At Allicense, VCs Avoid The Creep

If Tuesday’s discussions at Deloitte Recap’s Allicense conference focused on how VCs are putting their money into new biotech companies, Wednesday’s sessions dealt largely with the challenges they face in getting their money out – and what they’re doing about it. Privately-held start-ups are continually struggling with structured buy-out deals that delay full liquidity. Those few companies that can go public must debate internally whether to partner their assets beforehand, a variable that may not be as validating as once thought. And some have even looked for liquidity through creative asset-based financing arrangements that provide returns without an M&A deal or a public listing.

As Cooley LLP life sciences partner Barbara Kosacz pointed out during an afternoon panel, the weighting of earn-out deals has shifted heavily toward milestone-based biobucks, a trend she doesn’t see turning around anytime soon. “It used to be the icing, not the cake,” she said, postulating that a $500 million upfront deal with a $100 million earn-out is largely a thing of the past. Now, she says, “we have creep” – a series of incremental shifts that have devalued upfronts and placed more weight on contingencies that may never materialize.

In tandem with the shift have come more complicating factors, as various panelists noted: retention of original management, earn-outs booked as liabilities, and diligence clauses that can lead to potential conflicts over whether the buyer did its best with its acquired assets. Former Calistoga Pharmaceuticals chief business officer Cliff Stocks, whose company sold to Gilead for an impressive $375 million upfront in February, even suggested that sales royalties could increasingly come into play as an earn-out component, with shell companies being set up to collect royalties and redistribute them to selling stakeholders. It'd be yet another way M&A deals will continue to take cues from licensing arrangements, as they have for some time.

Though the IPO market has been difficult for years, another afternoon session zeroed in on the companies that can get reach the public markets – and whether their partnerships have been a boon or a liability. Moderator Michael Brinkman explained that where partnerships were once seen as validation, more current prevailing wisdom is that a good asset is worth holding onto completely. Indeed, just two IPOs since the beginning of 2010 had significant partnerships – Ironwood's multiple geographic carve-outs for linaclotide and Zealand with Sanofi – with the remainder going solo. While the few companies with partnerships commanded slightly higher valuations, and most panelists agreed that a pharma partner’s diligence goes deeper than any retail investor's would, Anacor CEO David Perry pointed out that partnering can add risk too, in the event that the licenser changes its priorities.

As far as creative asset-based financings go, we’re no stranger to mouse antibody platform developer Ablexis’ one-of-a-kind Series A deal that looped in five pharma partners to provide its VC investors with eventual liquidity, obviating the need for an IPO or M&A deal to provide returns. That agreement, which featured an LLC structure to avoid double taxation of proceeds passed back to investors, took our Roger award for Exit/Financing Deal of the Year in 2010, and was discussed at length in a morning panel. Pfizer Venture Capital’s Barbara Dalton, who backed Ablexis alongside Third Rock Ventures in the $12 million round, affirmed that such arrangements aren’t for every company, and are best suited for “variations on a theme”-- companies that add value to known science. Does Pfizer still view it as a good deal? “I’m looking forward to more transactions like this one,” she said.

Financings of the Fortnight Covets Thy Neighbor's Bubble

The B-word is back, and it rhymes with "trouble." With 21 US IPOs in April alone, no wonder the barbarians are lined up at the gates, clamoring to get a piece.

There have been 31 initial filings this month, the most active month since 40 companies filed in August 2007, according to IPO watchers Renaissance Capital. Exciting, no? So how many of these newly minted or wannabe public companies are in our little corner of the world? Two IPOs, Tranzyme and Sagent Pharmaceuticals, and no new filings.

Let that sink in for a moment. It's Bubble 2.0, or 3.0, or 6.0, with little old ladies in Pasadena trying to grab a piece of Facebook on private secondary markets, and not a single biotech firm filed papers this month.

Now, there might be some moral high ground in keeping one's distance from ye olde irrational exuberance. A bubble is generally a bad thing, leading to Pets.com and far too much exposure of Angelo Mozilo's tanning-bed face. No wonder the other side is protesting too much. See how hard this tech VC argues that the current mania is anything but a bubble?

But to those on the bio side of the fence, the lush green grass of Mark Zuckerberg's backyard looks awfully tempting. At BayBio last week, when talk on a mid-stage funding panel got around to building strong biotech companies, Pfizer business-development executive Jim McLoughlin cautioned other panelists to think long-term and not create a bubble. (As if they could.) Versant Ventures managing director Camille Samuels jumped in: "Hey, I'll take a bubble!"

She said it with a laugh, but consider the VC's alternative these days: Waiting for guys like McLoughlin (and the committees behind them) to decide they like your portfolio firm's Phase II asset enough to offer a modest up-front payment and earn-outs or milestones.

European investment firm LSP Life Science Partners isn't waiting around for the private equity exit ramp to materialize. Not only is it launching a public-equity fund, it has floated the fund, dubbed LSP Life Sciences Fund, on Euronext Amsterdam.

The firm claims a 150% return on public investments, which it began making in 2008 on behalf of Dutch pension fund administrator APG Investments. Its new dedicated fund, for which it raised £30 to £35 million privately, follows in the footsteps of life-science VCs like Abingworth, MPM Capital, and OrbiMed Advisors who have begun straddling the fence in recent years. On the private side, LSP's fifty or so holdings have included Jerini, KuDOS, U3 Pharma and Movetis. The first three sold privately, while Movetis listed in late 2009 before Shire gobbled it up a few months later. Our "Pink Sheet" colleagues will have more on LSP soon, so we don't want to, ahem, burst their bubble. Instead, let's pop the cork on another bottle of...

Synta Pharmaceuticals: On April 15, cancer and inflammation drug discovery company Synta Pharmaceuticals raised $35.2 million in a registered direct offering, the second-highest grossing PIPE this year behind Arena Pharmaceuticals. Synta sold 7.2 million shares at $4.89, a 6% discount to the ten-day average. Company insiders bought about 22% with institutional investors scooping up the rest. After several ups and downs in its ten-year history, Synta is The Little Discovery Engine That Could, dusting itself off after each disappointment. And there have been several. The Shionogi BioResearch spin-off raised more than $200 million in venture financing before a failed IPO attempt in 2005. Less than two years later, and after another $40 million cash infusion, the company finally went public, selling shares at $10 a pop. Soon thereafter it secured its first Big Pharma partner when GSK acquired US co-promote rights to the biotech’s elesclomol, an apoptosis-inducing candidate that disrupts cancer cell energy metabolism. But Synta got a shock in March 2009 when Phase III trials in metastatic melanoma showed more deaths in the elescomol arm than with the standard-of-care arm, and the trial was shut down. GSK returned rights, but not before forking over $130 million. After the elesclomol failure, Synta has pinned its hopes on its lead compound the Hsp90 inhibitor ganetespib, which is unpartnered.* For the April 15 RD offering, Synta issued no warrants and did not use an underwriter. -- Amanda Micklus

