Financings Of The Fortnight: Notable Uptick In Series A Rounds So Far In 2013

A strong second half of 2013 could mean a pace of start-up formation not seen since before 2007-2008. Plus news on recent financings by Prosensa, MannKind, OncoEthix and Cardio3 Biosciences.

There have been a lot of shifts lately behind the reasons people start new biotech companies. Academic and nonprofit sources of biomedical innovation are growing more eager to take on “translational” duties to make their research more palatable to the private sector.

Meanwhile, cuts in big pharma research groups have created larger pools of available talent. New government regulations now let private companies test public investor sentiment without announcing to the world their IPO intentions. (Regulations are loosening more; the Securities and Exchange Commission just voted to allow direct solicitation of the public in securities offerings.)

The reasons might be more compelling, but are they drawing more investors back to startup-land?

The folks at our sister publication Start-Up have always liked to use Series A rounds as a way to gauge the temperature surrounding biomedical company formation. They’ve been doing what they call The A-List since 2004, tallying the year’s newly disclosed A rounds and all the data around them. It’s about numbers, but also sentiments and attitudes. For example, in the most recent A-List, the publication asked venture capital firms if all worthy early-stage companies were getting funded (Also see "The A-List: The Trend-Shaping Series A Financings Of 2012" - Scrip, 25 Jan, 2013.).

Here are some of the replies:

“That is a philosophical question. I think most good companies still get funded, but some good ideas are not.”

And …

“Too few firms are doing Series A, so even good companies with one excited VC can’t always pull together a syndicate.”

We’re looking forward to asking that question again at the end of 2013. For now, let’s take a peek at the Series A financings for the first half of the year to see if we can stir up the tea leaves.

By FOTF’s count, there have been 41 new Series A fundings for device, diagnostic and biopharmaceutical companies with the amount disclosed (and four more without). The funds disclosed total $567 million. That’s well ahead of the 2012 first-half deal flow of 33 rounds and $423 million.

If the pace quickens in the second half of 2013 as it did last year (final 2012 tally: 103 Series A rounds), we could see deal flow akin to the pre-crisis years of 2007 and 2008. That’s one big takeaway.

As usual, biopharma makes up the bulk, with 35 deals and $481 million in disclosed dollars. That’s an average of $16 million per round for the companies that disclosed dollars, a 10% increase over last year’s biopharma average.

The industry also might be seeing a change in syndicate composition. By this time last year, 10 Series A were solo efforts, the largest being Third Rock Ventures’ debut of Global Blood Therapeutics Inc., and sources were telling FOTF how difficult early-stage syndicates were to arrange [See Deal]. This year, only three deals have been announced as solo deals, with Third Rock again taking the top spot with its $47 million commitment to Jounce Therapeutics Inc.[See Deal].

Among therapeutic areas, by the way, nine of the 45 companies say they’re in oncology, seven say neurology and six say cardiovascular disease. Infectious disease, metabolic disease and gynecology/urology have four or five.

Based on the half-year numbers, the next full-blown A-List might reflect the optimistic bent that the IPO markets have helped create this year. Might, we emphasize. Six months of deal announcements is a squirrely sample size, so take this little foray simply as a guide to things to watch for the rest of the year.

Prosensa Holding

On June 28, Dutch biotech Prosensa Holding BV netted $83.4 million in an IPO on Nasdaq through the issuance of 6.9 million shares at $13, the high end of its $11-$13 range [See Deal]. Prior to its IPO, the firm had raised €56.4 million ($73 million) through private equity rounds (Also see "Prosensa Debuts On The Nasdaq Hours After Getting Breakthrough Designation For Lead Compound" - Pink Sheet, 28 Jun, 2013.). Company President Hans Schikan says Nasdaq offered a healthier financial opportunity than European exchanges.

With an RNA-modification technology platform licensed exclusively from neighboring Leiden University Medical Centre, the 11-year-old company aims to develop antisense therapeutics that induce skipping of exons (disrupted gene coding sections). It’s getting a good start: just prior to the IPO filing, Prosensa got word of receipt of FDA breakthrough designation status for its lead compound drisapersen (PRO051), a program it partnered with GlaxoSmithKline PLC in a 2009 deal that’s worth up to $667 million in pre- and post-commercialization milestones, plus double-digit sales royalties [See Deal].

