Start-Up Quarterly Statistics, Q2 2010

Highlights from the Q2 2010 review of start-up dealmaking: Biopharma, medical device and in vitro diagnostics startups raised a total of $606 million, an 83% hike from the previous quarter but a 30% drop from Q2 2009. Unlike Q1, which saw four spin-offs, Q2 had just one. Three acquisitions closed including J&J's purchase of respiratory-focused RespiVert. During the second quarter of 2010, several companies signed multiple agreements including Clovis Oncology.

Biopharmaceutical, medical device, and in vitro diagnostics start-up dealmaking from April through June 2010. Data from Elsevier's Strategic Transactions.

Deanna F. Kamienski

Financings

In the second quarter of 2010, biopharma, medical device, and in vitro diagnostics start-ups brought in a total of $606 million, an 83% hike from the previous quarter when only $331 million was raised. In fact, fundraising was up across all industries compared with Q1 – $343 million for biopharmaceutical companies (a 48% jump), $102 million for device start-ups (a 28% increase), and $161 million in the diagnostics segment (over eight times more than the first quarter). ( See Exhibit 1.) However, compared with the same period a year ago, 2010 Q2 financings fell short. Start-ups in the second quarter of 2009 generated $864 million, which was 30% more than in the second quarter of 2010. And more than half of that money ($465 million) went to the medical device sector.

Four infectious disease-focused companies garnered $130.6 million (38%) of the total biopharma money during Q2. ( See Exhibit 2.) One of them, AiCuris GMBH & Co. KG, led the pack in fundraising. [See Deal] The 2006 spin-off from Bayer AG's Bayer HealthCare AG raised $75 million in a Series B round to continue Phase II trials of its AIC246 for human cytomegalovirus. The German biotech currently has 10 projects in its pipeline but is looking to partner a few due to the lack of internal resources needed to complete development. The four Series B financings this quarter accounted for almost half of the total money raised by biopharmaceutical start-ups.

Second among overall money leaders was antibiotics developer Tetraphase Pharmaceuticals Inc. with its $45 million Series C financing. [See Deal] ( See "TetraPhase's Series C," START-UP, June 2010 (Also see "TetraPhase's Series C" - Scrip, 1 Jun, 2010.) and "Tetraphase Raises $45 Mil. In Series C Round, Enough To Finish Phase II For Next-Gen Antibiotic," "The Pink Sheet" DAILY, June 1, 2010 (Also see "Tetraphase Raises $45 Mil. In Series C Round, Enough To Finish Phase II For Next-Gen Antibiotic" - Pink Sheet, 1 Jun, 2010.).) The four-year-old company brought in $45 million in its previous two rounds. [See Deal] [See Deal] TetraPhase's unique technology can chemically synthesize new tetracyclines from scratch and modify the molecule at multiple positions to create a vast library. To date, it has identified more than 2,000 analogs. The company is working to screen the molecules both for their anti-infective properties and their potential to cause off-target toxicities. The Series C funds will be used to move its lead candidate, an intravenous antibiotic against gram-negative pathogens, into Phase II later this year, and also to advance into Phase I its two IV/oral antibiotics – TP2758 for complicated urinary tract infections and TP834 for community-acquired bacterial pneumonia.

Unlike Q1, which saw four spin-offs, Q2 had just one. Dermatology play Valocor Therapeutics Inc. spun out from QLT Inc. with undisclosed seed money. [See Deal] The funds were used to concurrently in-license exclusive rights to several QLT programs including lemuteporfin for moderate-to-severe acne – soon to enter Phase I/II and thought to be a safer alternative to Roche's Accutane (isotretinoin) – and three preclinical candidates: VAL001 for acne and sebaceous gland hyperactivity, VAL002 for chronic inflammatory skin disease, and VAL003 for vitiligo. [See Deal] Valocor expects to close an $8 million Series A round by the end of 2010.

In devices, Voyage Medical Inc.'s $20.6 million represented just under half of the Series C funds raised in the quarter. [See Deal] The round was led by first-time backer Abbott Laboratories Inc., the Big Pharma's first investment in a start-up since contributing to Nexeon MedSystems Inc.'s Series A back in October 2008. [See Deal] Voyage Medical is developing a high-resolution technology that allows physicians to directly visualize catheter-based radiofrequency ablation procedures that treat atrial fibrillation and other arrhythmias.