Silence Therapeutics: The shingle Silence hung out to advertise a placement of 275 million shares, with hopes of grossing up to £5.5 million, is a sign of the times for the RNA interference crowd. Silence is the latest RNAi firm to find itself in financial or strategic difficulties, and if shareholders don't approve the new stock sale, announced April 25, the company says it will run out of cash by the end of the third quarter. Whether or not that transpires, Silence says it is shutting down its California office, a legacy from its December 2009 merger with Intradigm, and looking to replace CEO Phil Haworth. When Silence and Intradigm tied the knot, the firms hoped their combination would speed the development of delivery systems, a major obstacle in turning fragile short interfering RNAs into viable therapeutics that reach their intended targets. Investors such as Alta Partners and Frazier Healthcare also backed the merged entity with a £15 million financing priced at 23 pence a share. If that sounds bad, please note that the new placement is priced at 2 pence a share. No, that's not a typo. Momentum in RNAi has been on the wane for the past two years, then came big red flags last fall when two major partners of Alnylam Pharmaceuticals delivered bad news. First Novartis, a 13% owner of the biotech, passed on an expensive option to expand its collaboration, then Roche said it was dropping all RNAi-related work. More dark skies earlier this year came when delivery firm Tekmira Pharmaceuticals brought a lawsuit against Alnylam; and RXi, undergoing a management overhaul, bought a struggling company for its late-stage breast-cancer treatment and shifted its focus away from RNAi. To top it all off, Merck & Co.'s $1.1 billion purchase in 2006 of Sirna Therapeutics, once Alnylam's rival, has yielded nothing that Merck is willing to discuss publicly. Meanwhile, Silence is offering shareholders a chance to buy up to £1 million in shares before the placement. Those who participate in full will only be diluted 45% by the placement; otherwise dilution will be about 54%, the company said in its notice to shareholders. -- Alex Lash

Bluebird bio: When a VC at last week's Bay bio meeting was asked about the next big thing, he pointedly said it wouldn't be RNAi, which was reminiscent of gene therapy. (He didn't mean it as a compliment.) Bluebird bio begs to differ, having just raised a $30 million C round from new investor ARCH Venture Partners and others to pursue its gene therapy technology, called LentiPak, to treat rare diseases such as childhood cerebral adrenoleukodystrophy (CCALD) and beta-thalassemia/sickle-cell anemia. Formerly known as Genetix Pharmaceuticals, Bluebird aims to get lead program Lenti-D into a registrational Phase II/III trial for CCALD later this year. The firm says its technology, using lentiviruses instead of retroviruses as the viral vector, should provide better safety than the now-infamous gene trials of the previous decades. The LentiPak technology works this way: A patient's hematopoetic stem cells are extracted, exposed to a viral vector, then re-inserted into the patient, reconstituting his or her bone marrow. In addition to ARCH, the Series C is backed by returning investors Third Rock Ventures, TVM Capital, Forbion Capital Partners and Easton Capital Investment Group. Genzyme Ventures, which co-led last year's Series B, is not involved because of the ongoing merger with Sanofi-Aventis, Bluebird CEO Pat Leschly told "The Pink Sheet" DAILY. -- Joe Haas and A.L.

Circassia Holdings: Yes, Virginia, there are refreshing wellsprings of early-stage capital out there, and Circassia is fortunate to be in deep with one of them. The UK allergy vaccine developer said April 19 it has raised £60 million ($98 million), the second largest European venture round this year and one of the largest ever. It was led with a £15 million tranched commitment from Imperial Innovations Group, the tech transfer and investment arm of Imperial College, London, where Circassia's T-cell vaccine platform ToleroMune was developed. Imperial Innovations has exclusive rights to IP coming from the college, as well as access to technology from three other top UK schools. It recently said it has commitments from shareholders to contribute another £140 million ($220 million), nearly three times what the group has invested in start-ups. It's also one of the rare investment funds to go public itself, having raised £26 million in a 2006 listing on the AIM exchange. (Perhaps an inspiration for LSP?) Imperial has been a backer of Circassia since its founding in 2006, and the majority of the funds raised in this round will go towards financing phase III development programs for Circassia's cat and ragweed allergy therapies. Circassia also aims to use the funds to complete phase II testing of the company's house dust mite and grass allergy T-cell vaccines, and will advance the development programs for three additional allergy therapies and its psoriasis treatment, PAP-1, a selective Kv1.3 inhibitor, recently acquired from Airmid Inc. -- Faraz Kermani

Photo courtesy of flickrer Beige Alert under a Creative Commons license.

Melanie Senior contributed to this week's introduction.

*Due to an editing error a previous version of this column stated incorrectly that Synta's ganetespib compound was partnered. We regret the error.

BayBio Day 1: One Way Out

Even if the IPO market for biotechs isn’t quite dormant, venture investors are behaving as if it is. That was the overall sentiment expressed in three different venture-focused panels held on day 1 of the annual BayBio confab. As Alan Mendelson of Latham & Watkins deadpanned while moderating an afternoon panel specifically geared toward exit strategies, IPOs are “painful.” Thus, given diminished expectations and poor aftermarket performance in the public markets, building toward an M&A exit is just about the only game in town.

That's not a surprising conclusion. Though confidence in IPOs has increased in certain circles over the past year, this enthusiasm is rooted in the belief that any liquidity -- even if it requires a tomahawk chop -- is a positive given the deep freeze of 2008 and 2009. But if the favored exit for most VCs has generally been M&A, this preference raises another issue: the availability of buyers interested in a technology or product. As therapeutic areas go in and out of fashion within Big Pharmas' halls faster than jeggings or the gladiator look during a NY fashion week, what are the merits of building a company for M&A versus building for independence? (Call the latter the Field of Dreams strategy: Build it and the buyers will come -- if the data are positive and the risk is, thus, lower.)

Over the course of the first day, a balance emerged between the two streams of thought. The morning’s first panel argued for building toward M&A as the preferred approach, even as it outlined a broader shift in biopharma VC investing that favors de-risked later-stage assets that can be sold within three to five years. Three panelists – Scale’s Lou Bock, Norwest’s Casper de Clercq, and Pappas’ Rosina Maar Pavia, have moved toward later-stage investing in recent years, while CMEA’s Karl Handelsman was blunt in his assessment that “other people’s money” should be used to fund early stage R&D.

But as the day wore on, others reminded the audience that designing companies to be sold isn’t so simple. In an afternoon discussion, Essex Woodlands’ Ron Eastman managed to say the words “I don’t think you can plan for an exit strategy,” while noting the unpredictability of the FDA and “Mother Nature.” Better, he said, to “be prepared for luck to play a role.” Comments from MPM’s Vaughn M. Kailian show why flexibility is a must. Noting that "sometimes you’re betting on management,” he reminded the audience that it's not uncommon for most successful companies to shift their strategy after a few years. Eastman later echoed the sentiment, even throwing in the dreaded word “pivot".

