Financings Of The Fortnight: In The Aftermath Of Facebook IPO, Kythera Steps Up, TVAX And Cancer Genetics Back Off

Plus news on recent financing activity by TVM Capital, Royalty Pharma, Prosonix and Sangart.

Without further ado, FOTF brings you a few initial public offering notes from the Facebook Fiasco Fortnight. While most market watchers trained their eyes on Mark Zuckerberg, his biotech-veteran CFO, his bankers and (eventually) his lawyers, a few biotechs made moves of their own.

Only one took a step forward: Kythera Biopharmaceuticals Inc. filed an S-1 after raising about $100 million through four venture rounds and seven years. The company’s lead product, a Phase III injectable meant to reduce the fat that causes double chins, is fully licensed to a division of Bayer AG.

Two others took steps back. TVAX Biomedical Inc. withdrew its modest $20 million offering, citing poor market conditions. The firm has an autologous immunotherapy platform that has produced a Phase III brain cancer treatment and a Phase II treatment for renal cell carcinoma. And Cancer Genetics Inc., which first filed in December 2011, postponed a planned $48 million offering, according to Renaissance Capital. No official word yet on a second attempt.

For any small company – let alone a biotech – hoping to tap the public markets, the Facebook bungle couldn’t have come at a worse time. The Euro crisis drags on and the ripple effects of a potential Greek Euro exit loom ever larger in macroeconomic calculations. Then comes Facebook, only the most watched, most anticipated U.S. financial event of the so-called recovery, and instead of a shot of much-needed confidence, it delivered yet another ringing example of American institutional ineptitude at best, criminal venality at worst. Years to prepare, to hire the best and the brightest, and this is the best they could do?

This headline made FOTF chuckle: "IPO activity remains slow despite Facebook offering." Despite? We venture that in sectors like life sciences and particularly biotechnology, it was more like an extra twist of the knife.

The next time an underwriter comes knocking with a fabulous biotech, potentially game-changing science, visionary leadership, etc., what will happen? Hardcore biotech investors surely will do their own diligence, but what about the “swing voters,” the more general investors who might crack open a window to make a biotech bet or two? Are they going to stick their necks out? Would you?

TVM Capital

The international venture firm TVM Capital has raised its seventh life-science fund with a northern twist (Also see "Lilly And Canadian VCs To Fund TVM Life Sciences VII To Develop Single-Asset Companies" - Pink Sheet, 29 May, 2012.). Announced May 28, the fund will be based in Montreal and focus mainly on single-product companies in Quebec, part of an asset financing trend that that venture capital firms such as CMEA Capital, Atlas Venture and Index Ventures, as well as non-traditional investors, have tested recently (Also see "Lilly And Canadian VCs To Fund TVM Life Sciences VII To Develop Single-Asset Companies" - Pink Sheet, 29 May, 2012.) and (Also see "New $80 Million U.K. Asset-Centric Cancer Research Fund Set Up With EU, Charity Funding" - Pink Sheet, 29 Mar, 2012.).

The new fund also marks the fourth time since November that a big pharma has poured cash into a Canadian biotech investment vehicle, including the Merck Lumira Biosciences Fund (Also see "Financings Of The Fortnight Sees New Biotech Funding All Over The Globe, And Without Much VC Participation" - Pink Sheet, 6 Apr, 2012.). A major chunk of TVM Life Sciences VII, which has C$150 million ($146 million) committed, comes from Quebecois fund-of-funds manager Teralys Capital, with ties to several regional investors. The goal is to fund about 15 projects, mainly but not exclusively in Quebec.

Another major limited partner is Eli Lilly & Co., which alongside its investment will open a branch of its Chorus drug development network in Montreal. It’s unclear, however, what ties Chorus Canada has to the Lilly/TVM arrangement. A Teralys managing partner said Chorus will not have rights to help develop the assets that receive TVM investments. Other VC investors in TVM Life Sciences VII included BDC Venture Capital, Fondaction and Advantus Capital Management, a subsidiary of the Minnesota Life Insurance Company. Only the size of the investment by Teralys (C$65 million) and that made by BDC Capital (C$20 million) were disclosed.