The standout among diagnostics fundraising was Biocartis NV's $40.2 million Series B to support late-stage development of its molecular diagnostics platform. [See Deal] The round was led by first-time investors Debiopharm Group, which concurrently partnered with Biocartis to develop companion diagnostics, and ( See "Corporate Venture Strikes Again: Biocartis Lands 30 million – And A Partnership," "The Pink Sheet" DAILY, April 9, 2010 (Also see "Corporate Venture Strikes Again: Biocartis Lands €30 million--And A Partnership" - Pink Sheet, 9 Apr, 2010.).) The runner-up moneymaker in diagnostics was also a Series B round – Astute Medical Inc. (rapid diagnostics for high-risk medical conditions) with $26.5 million. [See Deal]

Acquisitions

To enhance its efforts in the respiratory space, Johnson & Johnson's Janssen Products LP division has acquired RespiVert Ltd., whose pipeline includes small-molecule inhaled treatments for respiratory diseases. [See Deal] ( See "In Deals With Respivert And Orexo, J&J's Respiratory Push Gets Going," "The Pink Sheet" DAILY, June 1, 2010 (Also see "In Deals With Respivert And Orexo, J&J's Respiratory Push Gets Going" - Pink Sheet, 1 Jun, 2010.).) RespiVert was created in 2006 by a team that includes two ex-GlaxoSmithKline PLC executives. Terms of the transaction were not disclosed, however RespiVert backer Imperial Innovations Group PLC suggested the price could be in the ballpark of $100 million. RespiVert will maintain its R&D operations at Imperial College London. Its two lead drug candidates, RV568 and RV1088, are narrow-spectrum kinase inhibitors thought to have a unique profile of anti-inflammatory activity. They are expected enter the clinic for severe asthma, COPD, and cystic fibrosis later this year. If successfully developed, the drugs could offer a new treatment option for severe lung disease patients who are insensitive to inhaled corticosteroids. (Concurrent with the RespiVert acquisition, J&J once again showed its commitment to respiratory therapies by in-licensing two preclinical asthma/COPD programs from Orexo AB.) [See Deal]

Also this quarter, struggling Marina Biotech Inc. acquired fellow RNAi-focused company Cequent Pharmaceuticals Inc. (renamed Marina Biotech Inc.) for $46 million. [See Deal] MDRNA seeks to create a leading RNAi play, bringing together its own UsiRNA constructs and DiLA2 delivery system with Cequent's TransKingdom RNAi technology. It was also attracted to Cequent's IND-filed CEQ508 for the treatment of familial adenomatous polyposis, for which there are currently no therapeutics available. Clinical trials should commence in the second half of 2010.

In the third and final Q2 acquisition, pediatric-focused specialty pharmaco Arbor Pharmaceuticals Inc. was scooped up by an investment group led by Jason Wild of JW Asset Management and Edward Schutter, former president and COO of Sciele Pharma. [See Deal] Four-year-old Arbor has four drugs on the market – Pediaderm (hydrocortisone) for atopic dermatitis, Zinotic (chloroxylenol/pramoxine/zinc acetate otic) for acute otitis externa, Neotic (antipyrine/benzocaine/zinc) for pain and inflammation associated with acute otitis media, and Xylarex (xylitol) for the dietary management of recurrent acute otitis media. The investors are confident in Arbor's products and believe the company has the potential to become a leading provider in the pediatric space.

Alliances

During the second quarter of 2010, several companies signed multiple agreements. Clovis Oncology Inc. penned two deals – one in pharmaceuticals and another in diagnostics. It kicked off Q2 allying with Roche's Ventana Medical Systems Inc. in the development of a new immunohistochemistry (IHC) assay to be used with Clovis' pancreatic cancer compound CO-1.01. [See Deal] ( See "Use Of Protein Biomarkers Punctuates Clovis' Fast-Paced Clinical Trials Strategy," START-UP, May 2010 (Also see "Use Of Protein Biomarkers Punctuates Clovis' Fast-Paced Clinical Trials Strategy" - Scrip, 1 May, 2010.).) (The agreement comes one year after Clovis raised $145 million in start-up financing, the largest Series A round to date for a biotech.) [See Deal] CO-1.01, a lipid-conjugated version of the chemotherapy drug gemcitabine, is designed to enter tumor cells without relying on human equilibrative nucleoside transporter 1 (hENT1), the usual transport mechanism for such molecules. The Phase II candidate is being tested in comparison with gemcitabine – the current standard of care for treating pancreatic cancer – in patients with high levels of hENT1. Clovis got rights to the candidate from Aqualis ASA in late 2009. [See Deal]