Even without the chance to go public, designing for independence adds leverage as an acquisition is negotiated, as long as deep-pocketed VCs can keep a company alive. Eastman noted the that preponderance of acquisitions grow from licensing discussions, often in structured deals, while Neuraltus Pharmaceuticals’ Andrew Gengos, a former member of Amgen’s M&A team, added that unencumbered companies with few existing partnerships are the easiest ones to sell.

If no one’s exactly waiting around for the IPO to become a likely exit option again, some believe it could still return as a credible alternative if corporate M&A picks up. Kailian suggested that a Big Pharma M&A binge of late-stage assets will spur interest in mid-stage companies, while bankers who missed out on expensive buyouts will eye IPO prizes and take companies public, perhaps even when they shouldn’t. “Unlike VCs, bankers can be real pigs,” he joked – I think.

Financings of the Fortnight Enjoys An Early Noel

For many of us, Christmas (or Hanukkah) arrived early this year. Fans of the Philadelphia Phillies, for example, found a stocking full of Cliff Lee, giving the team a formidable rotation that apparently only the San Francisco Giants can beat consistently. Twitter pulled the ribbon off a $200 million gift box from VCs including blue-chip Valley firm Kleiner Perkins Caufield & Byers.

And across the pond in the UK, where the name Cliff Lee prompts about as much recognition as Ashley Cole’s does in the States, the British biotech sector got its early gift: a £140 million ($220 million) equity raise for Imperial Innovations Group plc, the tech transfer-focused firm closely tied to Imperial College London, foretelling dozens of new investments in academic spinouts.

Wrapped into Imperial Innovations' new funding is the news that it will focus increasingly on commercializing other institutions' research, while continuing to fund ICL spinouts. The firm will collaborate with Cambridge Enterprise, Oxford Spin-Out Equity Management, and UCL Business, the tech transfer groups associated with University College London and the Universities of Oxford and Cambridge. ICL-related investments will still account for the biggest share, with about 40% of the new funds slated for those spinouts; the firm and the university have an ongoing 15-year pipeline agreement that runs through 2020.

The deal will accelerate the firm's pace of investment to as much as £60 million annually from a current pace of £14-£15 million each year, according to CEO Susan Searle. Founded in 2006, Imperial Innovations has invested £47.9 million since its 2006 IPO. It plays a hands-on role in 31 of its 79 portfolio companies, often investing alongside traditional VCs. It reaped a £9.5 million cash exit from the £73 million sale in June of small-molecule drug discovery startup Respivert to J&J's Centocor Ortho Biotech division this year, and could gain as much as £16.1 million from a back-loaded payout from Wyeth's acquisition of obesity drug maker Thiakis.

Imperial Innovations' public placement, relatively rare in 2010, included a rights issue and three installments of convertible shares. J.P. Morgan Cazenove underwrote the issue.

Though VCs have shied from academic deals of late, even deriding them as "science projects" as they've shifted focus, it's been a strong season for investment in university research. On the Big Pharma side, Pfizer's headlong charge into academic dealmaking produced an $85 million commitment to UCSF this fall, one of several on-campus deals the company plans to make.

Whether you're the type to open presents on Christmas Eve or Christmas morning, Imperial Innovations isn't the only one who's already enjoying a gift this season. Since it stands to reason that Santa's sleigh travels from east to west, we'll first linger in Europe as we present...

ThromboGenics: The one-horse open sleigh has already made pitstops in several European countries, rewarding Belgium's ThromboGenics with the most loot. Planning to go it alone with the anticipated launch of microplasmin for retinal disorders, ThromboGenics raised €56 million (about $75 million) in a private investment in public equity financing announced Dec. 2. The deal was one of three PIPEs completed by European biopharmaceutical companies during recent weeks – in addition, Medivir AB raised SEK 280 million (about $41 million) Dec. 3 by selling 2.25 million class B shares of stock at a price of SEK 125 to more than 30 international institutional investors and certified investors in Sweden, while Bavarian Nordic A/S brought in DKK 205 million (about $36.8 million) Nov. 30 by selling 1.05 million shares at DKK 195 apiece. ThromboGenics’ private placement nearly doubled its cash on hand, reported as €59.1 million at the end of the third quarter. The company, which placed 2,944,523 new shares (about 9.9% of outstanding shares) to domestic and international buyers, including qualified U.S. institutional investors, set its price at €19, a 3% discount from the previous day’s closing price. Microplasmin has completed a pair of Phase III trials in varying retinal disorders, including focal vitreomacular adhesion, with a single injection resolving such adhesions in about 30% of patients. Regulatory filings in the U.S. and EU are anticipated in mid-2011. -- Joseph Haas

Sequenta: Geneva's Index Ventures is feeling jolly about diagnostics, and the allure of Sequenta's adaptive immune system response monitoring technology was like milk and cookies waiting for Santa. The California-based company raised $13 million on Dec. 8 in a Series B that also included prior investor Mohr Davidow Ventures, which supported Sequenta in its $2 million Series A. For Index, it's the second time it has backed Sequenta's management team; the same entrepreneurs founded SNP-discovery focused ParAllele Bioscience, which was acquired by Affymatrix in 2005. The firm also has a stake in microfuidics-based assay company SpinX, based in Switzerland. "We're getting into the diagnostics space more and more," enthused UK-based partner Francesco de Rubertis. "It's because of what's happening in pharma: the one-size-fits-all model very clearly is becoming problematic." While diagnostics has long provided the answer to this in theory, in practice, it's been a slower ride, and de Rubertis acknowledged that the best model hasn't yet been found. He added that Index is planning more European diagnostics investments, which will likely be earlier-stage deals. -- Melanie Senior

Catabasis: A lump of coal if you’re naughty, a stocking stuffer if you’re nice, and a second tranche of funding if you meet your milestone. Four VC firms dressed as Santa swooped down the chimney a couple of weeks early with $14.5 million in fresh cash for Catabasis, a diabetes and inflammation startup on the rise whose name nonetheless refers to a descent or sinking. The new money builds on a $7.7 million installment of Series A capital revealed in April, but the round is a gift that’s supposed to keep on giving: The $22.2 million received so far could grow to $39.7 million if additional milestones are met, with SV Life Sciences, Clarus Ventures, MedImmune Ventures and Advanced Technology Ventures standing in for Kris Kringle. Catabasis, which is exploring the connection between inflammation and metabolic disease, expects next year to begin Phase I trials on a drug that combines Omega-3 compound DHA with a salicylate derivative that improves glucose homeostasis in type 2 diabetes patients. After all the cookies and milk, perhaps it's the perfect present for man, dressed all in fur. Nor was Catabasis the only one topping up--and we're not talking eggnog either. Since the last edition of Financings of the Fortnight, Santa's elves have visited Histogen, a San Diego regenerative medicine startup that added $5.35 million to complete its $10 million Series A round, and PhaseBio Pharmaceuticals, which took in the last $15 million of its $25 million Series B to support Phase I trials on the diabetes drug Glymera. -- PB

