Friday, June 24, 2011

Financings of the Fortnight Can't Escape Velocity

Last we checked in with San Francisco venture firm CMEA Capital, it was April and the firm's health care team was looking to raise a new fund dedicated to buying individual drug assets, developing them with a virtual network of contractors, and selling them to Big Pharma buyers hungry for late-stage products.

The plan, dubbed Velocity, was to partner with a preferred pharma, which would contribute a sizable chunk of change; CMEA's fundraising pitch said Eli Lilly would be the partner. Lilly has been building its "Mirror" fund strategy to find VCs as drug-development proxies for pieces of its pipeline, and reserving preferential rights to the drugs if the VC teams develop them quickly and successfully.

Your faithful FOTF correspondent wrote about that plan in START-UP's April Capital Matters column, juxtaposing CMEA's approach with that of Altas Venture, which has carved out a piece of its current fund for its own "development corporation."

Well, now. CMEA's plan has changed, and it looks a lot more like Atlas's.

Velocity Development Corp. is now structured as an LLC holding company, not a fund. It will still buy assets and develop them, but not aligned with a specific pharma partner, CMEA managing director (and newly minted Velocity CEO) David Collier told us today.

Instead, Velocity will use $20 million from CMEA's current fund to launch, with a $40 million Series A upcoming and a $50 million Series B in 18 months. Those figures came from CMEA managing general partner Jim Watson in a VentureWire story earlier this month. Collier said today he wasn't allowed to discuss fund-raising, but he acknowledged and did not dispute the report.

Velocity will use the cash for operations -- $15 million maximum to develop each drug through proof of concept, for no more than three years -- not to acquire drugs if it can help it, Collier said. Instead, he and his colleagues, including three biotech veteran executives, will pay sellers with equity in the one-off companies they create around each drug. "Cash is dear, and people should be happy to take equity," he said. The blueprint is to offer a 20% stake, but Collier cautioned that was a "ballpark number to begin the negotiating process."

Is it a model that other venture firms might be forced to follow? Only if they're willing to give up venture compensation. The Velocity employees will basically be biotech employees, with an annual salary and stock options in the newco's they create around the drugs they acquire. No management fees, although it remains unanswered how the $20 million carved out of CMEA VII will be treated.

Nothing's signed, sealed or delivered yet, but the Velocity team has four or five deals in due diligence, Collier said.

A Lilly spokesman confirmed that CMEA was not part of Mirror but declined to discuss whether the Indiana pharma is looking for a replacement. Lilly said last September that one Mirror fund already had two molecules in its portfolio, one from Lilly.

VCs becoming drug developers? Veteran investor Kurt Von Emster calling his new firm VenBio an "unventure firm"? (My colleagues and I will have more on that soon.) Does anyone actually want to fund new companies anymore? Sure they do; witness the big sack of cash orphan disease firm Ultragenyx just received (description below). But the news from the innovation front -- the Series A rounds that we love to track as a rough guide to the mood of the venture industry -- remains grim. (We'll have more on that soon, too.)

Speaking of Series A recipients, one of our A-List alumni said this week it wants to go public in a big way. Others are finding it easier to crawl hermit crab-like into the shell of another hollowed-out company as a way of reaching the public markets. We told you last month how well those usually turn out.

By the way, it's a smaller world without The Big Man in it. To you, Clarence Clemons, we dedicate this edition of...

BliNK Therapeutics: The UK's top cancer research nonprofit has done it again. Cancer Research Technology, the tech transfer arm of Cancer Research UK, announced the spin out of its latest oncology-focused biotech BliNK Therapeutics on June 13, with £1 million ($1.8 million) in initial seed financing from Paris-based investor Kurma Life Science Partners. BliNK will concentrate on monoclonal antibodies for therapeutic and diagnostic uses. Kurma, which operates through the €51 million Kurma Biofund I, could put another £6 million into the start-up in the future. BliNK marks the 22nd spin-out from CRT, which has also created Antisoma and Chroma Therapeutics, both of which have secured Big Pharma partnerships, and Piramed, a PI3-K specialist that Roche acquired for $175 million in 2008. BliNK is developing new technology that prompts the immune system’s B-cells to produce cancer-fighting monoclonal antibodies against clinically relevant antigens. The company says the antibodies can be generated even when parent B-cells, which later produce millions of daughter B-cells capable of producing antibodies, are rare, or when the B-cell doesn’t easily recognize its antigen. The platform was developed by Dr. Facundo Batista, whose lymphocyte interaction laboratory is housed at Cancer Research UK’s London Research Institute, and Dr. Vincenzo Cerundolo of the University of Oxford. -- Amanda Micklus