Earlier in the year, some of the company’s other programs were granted EU orphan drug status in the muscle-wasting Duchenne muscular dystrophy indication. Of the European biotechs with initial public offerings (including Belgian cell therapy company Celyad SA, see below), Prosensa has raised the most and has continued to climb. On its June 28 opening, it closed at $19.02, a 46% premium over its offering price, and it closed July 11 at $26.26.

MannKind

Despite regulatory setbacks, and facing long odds following the poor reception of Pfizer Inc./Nektar Therapeutics’s Exubera and eventual withdrawal of the drug from the market in 2007, MannKind Corp. is forging ahead with its own late-stage inhaled insulin candidate Afrezza, and on July 1 announced a $160-million debt financing to support further development.

Deerfield Management committed to buying 9.75% senior secured notes, maturing in 2019, in four equal $40 million tranches contingent upon MannKind achieving certain milestones that include the release of Phase III data in Type I and II diabetic patients (using the newer-generation Dreamboat inhaler), paying down debt and Afrezza’s FDA approval. After an undisclosed period following disclosure of the clinical data (expected later this summer), Deerfield has the option to convert a portion of its notes into common stock. In return for an $18.9-million upfront payment, the investment firm also receives milestone rights, entitling it to up to $90 million based on strategic and sales goals.

MannKind also is working in the oncology area but last year partnered some of those programs with Tolero Pharmaceuticals Inc. and Colby Pharmaceutical Co. in order to put resources towards Afrezza [See Deal][See Deal]. Since the start of 2012, MannKind has raised nearly $316 million, including two follow-on public offerings plus the current fundraising, to finance Afrezza efforts. In the fourth quarter of 2013, the company hopes to submit an amendment to its existing NDA (first filed in March 2009).

OncoEthix

Privately held Swiss biotech Oncoethix SA has raised $19 million in a Series B funding to progress its early-stage cancer treatment OTX015 into Phase II proof-of-concept studies, at which point its owners hope to sell or license out the novel medicine to a pharmaceuticals group. The BET bromodomain inhibitor belongs to a new class of medicines which researchers are testing to learn whether they can trigger cancer cell death (Also see "Epigenetic Modifiers Take Center Stage, Big Pharma Takes Notice" - Pink Sheet, 16 Apr, 2012.).

SV Life Sciences led the round and was joined by new investor Edmond de Rothschild Investment Partners. Existing investors including Index Ventures and Endeavour Vision also participated. The proceeds will be used to progress OTX015 into Phase II proof-of-concept, and a potential [investor] exit at that point, said CEO Bertran Damour.

The fundraising brings OncoEthix’s total venture capital up to $30 million and will keep the biotech running for the next 24 months, Damour predicted. The company was founded in 2009 by Esteban Cvitkovic, Kay Noel, Yves Paternot and Patrice Herait, all experienced oncology drug researchers who set out to establish a portfolio of three to five new cancer medicines through in-licensing. Between them, the founders have been involved in bringing 37 drugs to market, according to Damour. OTX015 was in-licensed from Mitsubishi Tanabe Pharma Corp. in 2012 [See Deal].

Cardio3 Biosciences

Another biotech from The Low Countries debuted this fortnight and almost immediately had to weather a storm. The Belgian firm debuted on the NYSE Euronext Brussels and Paris, selling 1.38 million shares at €16.65 ($21.76) each. Cardio3’s lead product C-Cure uses a patient’s own hematopoetic stem cells harvested from bone marrow and programmed outside the body to differentiate into heart muscle cells and, re-injected back into the patient, to repair damaged heart tissue.

The issue raised €23 million for the regenerative medicine firm, and it raised the eyebrows of U.K. researchers and subsequently Forbes columnist Larry Husten, who highlighted several data discrepancies in a Cardio3 paper that helped fuel the IPO, as well as a conflict of interest with one of the paper’s authors. Husten’s column has been updated with a sharp response from Cardio3 and a rather sarcastic one from the U.K. professor leading the criticism against Cardio3. The firm says the criticism is unfounded; so far investors mainly have rolled with the punch, and the stock closed July 11 at €18.73, down from a brief high of €21.45.