Geron: Finally, it won't be a blue Christmas for Geron, which netted $93.5 million in a follow-on public offering intended to shore up its balance sheet for multiple projects, including a new licensing deal with AngioChem. The cancer and degenerative disease specialist wasn't necessarily strapped -- it had $125.6 million in cash and short-term investments as of September 30. But Geron owed a $7.5 million upfront payment to AngioChem, and it's on the hook for all further development of the Phase II compound on which the deal centered, a taxane derivative that uses a peptide mechanism to cross the blood-brain barrier and treat brain metastases and glioblastoma. Geron will also conduct Phase II trials on a telomerase inhibitor, which blocks an enzyme thought to be crucial for cell stability and replication in breast and lung tumors, and early-stage clinical trials on a human embryonic stem cell treatment for spinal cord injuries. Geron priced about 17.4 million shares at $5 apiece to raise the first $87 million, while lead underwriters J.P. Morgan Securities and Lazard Capital Markets pursued a greenshoe option that accounted for the remainder. -- PB

image from Flickr user mchristianphotos used under a creative commons license

2010 Exit/Financing DOTY Nominee: Incline Therapeutics

It's time for the IN VIVO Blog's Third Annual Deal of the Year! competition. This year we're presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (four or five in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

The story of Incline Therapeutics’ $43.5 million Series A funding is, to use a word, one of various inclinations. Johnson & Johnson, for example, was inclined to shutter Alza and sell for a pittance the rights to an electronic fentanyl patch it had spent hundreds of millions of dollars to bring to market, but pulled due to a safety concern. Cadence Pharmaceuticals was inclined to buy the patch from J&J, but was short on cash and otherwise inclined to focus on getting its intravenous acetaminophen, Ofirmev, approved. And a group of VCs was especially inclined to set up a new startup company with an exit strategy built into the company’s launch, charging Cadence $3.5 million for each of two consecutive options to buy the startup – if it should be so inclined.

The fascinating tale of Incline’s birth, emblematic of recent trends and extraordinary in its complexity, therefore merits your vote for DOTY in the Exit/Financing category.

Like several other large first-round fundings, the financing is tranched, with a detailed product roadmap that correlates with future capital infusions. Furthermore, it represents a bet on a mature product, a slightly modified version of a drug/device combination that has already been marketed outside the U.S., rather than murky, exploratory research VCs sometimes deride as “science projects.”

But the June deal is also uniquely structured with a built-in exit opportunity, a pair of options for minority stakeholder Cadence to acquire Incline outright by the end of 2013. Thus, Incline's financing is a sign of the times, demonstrating that when VCs commit large amounts of capital, they’re willing to negotiate upfront for a speedy, healthy return.

Incline's Series A arose as J&J put its Ionsys technology on the block. Briefly marketed in Europe to treat acute post-operative pain, Ionsys is an electronic pain relief patch that delivers the approved drug fentanyl through the skin via a small electronic charge. (“Acute,” by the way, also refers to a type of angle which describes an incline.) J&J halted sales in 2008 due to a potential electronic failure that could lead to accidental overdoses. As J&J wound down Alza’s operations, Cadence seemed a likely buyer, but faced a cash crunch while preparing Ofirmev for approval. (After multiple delays, that drug won the official regulatory nod in November.)

Enter a syndicate of VCs organized by Frazier Healthcare Ventures, which hatched a unique strategy: create and fund a new company led in part by Cadence insiders to buy Ionsys, address its safety issues, refurbish the device, and bring it back to market, while offering Cadence the opportunity to acquire Incline for an incrementally increasing amount as the product attains regulatory milestones and has been further derisked. The first option allows it to buy Incline for $135 million within a year or before the second tranche of VC money kicks in. If Cadence exercises the second option, it can pay $228 million plus a $57 million earn-out by the end of 2013, or before Incline files for an NDA.

In this way, the VCs , which besides Frazier include 5AM Ventures, Technology Partners, Adams Street Partners, Saints Capital Partners, and Emergent Medical Partners, have forged a deal that includes up to $7 million in non-dilutive cash, and could bring back two to four times the capital they invested within a relatively short time. Cadence, meanwhile, offloads some risk while maintaining an exclusive opportunity to acquire a potential $300 million product.

It’s one of the most detailed VC deal agreements we’ve seen yet: as long as investors are committing capital in tranched deals with detailed milestones, why not race to include a flexible exit opportunity as well?

by Paul Bonanos

Image courtesy of flickrer gogoninja courtesy of a creative commons license.

Financings of the Fortnight Waits For the IPO Parade To Start

Will the recent IPOs of Pacific Biosciences, a cut-rate Aegerion Pharmaceuticals, and a reportedly massive debut by a Chinese drug maker with a huge distribution network unleash a parade of life-science debuts? We don't know the answer to that question, but we thought it would be interesting to check in with the folks at Zealand Pharma, which said Nov. 3 it plans to raise up to $146 million on the Copenhagen stock exchange (yes, Zealand is based in Denmark, not the southwest Pacific).

Let's step back a second. If you abide by the oft-chanted mantra that the IPO is no longer an exit but another round of financing, then the real test of an IPO is how it positions the company. Certainly the most startling post-IPO exit in recent history belongs to another European biotech, Movetis. It debuted on the Euronext in November 2009, raising about $140 million and winning our Exit/Financing of the Year nod; nine months later it was betrothed to Shire in a $565 million deal.

Now here comes Zealand, which tried five years ago to go public. If it meets its fundraising goal, Zealand's coming-out would make it the biggest in Europe since Movetis. Like its Belgian brother, Zealand has a late-stage asset with potential broad market appeal: the Phase III GLP-1 analog lixisenatide, partnered to Sanofi-Aventis. It plans to file for approval in the EU in 2011 and a year later in the US, according to Zealand CEO David Solomon.

Solomon also told our Pink Sheet colleagues that an IPO "isn't a requirement for us." (How nice to have that flexibility.) But it's hard to believe its investors, who've piled $145 million into the company, are blissfully ignorant of the parallels to Movetis. Of course, Zealand doesn't need to go public to be bought at a tasty premium, but once public, it's that much harder for Big Pharma to force a target's shareholders to accept earnouts.

One thing to keep in mind: Zealand's shareholders, which include Denmark's Sunstone Funds and LD Pension, France's CDC Innovation and Allianz Private Equity, and the Netherland's Life Science Partners, will be subject to a 360-day lock-up period following the IPO.

For sheer cash on the barrel head impressiveness, no one will outpace Pacific Biosciences, whose IPO we describe below. But we're leery about correlating enthusiasm for sequencing technology with drug lust, so to speak. So if you want to know which way the biopharma wind is blowing, Zealand is a better place to hoist your sails -- at least until next April, when once again this is the place to be. But don't stay out in the cold, especially since it's not even winter yet. Curl up next to our hot stove with the latest edition of...


