Financings Of The Fortnight: Life Science Venture Funding Not Necessarily On The Decline

Plus news on recent financings by Foundation Medicine, Ultragenyx, Labrys Biologics, Solstice Biologics and Sarepta Therapeutics.

Yes, we know. The life science venture shakeout isn’t over yet. It’ll get smaller before it gets bigger. That was the drumbeat Financings of the Fortnight heard as it made the rounds at J.P. Morgan earlier this week.

But let us throw a few names at you. Sanderling Ventures. Alex Denner. Ascension Health Ventures. Hatteras Venture Partners. Shakeout notwithstanding, all have raised or are raising new health care funds, some by notable means. Hatteras is boosting its fund size 50% to $125 million by adding Small Business Administration loans under a new venture-friendly government program.

Sanderling Ventures, whose last fund was of 2004 vintage, is looking to raise a seventh fund of $250 million, and GlaxoSmithKline PLC says it will be a limited partner with a $50 million stake (Also see "GSK Will Be A Limited Partner In Sanderling Ventures’ New Fund" - Pink Sheet, 10 Jan, 2013.).

The venture arm of Ascension Health, one of the largest hospital groups in the U.S., has raised a third fund of $225 million. And Carl Icahn’s former biotech consigliere Alex Denner is also starting a new fund, friends of FOTF say.

But the fund news FOTF found most intriguing was that apparently CMEA Capital of San Francisco is giving an eighth fund a go, and it might be life-sciences only. Details aren’t certain – and CMEA isn’t talking – FOTF knows this: two new partners with biotech experience have been dubbed "founding partners" of CMEA 8. It says so on the firm’s Web site. One is Kent Hawryluk, who has been an Indianapolis-based VC with Twilight Venture Partners for years. He helped found Marcadia Biotech Inc. in 2006 and sell it to Roche in late 2010 for nearly $300 million upfront. The other is Troy Wilson, who was president, CEO and co-founder of Intellikine Inc. until Takeda Pharmaceutical Co. Ltd. bought it about a year ago for up to $310 million [See Deal].

With CMEA maintaining radio silence despite our entreaties, FOTF is left to speculate about the verbiage on Hawryluk and Wilson’s CMEA pages:

“Our success at Marcadia is a reproducible formula for the portfolio companies of CMEA 8. We focused on transforming breakthrough science into a product needed by patients and pharma. It was through capital efficiency, proper incentives and hard work we were able to create value in such a short amount of time.”

And…

Wilson’s most recent success illustrates the strength of the CMEA 8 model. He was president and CEO of Intellikine, a company he co-founded. In just over four years, Intellikine discovered three drugs to treat cancer and advanced them into clinical testing… Along with several of his Intellikine colleagues, he recently co-founded Wellspring Biosciences. “It’s exactly the sort of company we want in CMEA 8,” he says.

WellSpring Pharmaceutical Corp., by the way, is developing small molecules for cancer treatment, according to its bare-bones Web site.

Last FOTF heard news from CMEA, it was launching the Velocity Development Corp. in 2011, a virtual development team for asset financing, as a carve-out of its seventh fund. In an earlier permutation, Velocity was supposed to be backed by Eli Lilly & Co. as part of Lilly’s “mirror fund” scheme, but instead it launched in mid-2011 as part of CMEA’s portfolio (Also see "Atlas, CMEA Test New Biotech Model " - Scrip, 1 Apr, 2011.).

Around the same time, Atlas Venture created its own asset-financing group, the Atlas Venture Development Corp. AVDC since has announced two projects, Arteaus Therapeutics LLC and Annovation Biopharma Inc., and in the following months, other asset-based venture schemes have debuted (Also see "Latest Pharma-VC Experiment: Arteaus Gets $18M For Migraine Drug Licensed From Lilly" - Pink Sheet, 19 Oct, 2011.) and (Also see "Series A Financing For Annovation Includes Potential Buyout By TMC" - Pink Sheet, 12 Sep, 2012.).

All the while, Velocity has been quiet. In discussing Velocity at the time of its launch, CMEA Managing General Partner Jim Watson, one of the San Francisco firm’s high-tech investors, said there would be no CMEA 8 (Also see "CMEA Ventures Into Development, But Not Tied To Lilly As Expected" - Pink Sheet, 27 Jun, 2011.). Plans apparently have changed.

A lot has certainly changed for Kleiner Perkins Caufield & Byers partner Risa Stack. On Jan. 7, Stack said she was taking a position as a general manager and a primary deal maker for General Electric's healthyimagination, a $6 billion initiative to make health care affordable and accessible. Stack will develop strategy and drive execution of new initiatives with an initial focus on personalized medicine and health care data, her areas of expertise at KPCB.

Stack already was on the healthyimagination advisory board, and the initiative’s CEO Sue Siegel is a long-time friend and colleague, having worked at Mohr Davidow Ventures, a frequent co-investor with Kleiner Perkins in diagnostics. Stack worked closely with co-founder Brook Byers, who also was heavily involved in many of her portfolio companies. (Byers is Kleiner’s board representative at Foundation Medicine Inc., which just extended its Series B round – see item below.)

Several of Kleiner Perkins’ diagnostics portfolio companies, including Foundation, CardioDx Inc. and Veracyte Inc., are in the early phases of product launch. And with technologies abundant – even fungible, some say – it makes sense to look to integrators like GE to drive adoption.

Raise a fund? Ha. We at FOTF headquarters can barely raise our fingers to the keyboard to write this column after four days of pounding the San Francisco pavement. Fortunately, it’s time for the year's first edition of Financings of the Fortnight …

Foundation Medicine

Coincidence? In Vivo Blog readers name Foundation Medicine’s Series B round their top financing deal of the year. Four days later, the company reveals it’s grabbed the attention, and cash, of three renowned investors who have added $13.5 million in new capital to push the Series B total to $56 million.

