Radius Takes $91MM To Support Osteoporosis Drug, Moves Toward Public Listing

Five new investors back the owner of anabolic bone therapy BA058, while a reverse merger paves the way to the public markets.

Just two years ago Radius Health Inc. had a straightforward partnering strategy for its osteoporosis drug, BA058. Now that a key partner has opted not to exercise its option on the compound, Radius has instead raised a massive new round of funding that allows the company to keep full ownership of the compound. In addition, the crafting of a creative exit strategy alongside the financing paves a path to liquidity for its shareholders.

Radius said May 24 that it had closed a $91 million Series C round of funding, with a $66 million equity component and $25 million in debt. A diverse group of five new backers joined in the equity round, including Swiss biotech investor BB Biotech AG, Bain Capital affiliate Brookside Capital, late-stage and secondary investment specialist Saints Capital, contract research provider Nordic Bioscience and specialty pharma Ipsen Pharma SAS, from which Radius originally obtained BA058, a Phase III bone-building treatment that is its lead product.

The new backers invested in the new round alongside existing firms MPM Capital, BB Biotech Ventures, MPM Bio IV NVS Strategic Fund, The Wellcome Trust, Health Care Ventures, and Scottish Widows Investment Partnership. According filings with the Securities and Exchange Commission, MPM and its affiliates own more than 40% of Radius' shares. Three more firms - GE Capital, Healthcare Financial Services and Oxford Finance - will supply the loan.

Along with the new funding, Radius engineered a reverse merger with a shell company, MPM Acquisition Corp., laying the groundwork for Radius to reach the public markets. The surviving entity, now called Radius as well, will report to the SEC and apply for a public listing in the coming months. Harvey said the company will likely be traded over-the-counter for a short period, and then listed on the Nasdaq by early 2012.

For Radius' shareholders, the innovative deal structure opens a path to liquidity that isn't dependent on a traditional public offering or an acquisition - and comes after Novartis AG declined to exercise an option on the drug. For now, the investors have pooled $22 million in equity funding for the first tranche of the Series C, as well as $6.25 million in debt. Two more tranches are expected to follow, with a goal of supporting ongoing Phase III trials on BA058 through late 2013. Future tranches are not tied to milestones, according to Radius CEO Richard Lyttle.

The complicated transaction used to finance Radius and provide an exit is rare but it isn't without precedent. In 2006, oncology drug developer Cougar Biosciences Inc., which was acquired in 2009 by Johnson and Johnson for nearly $1 billion, opted to go public via a similar reverse merger process. Interestingly, former Cougar CEO Alan H. Auerbach, one of the designers of that transaction, is now a Radius board member.

MPM managing director Ansbert Gadicke said the shell company was formed years ago in anticipation of a time when the IPO market was not strong. With its late-stage, relatively de-risked asset, Radius emerged as a good candidate for the reverse-merger technique.

While the IPO climate isn't as grim as it was in late 2008 and all of 2009, just six drug developers have gone public on U.S. exchanges in 2011, with generally lukewarm aftermarket performance. One recent candidate, Advanced BioHealing Inc., chose to accept Shire PLC's $750 million buyout offer on the eve of its public listing rather than conduct its own IPO (Also see "Shire Nabs Advanced BioHealing Before It Can Test the Public Waters" - Pink Sheet, 17 May, 2011.).

Novartis Still Involved, Despite Letting Option Expire

The now well-funded Radius nearly had a larger payoff for BA058. Novartis took an option on the drug in 2007, with a two-year period of exclusivity. Although complete terms were never disclosed, the total value of the deal including milestones was thought to exceed $500 million ( (Also see "MPM/Novartis Fund Deals with Radius" - In Vivo, 1 Oct, 2007.)

Instead, Novartis let its option expire in 2009, returning all worldwide rights outside of Japan to Radius. (Ipsen, the drug's originator, sold Radius global rights to BA058 outside of Japan in 2005 for $250,000 upfront plus milestones and royalties.) Rather than seek a new partner, Radius chose to engage investment bank Leerink Swann as a placement agent for a new round, attracting a variety of new investors.