Karyopharm Therapeutics: Karyopharm derives its name from karyophrerins, proteins that shuttle from the nucleus to the cytoplasm, and has attracted $20 million in Series A financing to further its work on selective inhibitors of nuclear export (SINE). The Series A came entirely from Cyprus-based Chione Ltd., the investment vehicle for an unnamed wealthy individual, according to Karyopharm director Michael Kauffman, MD, PhD. Newton, Mass.-based Karyopharm started last year with $1 million from angel investors. It's using computational chemistry technology invented by its CSO and acting president Sharon Shacham, PhD, who used to head up drug development at now-defunct Epix Pharmaceuticals. Epix licensed Dr. Shacham the technology before the company filed for bankruptcy in 2009. Both Shacham and Kauffman, the former Epix CEO, helped establish the start-up, which is interested in oncology, autoimmune disorders, inflammation, and viral diseases including HIV. It will soon nominate a lead candidate for cancer and focus on hematological malignancies. To destroy tumors and ensure healthy cells retain tumor suppressor proteins in their nuclei, Karyopharm is developing small molecules that prevent the nuclear export of multiple proteins from the diseased cell, allowing the drug candidates to modulate the activity of key cancer pathways. The company’s platform targets the main culprit: CRM1, the nuclear pore complex that facilitates the import and export of the tumor suppressor proteins between the nucleus and cytoplasm. The 3-D structure of CRM1, which was discovered by Yuh Min Chook, PhD , was published in Nature in 2009. -- Amanda Micklus

Pacific Biosciences: DNA sequencing instrumentation specialist PacBio got the gold in late October, netting $186 million from a 12.5 million share IPO priced at $16. This comes four months after closing a $109 million Series F financing, which included a $50 million investment from strategic partner Gen-Probe as part of the companies’ June 2010 R&D collaboration. With Gen-Probe, PacBio's long-term goal, not to mention that of its competitors, is the clinical diagnostics market as featured recently in IN VIVO. But as is typical for life science tools providers, the company will first target the smaller academic and applied research market. PacBio has received orders for eleven of its instruments including from several of the best-known large-scale sequencing centers in the US and from Monsanto for agricultural research, according to its IPO prospectus. PacBio is also looking beyond DNA sequencing to potential applications for its technology in the study of chemical and structural modifications of DNA and processing of RNA and proteins, and it believes it can provide these additional capabilities through enhancements to software and consumables without the need for modifications to its basic hardware. As the cost of taking sequencing measurements drops due to innovations from PacBio and others, commercial success will depend at least as much on the ability to provide extensive high-quality data analysis as on hardware. Indeed, as noted in our recent discussion of Merck’s intention to utilize the sequencing capabilities of BGI in China, the resources dedicated to sequencing have flipped from the front end to the back end -- from being measurement heavy to being computation and data analysis (bioinformatics) heavy. -- Mark Ratner

Omeros: A year after netting $63.4 million from its IPO, the first for a pure-play U.S. biotech after the market crashed in 2008, Omeros has sealed a $20 million PIPE deal with Microsoft cofounder Paul Allen's private investment firm Vulcan Capital and its affiliate, Cougar Investment Holdings. In tandem with the financing, Washington State’s Life Sciences Discovery Fund (LSDF) also provided a $5 million grant to Seattle-based Omeros. The biotech says it will use the money to advance its G protein-coupled receptor program, aiming to perform high-throughput screening of about 120 “orphan” GCPRs, or those without a ligand. The goal is to identify what it believes could be up to 65 new druggable targets for a broad range of indications. In exchange for their investment, Vulcan and LSDF are eligible to receive tiered net proceeds earned by Omeros from the GCPR program, including product sales and specified partnership arrangements such as milestone payments. Vulcan is better known for its media and technology investments but has a life science track record. A year ago IN VIVO estimated Vulcan made ten times its investment in BiPar Sciences -- it led the Series A and reupped twice -- when BiPar was bought by Sanofi-Aventis. For their Omeros bet, Vulcan and LSDF will receive a blended percentage in the mid-teens on the first $1.5 billion in proceeds from the GCPR program; beyond that threshold, the percentage decreases to 1% of net proceeds. Vulcan also received three sets of five-year warrants, each good for 133,333 shares in Omeros, at exercise prices of $20, $30 and $40. Omeros, which sold its IPO at $10 per share, closed at $8.02 on Nov. 3. -- Joseph Haas

Mind-NRG: Always curious about asset financing strategies, we took notice when Index Ventures on Oct. 27 pledged up to €10 million ($13.4 million) to Swiss start-up Mind-NRG. Index has made a habit of asset-centric financings, backing development of a single candidate, or a small handful of candidates with a single mechanism of action, typically housed within companies with ultra-lean overheads and minimal staff. There are few examples, industry-wide, of success, but Index can point with justification to Abbott Laboratories' 2009 purchase of PanGenetics -- effectively a single-asset acquisition -- as its good-news story in this field. Abbott paid a whopping $170 million up-front for a Phase I antibody targeting nerve growth factor. Mind's asset, NRG-101, is a pre-clinical peptidic neurotrophic factor that crosses the blood brain barrier and may therefore have disease-modifying potential in diseases such as Parkinson's or Alzheimer's. The molecule was sourced from German proteomics group ProteoSys for no cash, just a 38% stake in Mind. Index holds the rest. -- Melanie Senior

Photo courtesy of flickr user Zack Sheppard.

Financings of the Fortnight Works on Its Stand-Up Routine

Did you hear the one about two VCs, two fund managers, and a banker who walk into a bar… or maybe onto a stage. No, wait, it gets better.

The biotech community could use a little comedy after the last couple years, and the final panel def jam at this week’s Bio Investor conference in San Francisco provided plenty. All the classic elements were there as host George Milstein, a longtime West Coast biotech banker, played the straight man to his ensemble cast of characters, er, panelists.

The context of the discussion was more sobering, what with three-quarters of the year behind us and the situation becoming clear: recession or not, it’s still pretty damn hard for biotechs and their investors to find cash.

First, VCs are still struggling to raise it. DowJones VentureSource reported this week that 2010 fundraising is on track to equal 2009, which represented a six-year low. Second, pharmas are unwilling to spend it. The upcoming October issue of IN VIVO has an excellent industry overview, but here’s a taste: overall licensing activity is down 20% from 2007, and within that option-based license deals are up. M&A volume is behind 2009’s pace so far, and what there is has skewed toward companies with marketed products and generics, bad news for those trying to carry the torch of emerging science and innovation, or better yet, fund it. Do we even have to mention the IPO market? Oh, OK. This year’s IPOs, such as they are, have been a terrible investment (median performance of -20%).

Cue the mirth. Milstein summarized the ho-hum landscape but soon, thankfully, went for the cheap laughs. A typical example: panelist David Sable of Special Situations Funds admitted he’d only been an investor for a few years; before that the trained ob-gyn said he “was doing pap smears.”

Milstein waited a perfect beat then countered, “So, how is this different?”

Later, Milstein asked panelists what they thought of Sanofi-Aventis’s hostile bid for Genzyme. Biotechnology Value Fund portfolio manager Matthew Perry produced a Magic 8-Ball that he said his colleague Oleg Nodleman got as swag from a Berkshire Hathaway retreat. Perry shook it, waited, and read the result: “Sweet deal!” (This reporter found Nodelman later and verified the 8-Ball indeed sported Warren Buffett and Charlie Munger’s cartoon faces.)