In May, Clovis licensed rights to develop and commercialize protein silencing company Avila Therapeutics Inc.'s epidermal growth factor receptor (EGFR) mutant-selective inhibitors for non-small cell lung cancer (NSCLC). [See Deal] ( See "Clovis And Avila Join In Oncology Drug/Diagnostic Deal," "The Pink Sheet" DAILY, May 25, 2010 (Also see "Clovis And Avila Join In Oncology Drug/Diagnostic Deal" - Pink Sheet, 25 May, 2010.).) The program is currently in preclinical studies, which was the most popular phase of development for product candidates during Q2. ( See Exhibit 3.) Specific financial details were not disclosed; however, the deal has an estimated $209 million price tag that is thought to include an up-front fee plus development, regulatory, and commercial milestones. Avila is also entitled to tiered double-digit royalties and a portion of any sublicensing income. The agreement focuses on the T790M mutation of EGFR, which has been found in patients who are resistant to traditional NSCLC therapies, such as Tarceva (erlotinib) and Iressa (gefitinib).

Israeli specialty pharma start-up RedHill Biopharma Ltd. kicked off Q2 by signing a preliminary agreement with drug delivery firm IntelGenx Corp. [See Deal] Should the deal go through, RedHill would have exclusive global rights to INT008, a Phase I fast-dissolving, thin polymeric film for treating migraines. A few weeks later, RedHill partnered once again with a drug delivery company for another Phase I candidate. Scolr Pharma Inc. granted it an exclusive 10-year license to ondansetron for preventing nausea and vomiting caused by chemotherapy and radiation. [See Deal] Though RedHill is just one year old, sources report that the company may look to go public later this year.

Rounding out the list of biopharma start-ups inking a pair of deals in the second quarter was Regulus Therapeutics Inc., a 2007 antisense JV between Ionis Pharmaceuticals Inc. and Alnylam Pharmaceuticals Inc. [See Deal] ( See "Alnylam, Isis JV Regulus to Tackle MicroRNA," START-UP, October 2007 (Also see "Alnylam, Isis JV Regulus to Tackle MicroRNA" - Scrip, 1 Oct, 2007.).) It first received exclusive rights to the University of Wuerzburg's IP involving the modulation of microRNA-21 to treat heart, liver, and kidney diseases. [See Deal] Regulus then allied with French drug giant Sanofi in a multi-target development deal that could bring the start-up over $750 million should the project be successful. [See Deal] (See "Sanofi Moves into MicroRNA, Signs Preclinical Platform Deal with Regulus," "The Pink Sheet" DAILY, June 22, 2010 (Also see "Sanofi Moves into MicroRNA, Signs Preclinical Platform Deal with Regulus" - Pink Sheet, 22 Jun, 2010.).) The tie-up is the largest microRNA therapeutics alliance to date. Sanofi is the second Big Pharma to partner with Regulus. GSK signed two deals with the microRNA specialist – first in 2008 with a potential $600 million deal in the areas of immunology and inflammatory diseases, and most recently in February for hepatitis C and related indications. [See Deal] [See Deal]

May was a busy month for cardiovascular device start-up iRhythm Technologies Inc. In addition to raising just over $10 million through a Series B financing led by St. Jude Medical Inc., it announced a co-promotion agreement with St. Jude for the FDA-approved Zio patch and event card. [See Deal] [See Deal] ( See "St. Jude Joins with iRhythm in Wireless Cardiac Monitoring," START-UP, June 2010 (Also see "St. Jude Joins with iRhythm in Wireless Cardiac Monitoring " - Medtech Insight, 1 Jun, 2010.).) iRhythm's Zio patch is a single-use monitor that provides diagnostic data about abnormal heart rhythms. The Zio event card is a small, disposable looping ECG monitor that can be used for up to a month by a patient who experiences palpitations, dizziness, or shortness of breath. The deal joins the start-up with an established firm in the cardiology field, giving validation to its newly launched products. This alliance was the only one among start-up device companies in Q2.

Aside from the previously mentioned deal between Clovis and Ventana, there were only two other alliances in the diagnostics sector. Four-year-old cardiovascular disease diagnostics firm Aterovax SA granted SPI-Bio, the life sciences products subsidiary of Bertin Technologies, exclusive European rights to distribute its sPLA2 test to academic institutions and laboratories for research use over the next three years. [See Deal] Developed with IP from the French National Inst. Health & Med. Res. (INSERM), sPLA2 is Aterovax's first product. Asuragen Inc., another four-year-old Dx company, got a non-exclusive license from Johns Hopkins University to the BRAF V600E mutation sequence for use in molecular diagnostics for cancer. [See Deal] Asuragen plans to incorporate the sequence into its Signature KRAS mutations assay that runs on its Luminex multiplex platform.