MPM was already doubly committed to Radius, having invested from its third fund as well as a fund affiliated with Novartis. Although the Swiss pharma allowed its option for BA058 to expire, both MPM funds returned for Radius' Series C, taking a larger stake than their pro rata in the new round.

Lyttle said Novartis' decision to pass on its option was "a strategic consideration" related to its overall interest in osteoporosis rather than an issue related to Phase II data; Gadicke added that Novartis still could be a potential partner for BA058 eventually. And despite Novartis' failure to exercise the option, Radius is hoping that public investors could still display a strong appetite for the late-stage asset as it nears approval.

That appetite may grow if Radius inks an alliance around the product. According to Lyttle, Radius aims to pursue a worldwide partnership for BA058 once it has Phase III fracture data. The interest of CRO Nordic, which has been involved in nearly every significant osteoporosis study over the past several years, afforded Radius more leeway to "look for the bigger payment" after Phase III, Lyttle said.

Until then, Nordic will manage the Phase III trials, investing a relatively small amount of cash in the new round while receiving a stock payment as part of the companies' service agreement. Thus, in addition to providing Radius with significant clinical trials expertise, Nordic's involvement helps the biotech dramatically reduce its development costs, which likely would have been significant given BA058's usage in a competitive, primary care setting.

A Competitor For Forteo?

Investors are enthusiastic about the clinical utility of BA058 due to its novel mechanism of action and encouraging Phase II data. The drug is an injectable, synthetic analog of human parathyroid hormone-related protein that acts as an agonist of the parathyroid hormone 1 receptor and is thought to stimulate bone formation, rather than merely slow bone weakening.

Its potential as an anabolic therapy puts it in fairly direct competition with Eli Lilly & Co. Inc.'s Forteo (teriparatide), on the market since 2002. That drug brought in $830 million in worldwide sales during 2010, a relatively small percentage of overall osteoporosis drug sales. Forteo carries a risk of osteosarcoma, for which it carries a black-box warning.

More often, generic bisphosphonates, as well as brand-name drugs such as Roche and GlaxoSmithKline's Boniva (ibandronic acid) and Novartis' Zometa (zoledronic acid), are prescribed, inhibiting bone resorption but not inducing bone growth. A new biologic entrant, Amgen's Prolia (denosumab), known as Xgeva when prescribed as an oncology medication, was approved for osteoporosis last year, but uptake has been slower than expected (Also see "Amgen Shifts Its Focus From Products To Pipeline, But Stays In Comfort Zone" - Pink Sheet, 2 May, 2011.).

Radius says BA058 showed an advantage over Forteo in promoting bone mineral density at the lumbar spine and femoral neck during Phase II trials. Moreover, the injectable BA058 does not require refrigeration, potentially giving it another advantage over its rival.

Furthermore, Radius is developing a second version of the drug that can be delivered via a transdermal patch. Although still in Phase I, that version - co-developed with 3M Corp., whose microneedle technology is used in the patches - could reach the market fairly quickly if the injectable form is approved. Lyttle said the transdermal version will likely require a bone mineral density study but not a fracture study, provided BA058 delivers strong data.

If the Phase III study is completed on the injectable version of BA058 by the end of 2013 as expected, the company would file an NDA in 2014 and anticipate marketing the drug by late 2015. A transdermal version could follow as soon as 2017, Harvey said.

For Radius, the new equity funding tops off its fundraising at $172 million since its inception, not counting the new debt component. Its $82 million Series B in 2007 followed a $24 million first round in 2003.

Most of the new funding is earmarked for the BA058, but Radius has additional products in its pipeline as well. Its RAD1901 is a selective estrogen receptor modulator in Phase IIa for hot flashes, while RAD140 is a preclinical selective androgen receptor modulator that has shown potential in stimulating bone and muscle growth. Lyttle said "not a lot of effort" would be expended on the latter during the lifespan of the current round, but RAD1901 would receive some resources.

Additional private rounds are unlikely, according to company leaders, but future fundraisings could be conducted via the public markets.

- Paul Bonanos ( [email protected] )