Public-side investor that he is, Perry proceeded to berate Genzyme for the temerity -- shocking! -- of putting money into R&D instead of shareholder dividends. Just because it brought one or two products to market, said Perry, doesn’t mean it'll bring more. Quit while you’re ahead and give the extra cash to me, seemed to be his message. It didn’t quite jibe with Perry’s lament a few minutes earlier that biotechs weren’t being allowed to grow and aspire to be the next Biogen Idec, Amgen or Genentech.

No matter: Perry was faithfully playing the role of the large, loose cannon. And why not? Every great comedy needs one: think John Goodman as Walter Sobchak in the Big Lebowski. Perry played it to the hilt, badmouthing a few more companies, or the investors who poured money into them, along the way. (Theravance, Xoma and Maxygen were three we counted.)

Milstein chose other sidekicks perfectly. New Leaf Ventures managing director Srini Akkaraju was the over-the-top gloomer who pretended he’d rather be anywhere else than talking biotech investing on a late Wednesday afternoon (“We should all be asking ourselves what we’re doing here”). Akkaraju was also glum about Big Pharma, whose cycles of merger and job-cutting were doing little to solve unmet medical needs. “They’re dealing with their problems in a MacGyver kind of way." (We love the idea of Pfizer being held together with used bubble gum, a pair of shoelaces, and a bottle of nail polish.)

Then again, said Akkaraju, investing in biotech is “completely irrational.” At one point, he called his own business “ludicrous” three times in one sentence, provoking nervous laughter. Sometimes the best comedy has the audience squirming in their seats.

The panel had serious moments, too. Sofinnova’s Jim Healy made the excellent point that the rise of contingency-based M&A is on a collision course with the time limits of venture funds. What happens, he asked, when the contingencies in deals pay out past the expiration date of the funds who hold the rights? (This will no doubt warm the heart of one of our colleagues whose favorite soapbox is the creation of a CVR exchange.)

And for all his boisterousness, Perry said something that sent chills up the spines of any biotech hoping to tap the public markets soon. “Most of our capital is in cash,” Perry said. “I’d love to find great early stage companies, but they’re all getting acquired.” Perry will pull the trigger when he sees fit. His firm earlier this year bought a 6.6% position in Swiss firm Addex Pharmaceuticals, which had recently been crushed by a Phase IIb failure of its lead mGluR5 modulator for migraine. As we noted in our previous column, BVF followed with a $20 million investment via combined registered direct and convertible debt, the latter of which was necessary to get around strict Swiss laws limiting size of public investment. The gymnastics were all the more impressive seeing how Addex did the deal without a financial advisor, as its CEO Tim Dyer said earlier at the conference.

Which just goes to show, you can laugh all the way to the bank and you don’t even need a banker. Thanks, we’re here all week. Whenever you’re in need of good material, look no further than….

Convergence Pharmaceuticals: The CNS exodus from GlaxoSmithKline has begun. GSK said in February it would end CNS research and sold its facility in fair Verona, Italy, where Aptuit now makes its scene. Two clinical assets and six earlier programs targeting ion channels in chronic pain are now in the hands of Convergence, backed with $35.4 million from a syndicate including Apposite Capital, New Leaf Ventures and SV Life Sciences. At first it seems odd that VCs are willing to fund development of assets whose mechanism is old hat. They also address a large, potentially primary care area like chronic pain and face huge clinical trials and high regulatory safety hurdles. But the Cambridge, UK firm says its assets, unlike most of the sodium- and calcium-channels out there or in development, are state-dependent. That is, they only inhibit neurons in the rapid-firing state that's associated with chronic pain. CEO Clive Dix, who helped steer PowderMed into Pfizer’s arms in 2006 for $300 million, takes over with a dozen ex-GSK employees in tow. GSK currently holds an 18% stake in the tranche of funds that Convergence has received to date, which SV's Bingham says is roughly half the full £22 million. Its stake will dilute as further funds are provided, but the Big Pharma will receive further equity if Convergence hits certain milestones. GSK has a board observer seat but no other strings attached. -- Melanie Senior

Agennix: SAP cofounder Dietmar Hopp strikes again. Through his investment company dievini Hopp BioTech holding, Hopp has ended up with 59% of German biotech Agennix following a €76 million ($104 million) PIPE financing that will allow Agennix to complete a Phase III trial of its lead oral compound, talactoferrin, in non-small cell lung cancer. Having previously held 29% of Agennix, dievini is applying to German financial regulators for an exemption to the rule that it must make an offer for all of the company’s shares if it owns more than 30% of them, but as of Oct. 1 hadn’t heard back from the Bundesanstalt fuer Finanzdienstleistungsaufsicht, also mercifully known as the BaFin. In the financing, 20.5 million new shares were offered at €3.81 per share; 29% were taken up by existing investors, and 71% by new investors in a private placement or by dievini. Agennix also has plans to develop talactoferrin for severe sepsis, and it has a multi-targeted kinase inhibitor in Phase I. Investor Hopp has supported the German biotech sector for a number of years; in recent weeks dievini also participated in a €54 million series C funding round for immatics biotechnologies, which is developing cancer vaccines and is based in Tubingen, Germany. -- John Davis

Tobira Therapeutics: On Sept. 29 the antiviral developer announced a $31.2 million Series B round that was led by Novo AS and included earlier backers Domain Associates, Frazier Healthcare Ventures, Montreux Equity Partners, and Canaan Partners. According to the Form D filing, the company has sold $14.2 million so far. The money will fund a Phase IIb trial of lead candidate TBR652 in CCR5-tropic, treatment-naïve HIV patients, slated to start mid-2011. Tobira launched in 2007 with exclusive global rights to the CCR5/CCR2 antagonist plus a follow-on HIV compound from Takeda Pharmaceutical. New Jersey-based Tobira believes TBR652 has advantages over Viiv Healthcare’s marketed CCR5 antagonist Selzentry (maraviroc) due to its anti-inflammatory properties through CCR2 antagonism, with the potential to be dosed only once daily and administered with other antiretrovirals. Tobira, which previously raised $31mm in Series A financing, was established by Domain partner Eckard Weber who has a reputation for starting up companies around one or two molecules rescued from the shelves of Japanese drug firms. In previous efforts -- NovaCardia and Conforma Therapeutics, for example -- his firms raised capital quickly and sold off the assets through acquisition or spin-off. -- Amanda Micklus

CytomX Therapeutics: Backed by angels in its infancy, antibody developer CytomX has turned to VCs for a tranched $30 million Series B round that will support a northbound move from Santa Barbara, Calif., to the San Francisco Bay Area. Third Rock Ventures provided the lion’s share of the round alongside Roche Venture Fund’s minority stake. Third Rock itself recently established an office in San Francisco, with new CytomX board member Charles Homcy anchoring the firm on the West Coast; Boston-based partner Neil Exter also took a seat. Both have roots at Millennium Pharmaceuticals, as does CytomX CEO Nancy Stagliano. Third Rock invested from its $378 million Fund I, closed in 2007, rather than its new $426 million Fund II. CytomX is developing modified antibodies, trademarked as Probodies, that ideally will affect diseased tissues while sparing healthy ones. They are designed to avoid unwanted reactions or to respond directly to proteases present in diseased tissue. The company intends to use the funds for a pair of oncology-related INDs, and will receive a portion of the funding in a second tranche based on milestones related to staffing, platform research, ongoing product development, and the relocation. -- Paul Bonanos

Photo courtesy of flickr user Sam Pullara.