Ultragenyx Pharmaceutical: Year-old startup Ultragenyx closed a $45 million Series A round, among the largest early-stage deals yet for an orphan disease specialist. TPG Biotech and Fidelity Bioscience led the round, investing alongside HealthCap and Pappas Ventures. The two lead investors recently enjoyed an exit in the rare disease arena, having held stakes in protein misfolding disorder startup FoldRx prior to its acquisition by Pfizer in September 2010. Led by former BioMarin executive Emil Kakkas, who relocated just a few doors down from his previous employer, Ultragenyx has already in-licensed its first candidate, UX-101, intended to treat the muscle-wasting disorder hereditary inclusion body myopathy, which afflicts about 2,000 people worldwide. Discovered in Japan, the drug previously belonged to Nobelpharma, which will retain its rights in several Asian territories. UX-101 triggers the production of sialic acid, a sugar essential for several bodily processes. Delivered in an extended-release oral formulation so as to overcome overnight clearance from the patient’s system, UX-101 is scheduled to enter Phase I trials in the US next month. Ultragenyx has subsisted for the past year on $3.4 million in seed funding from onetime BioMarin colleague John Klock and FoldRx chief commercial officer Bill Kaliski, as well as Kakkas. Ultragenyx has licensed four other preclinical drug candidates in the lysosomal storage disease area, and the firm intends to bring one into the clinic within the three- to four-year lifespan of the Series A round. -- Paul Bonanos

Tesaro: Is this the new MGI Pharma, the cancer and acute care company bought by Eisai in 2008? Tesaro has the same top executives, including CEO Lonnie Moulder, and now it has a massive infusion of cash to push its lead candidate rolapitant into Phase III for chemotherapy-induced nausea and vomiting. Tesaro said June 21 it has raised $101 million in Series B cash from a syndicate led by existing investor New Enterprise Associates. NEA kicked in $40 million, an astounding amount for one firm to contribute in a round. The syndicate included new investors Kleiner Perkins Caufield & Byers, InterWest Partners, T. Rowe Price, and Pappas Ventures, which also had a hand in Ultragenyx's A round. In December 2010, Tesaro in-licensed rolapitant, a selective neurokinin-1 receptor antagonist, from drug, diagnostic and device company Opko Health for $6 million upfront, potential milestones up to $115 million, plus double-digit royalties. Opko also took a 10% equity stake. Moulder told "The Pink Sheet" DAILY that the funds would also be earmarked for "one or two more oncology assets" to fit mid-stage between rolapitant and a preclinical anaplastic lymphoma kinase (ALK) inhibitor that Tesaro hopes to move into the clinic next year. -- Lisa LaMotta

Aveo Pharmaceuticals: For a lesson why it's worth going public if the markets allow, Aveo has netted $104.3 million from a follow-on public offering that closed June 21. The offering consisted of more than 6.3 million shares of common stock, including the overallotment, sold at $17.50 per share. The stock then gained 3% to close at $18.34 the day after the transaction. The oncology developer is on a roll. It debuted with a $83 million IPO in early 2010, then earlier this year it signed a pair of big deals with Astellas Pharma and Johnson & Johnson’s Centocor Ortho Biotech. AVEO received $125 million upfront from Astellas in February for rights to co-develop and commercialize tivozanib, which has a lead indication of renal cell carcinoma. Then, in May, Centocor paid $15 million upfront, half of it an equity investment to acquire 1.25% of AVEO, to license global rights to AVEO’s antibodies that target the RON (Recepteur d’Origine Nantais) receptor. Presumably, the funds will help the continued development of a pair of candidates in the clinic in a variety of oncology indications – tivozanib, a small molecule triple VEGF receptor inhibitor in Phase III, and ficlatuzumab, an antibody that inhibits the HGF and cMET pathways, in Phase II for non-small cell lung cancer in combination with Iressa. -- Joseph Haas

Photo courtesy of flickr user virtuallykc via a Creative Commons license.

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