Royalty Pharma

The buyer of biopharmaceutical royalty streams said May 24 that it raised $600 million in debt to fund future acquisitions. That a royalty fund has raised cash is no surprise; Royalty Pharma rival Cowen Healthcare Royalty Partners announced a $1 billion fund, its second, to start 2012 (Also see "Cowen Doubles Down On Royalties" - Scrip, 24 Jan, 2012.). OrbiMed Advisors LLC also got into the game with a $600 million royalty fund in 2011 (Also see "OrbiMed Launches $600M Royalty Fund" - Pink Sheet, 31 Aug, 2011.).

The funds recently have marketed themselves as alternatives to life-science venture capital for limited partners uneasy with venture’s sallow returns and long fund cycles. But Royalty Pharma prefers bond holders to equity holders, which makes sense given that royalty deals are more like debt than equity investments, with lower risk and return profiles.

The $600 million tranche, with a borrowing spread of Libor + 3% and a maturity date of November 9, 2018, brings RP’s total debt load to $3.4 billion. Two other tranches of $850 million and $1.9 billion mature on November 9, 2016, and May 9, 2018, respectively. RP said that strong demand for the debt issue boosted the size from $500 million to $600 million. The firm has bought royalty streams to more than two-dozen products including Humira (adalimumab), Remicade (infliximab) and Cimzia (certolizumab).

Prosonix

The Oxford, U.K. firm Prosonix extended its Series B round with £5.7 million ($9 million) to push forward development of its generic asthma treatment fluticasone propionate (PSX-1001) (Also see "Prosonix Extends Series B Financing, Plans Generic Fluticasone Filing" - Pink Sheet, 21 May, 2012.). The firm is banking on its ultrasound drug-engineering technology to convince European regulators to approve its inhaled version of GlaxoSmithKline Inc.’s Flixotide/Flixonase.

Ultrasound induces the crystallization of drugs from solution and can be precisely controlled, leading to the formation of particles with little variation in size and shape. The particles are stable and do not require formulating with excipients for use in inhalers. In contrast, conventional jet-milling makes inhaled powders that are more unstable and with more variable physicochemical properties, Prosonix CEO David Hipkiss said.

Pharmaceutical companies that currently dominate the respiratory products sector, such as GSK, AstraZeneca PLC and Novartis AG have not faced significant generic competition because of the complexity of developing inhaler drug-delivery technology, and the difficulty of showing bioequivalence to inhaled powders. Also, in the U.S., there is no regulatory pathway for generic inhaled respiratory products (Also see "Respiratory Generics: Big Potential But A Tough Market To Crack" - Pink Sheet, 24 May, 2010.).

Belgian investment firm Gimv joined existing investors in the second tranche of the Series B. In the June 2011 first close, Prosonix raised £11.4 million from a European syndicate that included Ventechof Paris; Gilde Healthcare Partners of Utrecht, the Netherlands; Entrepreneurs Fund BV and Solon Ventures, both of London; and Quest For Growth of Leuven, Belgium. Prosonix hopes to start a Phase IIa trial later this year for its second product candidate, a twice-daily inhaled therapy for chronic obstructive pulmonary disease.

Sangart

The San Diego firm added $50 million from a previous investor to bring its Series G round to $100 million and its total cash raised to $280 million (Also see "Sangart Completes Its Series G; Looks For Partner" - Pink Sheet, 25 May, 2012.). Sangart Inc. said the cash will help it complete its current Phase IIb trial for its lead product, an oxygenated form of recycled blood meant to treat tissues deprived of oxygen after traumatic injury. It also will aim to complete a Phase Ib for another product that uses carbon monoxide instead of oxygen with the recycled blood to treat sickle cell anemia.

When the two trials are done, the company wants to look for a licensing partner for one or both products, or perhaps even a buyer for the company, said CEO Brian O’Callaghan. The cash comes from Leucadia National Corp., which also contributed most of the first $50 million Series G tranche. Leucadia is a conglomerate with diverse holdings in mining, beef packing, wine and timber.