Financings of the Fortnight is... the Most Interesting Biopharma Column in the World

FOTF never really goes on summer vacation, unlike those namby-pambies over at DOTW. But as befits the Most Interesting Biopharma Column in the World, we constantly travel far and wide. And when we travel we cannot help but meet other Most Interesting People who want to discuss all manner of things, from protein folding to peregrine falcon migration patterns to the amyloid hypothesis to American trade policy.

Despite having vocal cords that have addressed the United Nations General Assembly and performed Tristan und Isolde -- all in one day -- even we sometimes overdo it. This morning, after a night spent deep in conversation with three well-funded post-doctoral frauleins under the glow of poolside tiki torches and a gibbous subtropical moon, we felt slightly hoarse and downed an emergency anti-logorrheic. (That means this week's installment is short and sweet.)

Still, we can't help but note that all four editor's picks this fortnight underscore the changing nature of biotech venture capital. Heavily tranched rounds are now a mainstay, and perhaps here to stay. We've got two of 'em for you. We also profile an unusual PIPE with four participating VCs who are usually as private as private can be, and word from the feds that the Department of Health and Human Services wants to start a pandemic/emergency/countermeasure venture fund. They'd be wise to check in with Kleiner Perkins, which launched its own $200 million "flu fund" in 2006.

Stay informed, my friends, and when you read about biopharma financing, make sure it's...


Anchor Therapeutics: The peptide drug developer closed on $10 million of its Series B round from inside investors, with a new goal of $15 million – half its original target of $30 million. The company hopes new backers will join TVM Capital, HealthCare Ventures and the Novartis Option Fund, who supplied the first tranche of the new round as well as $19 million in Series A funding in 2008. “A little bit of setting goals is testing the market and seeing what the reality is,” CEO Rick Jones told our Pink Sheet colleagues. Anchor is developing candidates called "pepducins" to selectively bind to G protein coupled receptors. Anchor hopes its pepducins can trigger specific responses inside the cells and avoid side effects often associated with small molecule drugs targeting the receptors. Anchor's most advanced program is a CXCR4 agonist designed to attract stem cells to accelerate healing in fractures and myocardial infarctions. Novartis maintains an option agreement with Anchor that includes over $200 million in potential milestones as well as royalties. -- Shirley Haley and Paul Bonanos

Taligen Therapeutics: Taligen collected a $10 million tranche of its massive $65 million Series B round, bringing to $36 million the contributions of Sanderling Ventures, Clarus Ventures, Alta Partners and High Country Venture since 2008. That’s on top of a $4 million Series A and a small seed round, all in support of Taligen’s development of therapies that target the alternative pathway of the complement system, a surveillance system employed by the body to attack and clear pathogens that may go awry in certain inflammatory diseases. Taligen also revealed a broad patent on its compound TT-30, a replacement of the Factor H protein that regulates reactions in the complement pathway. CEO Abbie Celniker told The Pink Sheet that Taligen is likely to bring TT-30 into Phase I for an unspecified orphan disease in the fourth quarter of 2010. The compound is said to be applicable to a range of indications including age-related macular degeneration, atypical hemolytic uremic syndrome, and paroxysmal nocturnal hemoglobinuria,. Taligen is actively seeking a partner for its ophthalmic program, but expects the rest of its promised Series B money will help it take an in-house candidate into Phase III on its own. -- PB

Achillion Pharmaceuticals: Months after bringing in $22.9 million in a follow-on public offering, Achillion turned to venture capital investors to raise $50 million in a warrant-heavy PIPE financing. At least one, Clarus Ventures, has backed the anti-infectives developer before. Under the deal, announced Aug. 18, Achillion sold 19.755 million shares of common stock at $2.49 per share, its closing price as of Aug. 17. But for an additional $0.125 per unit, buyers also received seven-year warrants to buy 0.35 shares in the New Haven, Conn., firm for an exercise price of $3.1125 a share. Structuring the financing this way put Achillion on the hook to issue another 6.921 million shares, resulting in stock dilution that analyst Brian Skorney of ThinkEquity LLC said would add 69 percent to company’s share count as of second-quarter 2010. “The return to a more venture capital-based investor structure somewhat mitigates the benefit of the raise and will effectively decrease share liquidity,” he wrote in an Aug. 20 note. Joining Clarus, which participated in a 2008 PIPE that netted Achillion $29.5 million, were Domain Associates, Quaker BioVentures and Pappas Ventures. Achillion said it will use the proceeds to move lead candidate ACH-1625, a protease inhibitor for hepatitis C, into Phase II in September, while bringing two other HCV compounds, pan-genotypic protease inhibitor ACH-2684 and NS5A inhibitor ACH-2928, into the clinic in early 2011. -- Joseph Haas

Medical Countermeasure Strategic Investor: As part of a broad review of US medical countermeasure strategy released Aug. 19, an HHS committee is recommending the creation of a government-backed $200 million venture fund to boost startups working on products critical to medical emergencies, terrorist attacks or pandemic outbreaks. Different than BARDA, the agency charged with dispensing so-called "Bioshield" funds to build the national emergency stockpile, the countermeasure fund would invest in companies, explained National Institute of Allergy and Infectious Diseases director Anthony Fauci at a press conference. Known for now as MCMSI, the fund needs Congressional authorization. It would focus on companies developing new drugs to fight multi-drug resistant organisms, novel mechanisms for disrupting pathogenesis through host pathway targeting, and multi-use platform technologies for diagnostics, vaccines/prophylaxis and therapeutics, according to the review report. (The full HHS review is available here, with the MCMSI section on page 15.) As proposed, the fund would operate independently of the government and try to leverage private capital. The HHS committee cited as a relevant model In-Q-Tel, a CIA-funded firm that invests in intelligence high-tech. -- Cathy Dombrowski and Alex Lash

Photo courtesy of flickr user TreyDanger.

Financings of the Fortnight Gets an Earful in the Hall of Byers

For a guy with the good fortune to speak in front of hundreds of people under the roof of a building that carries his own name, Brook Byers was sure in a cranky mood this week.

The venture veteran of Kleiner Perkins Caufield & Byers was part of a panel discussing academia-industry ties at the University of California, San Francisco's Mission Bay campus. It was the capper of an open house to showcase the school's research departments and its desire, which rivals the Massachusetts Institute of Technology, to encourage entrepreneurial ties to venture and industry.

The event took place in the side-by-side Genentech and, ahem, Byers Halls (see picture). And if Byers' participation didn't emphasize enough the deep connections everyone was celebrating, another panelist was UCSF's new chancellor Susan Desmond-Hellman. We've heard she once had something to do with Genentech.

