded by GSK and Avalon, based on both partners’ experience of what it takes to get to candidate selection.

5am Ventures

The San Francisco Bay Area firm said Dec. 3 it has closed a $250 million fund, its fourth. It’s 20% larger than the group’s third fund, which closed in 2009. Four years between fund closes isn’t bad for an early-stage investor, although as managing partner Andy Schwab said year, “We’re realistic that not all of our companies can be two professors and an early-stage idea.” (Also see "The A-List: The Trend-Shaping Series A Financings Of 2012" - Scrip, 25 Jan, 2013.)

The firm has reached exits through investments in new companies that were vehicles for mature technologies, such as the Alza pain patch that was spun out and re-jiggered by Incline Therapeutics Inc. 5am cashed out when The Medicines Co. bought Incline in 2012 [See Deal]. It’s also had success extending a franchise. It sold Ilypsa Inc. in 2007 for $420 million to Amgen Inc., which wanted the startup’s phosphate binder to treat chronic kidney disease.

5am and its syndicate partners spun out of Amgen some of the extra Ilypsa assets into a new company called Relypsa Inc. Amgen eventually shelved the Ilypsa program, but Relypsa made steady progress and raised north of $150 million in venture cash. It went public this fall, six years after its spin-out. Relypsa also dampened its IPO ambitions, going out at $11 a share instead of $16 to $19, and raising $80 million (with insiders buying about a quarter of the shares) instead of roughly $120 million. (Shares closed at $19.60 on Dec. 5.) The new fund keeps the same managing partner lineup of Andy Schwab, Scott Rocklage and John Diekman.