Microsoft chairman Bill Gates, jVen Capital founder and former Digene Corp. chief Evan Jones, and Russian billionaire Yuri Milner topped off the round, following a September 2012 first closing that featured crossover investors Deerfield Management, Redmile Group and Casdin Capital; strategic backers Roche Venture Fund and WuXi Corporate Venture Fund; and VCs Third Rock Ventures, Google Ventures and Kleiner Perkins. The latest cash infusion arrives as Foundation continues to commercialize its first product, FoundationOne, a genomics test that oncologists use to choose appropriate treatments or clinical trials for cancer patients based on assays of their tumors.

Foundation struck at least seven pharma partnerships during 2012, and is planning to launch a hematologic malignancies test in 2013 (Also see "Bringing Genomic Analysis To Cancer Patients" - Pink Sheet, 20 Sep, 2012.). Gates invested on his own rather than through his foundation, as he did in a 2011 round for Nimbus Therapeutics. Milner, known for his late-stage investments in Facebook, Twitter and Zynga, recently took a stake in 23andMe Inc. And Jones, who has backed Veracyte, Fluidigm Corp. and CAS Medical Systems Inc., took a board seat at Foundation.

Ultragenyx Pharmaceutical

Last summer, our sister publication, START-UP, posed the question about the upper limits for rare disease deals (Also see "Was Enobia’s Sale A High Water Mark For Rare Disease Deals?" - Scrip, 30 Jul, 2012.). Rare disease company Ultragenyx is trying to make that question look silly. The northern California firm with close ties to rare-disease leader BioMarin Pharmaceutical Inc. said on Dec. 20 it has raised a $75 million Series B round. It was led by Adage Capital Partners and featured a varied roster of heavyweight crossover public investors, corporate venture groups and its existing venture backers.

The cash will go mainly toward the biotech’s lead clinical programs, UX-001, a Phase II replacement therapy for hereditary inclusion body myopathy, and UX-003, an enzyme replacement therapy to treat mucopolysaccharidosis type 7, due to enter a Phase I/II trial this year. The cash also likely means that Ultragenyx will look to go public in the not-too-distant future, often a requisite to entice public investors to make private biotech investments.

Despite the influx from global funds like T. Rowe Price, Blackrock and Jennison Associates, and the inclusion of rare-disease heavyweights Shire PLC and Sanofi-Genzyme BioVentures, one of Ultragenyx’s original backers has the board chair: Eran Nadav of TPG Biotech. TPG and Fidelity Biosciences led the company’s $45 million Series A round.

Labrys Biologics/Solstice Biologics

By lumping two companies together, FOTF doesn’t mean to imply they are two versions of one concept or two products spun out of one platform. On the contrary, they’re quite different. But they have the same lead Series A investor, venBio, and therein lies the rub.

Labrys Biologics Inc. – $31 million committed, syndicate also includes InterWest Partners LLC, Canaan Partners and Sofinnova Ventures – is a single-asset bet, an antibody to treat chronic migraine pulled from Pfizer Inc.’s shelf that should start Phase II this year; that’s the kind of idea venBio mainly was formed to go after (Also see "venBio Rings In 2013 With Two Company Launches" - Pink Sheet, 4 Jan, 2013.).

But Solstice Biologics LLC – $18 million, and Aeris Capital joins venBio – is a bold technological idea, a reworking of RNA strands to help deliver their therapeutic promise into all kinds of cells. To date, constraints on delivering nucleic acids as drugs have limited the field to a few clinical applications. If Solstice’s RNA engineering works – a big if, as venBio cofounder Corey Goodman noted – it could crack the field wide open and justify the leeway venBio LPs gave Goodman’s team to seek out one or two early-stage deals.

Meanwhile, Labrys is to some extent a bet on Goodman’s drug connoisseurship. He ran Pfizer’s San Francisco biotech group for a couple years before the Wyeth merger shut down the group, and he was well acquainted with the migraine antibody. When Pfizer decided to out-license it in early 2012, Goodman joined the competition quickly.

Sarepta Therapeutics

On the heels of 48-week extension data from a Phase IIb trial in Duchenne muscular dystrophy (DMD) patients, Sarepta Therapeutics Inc. priced an underwritten public offering Dec. 13 netting the company $118.2 million (Also see "$118 Million Offering Should Position Sarepta Strongly For Partnering Talks" - Pink Sheet, 14 Dec, 2012.). The Cambridge, Mass., firm announced it would offer more than 4.95 million new shares of common stock at $25.25 per share, a slight discount from its same-day closing price of $25.44.

The raise capped off a turbulent 2012 for Sarepta. The company had an unclear future after 24-week data from eteplirsen’s Phase IIb trial in DMD produced mixed results. The share price sank as low as $3.24 in December 2011, adjusted for a subsequent reverse stock split, and the firm risked being de-listed by NASDAQ. Gains in early 2012 eroded gradually, and shares neared a new low as recently as July. However, a turnaround began that month as Sarepta engineered a six-for-one reverse stock split to bolster its share price (Also see "Sarepta Therapeutics Off To A Strong Start With New Name And Data" - Pink Sheet, 22 Aug, 2012.). Then, in short order, it released impressive 36-week and 48-week data for eteplirsen. In the aftermath, Sarepta’s share price soared, peaking at $45 in early October.

The improved trial results also brought about major interest in the company from institutional investors, Sarepta CEO Chris Garabedian said. They make up a large majority of the offering’s investors, he said, which comes after an at-the-market facility brought in $37.8 million after the 36-week data were released.