As the panel, rounded out by Pfizer chief scientific officer Uwe Schoenbeck, BayBio chief Gail Medaris, and QB3 director Regis Kelly, cooed over innovation as if it were a gently swaddled newborn, Byers was the cranky uncle banging his coffee cup on the table for a refill.

Of course, he's all for innovation, which in our world is as sacred and gauzy a concept as "freedom" is at a gun show. You just don't mess with it, pal. But while everyone else kept the conversation sunny, Byers cast a rather Nixonian shadow, sowing blame on various parties for the economic gloom.

First came the media: He took the New York Times to task for a feature on MIT's Deshpande Center and other entrepreneurial engines on academic campuses that failed to mention all the similar activity happening at UCSF. Later, after Kelly asked about the dearth of venture money for start-up companies these days, Byers seemed to hold himself in check. "I was going to say something not very nice," he said, then proceeded to suggest negative media coverage is helping keep investors on the sidelines.

He also wished out loud for policy changes. Many VCs these days are fending off attacks to tax carried interest as regular income -- although some think it is a fine idea (be sure to read the comments, too) -- and in grumbling about the issue Byers said he was "very frustrated right now" with President Obama even though "I helped elect him."

Byers had a few words for the innovation-stifling FDA, too, especially for the confusion that forced one of Kleiner's anti-infective companies developing a MRSA treatment to re-do re-design a Phase III trial. That sounds a lot like Trius Therapeutics, which had to postpone its IPO because of the trial do-over re-design. (Don't mess with innovation can also mean Don't mess with my money.) [Correction: Trius has not yet begun its Phase III trial; it reached agreement with FDA on a special protocol assessment last month.]

Byers isn't alone: DowJones VentureSource reports that venture-backed companies that went public this past quarter took a median 9.4 years to exit, the longest the service has ever recorded. In a different data set, the NVCA/Thomson Reuters quarterly exit poll showed that biotech and health care accounted for 4 of 17 venture-backed IPOs and 8 of 92 venture-backed acquisitions in the second quarter. Overall IPO volumes are up, but -- sorry if this is accentuating the negative, Brook -- post-IPO performance isn't encouraging. That's not our opinion: even NVCA chief Mark Heesen says so. Nothing in the data so far points to anything but a "washout" of health-care venture firms. Again, that's not our opinion: Ask Jim Garvey of SV Life Sciences.

As the panel wrapped up, Byers tried to make amends by ending on a more positive note. When we caught him outside, we apologized with a smile on behalf of our journalistic brethren for prolonging everyone's financial bummer. He smiled, too, and said a lot of his comments on the panel were deliberately provocative, a favor to Kelly to spice things up. But seriously, we asked: Are we missing something from the big picture? We lay out the data, we slice and dice it, we talk to investors and entrepreneurs all the time. Byers amicably eased away; dinner with his fellow panelists beckoned. That, he said, would have to be part of a longer conversation.

Until then, we will always have...

Incline Therapeutics: Investors in Incline's new $43 million Series A round have already lined up a buyer. Along with Incline’s June 21 announcement, Cadence Pharmaceuticals of San Diego said it had acquired options to buy Incline for up to $285 million sometime in the next 42 months, based on performance milestones. The two companies share more connections: Incline management includes former Cadence executive David Socks and Alan Levy, also a partner with Cadence investor Frazier Healthcare Ventures. Cadence CEO Ted Schroeder sits on Incline’s board. Founded in 2009, Incline has acquired rights from Johnson & Johnson's Alza division to the IONSYS transdermal patch, used to deliver the painkiller fentanyl to hospital patients after surgeries. Approved in both the U.S. and Europe but marketed only briefly overseas, the system was recalled in 2008 because corrosion in circuit boards could have led to accidental overdoses. Incline and its investors apparently see an easy fix, and J&J was ready to wash its hands of the product. With cash from Frazier, 5AM Ventures, Adams Street Partners, Technology Partners, Saints Capital Partners and Emergent Medical Partners, Incline aims to regain regulatory approval and bring IONSYS back to market. (For more deal details and a look at why Cadence didn't simply buy IONSYS outright, stay tuned for the upcoming issue of START-UP.) -- Paul Bonanos

SV Life Sciences: As we noted above, SV chairman Jim Garvey predicted a washout among venture firms. What we didn't note was that SV will stay high and dry. The health-care-only firm said June 29 it has closed one of this year's largest funds, right behind Orbimed's $550 million close this spring. At $523 million, the firm's fifth fund since inception comes during a time of contraction in the venture world, with other firms scaling back or folding up shop. If you squint you could call this scaling back, too: SV's fourth fund was $572 million, and instead of investing in 32 to 37 portfolio companies, it plans a slightly smaller range of 30 to 32 companies. That's scaling back the same way that ten days in Fiji instead of 12 in Bora Bora is a penny-pinching vacation. SV even plans to hold steady with its investment mix: about 50% biopharma and the rest spread between diagnostics, devices, services and IT. -- Alex Lash

Bind Biosciences: This Cambridge, Mass. nano-play reeled in a $12.4 million venture round that caught our eye for a couple reasons. First, the company makes nanoparticle drug encapsulation that it says will pair with existing or new drugs. It hasn't reached the clinic yet with its lead '014, a formulation of docetaxel; that should come later this year. Once in the clinic, good results might be lucrative, as rival nanoparticle designer and chemo-reformulator Abraxis found out with Celgene's $2.9 billion cash-and-stock acquisition offer June 30. Abraxis' lead is paclitaxel encapsulated in nanometer-sized shells of albumin, a common protein in the blood. We also took note of Bind's odd nomenclature for the round, what it called a Series "C-1." It's not unheard of, so we asked why not call it the second tranche. Because, replied a spokeswoman, it wasn't. The $11 million C round came only six months ago. This was a brand-new up round with at least one new investor, Endeavour Vision, a Swiss group that's a bit heavier into high-tech than biotech. Hmm, we replied, so why not call it a "D round"? "Nuance and technicality" was the answer. Unfortunately, we couldn't dig any deeper by press time. Besides, nuance and technicality make our heads hurt. -- Jessica Merrill and A.L.

Calistoga Pharmaceuticals: Among oncology targets, PI3K (phosphoinositide-3 kinase) has piqued a lot of investor and partnership interest of late. Calistoga's lead candidate CAL-101, an oral delta-selective PI3K inhibitor in several Phase I trials for certain types of hematologic cancers such as non-Hodgkins lymphoma, is unpartnered, but investors have anted up again with a $40 million C round announced June 30. It comes a year after a $30 million B round, and the new cash should help push CAL-101 into a registration trial later this year, the company said in a release. The round was led by Quogue Capital with existing investors Alta Partners, Amgen Ventures, Frazier Healthcare and Three Arch Partners and new investor Latterell Venture Partners also on board. Frazier's Jamie Topper was a busy man this fortnight; he was also in the middle of the Incline financing, described above. -- A.L.