The A-List: The Trend-Shaping Series A Financings Of 2011

The capital drought that hit life science companies the past three years worked its way upstream in 2011, as several venture firms said they wouldn’t either continue in the life sciences or raise new funds. But our annual tally of life science Series A rounds presents a surprising twist: Series A rounds are up, not in blockbuster numbers by any stretch, but the downward trend of the recession years has finally been reversed. Among the year's nearly 100 Series A rounds we found plenty of oncology and peripheral vascular disease start-ups, as well as big bets on rare disease, along with some considerable nods to emerging markets.

The capital drought that hit life science companies the past three years worked its way upstream in 2011, as several venture firms said they wouldn’t either continue in the life sciences or raise new funds – Scale Venture Partners, Three Arch Partners, and CMEA Capital, to name three – or they quit in midstream, as Prospect Venture Partners did when it returned cash to limited partners. Some firms remain on a watch list, investing funds that are soon to run dry and with no plans to restock them. As other firms continue to grow more concerned about their own chances to raise new funds, they’re increasingly looking at later-stage companies that offer value in pricing and potentially a shorter path to exit than early-stage companies.

But our annual tally of life science Series A rounds presents a surprising twist: Series A rounds are up, not in blockbuster numbers by any stretch, but the downward trend of the recession years has finally been reversed. (See Exhibit 1.) In 2011, Series A dollars totaled $1.1 billion, and that doesn't include eight fundings of undisclosed sums. It's a 26% bump from 2010 but still the third-lowest total since we began the A-List in 2004. Leaving aside the eight rounds with undisclosed totals, it makes for an average of $12 million per round, the highest we've seen since 2007.

Among the year's nearly 100 Series A rounds for drug, device and diagnostic firms, we also found seeds of new ideas and refinements of old ones. In therapeutic areas, we found the validation of high-profile trends (plenty of oncology and peripheral vascular disease start-ups, big bets on rare disease) and the bucking of conventional wisdom (about one-fifth of all Series A rounds were focused on cardiovascular and metabolic disease).

Eight firms are focused on metabolic disease, 12 on cardiovascular, and 14 on neuroscience; topping the list are the 19 focused on oncology. Though not represented by our A-List companies, we note that dermatology and wound repair companies garnered seven fundings this year, a nod in part to the growing viability of regenerative medicine.

China drew a lot of attention in 2011, and in Ascletis Inc. we have a representative on our A-List this year. But we also think it's significant that Europe proved rather resilient. (How's that for bucking conventional wisdom?) Of the 10 venture firms that we tallied with three or more Series A investments in 2011, six were partially or exclusively investing in European companies (SV Life Sciences, Sunstone Capital, Imperial Innovations Group PLC, Sofinnova Partners, Forbion Capital Partners, and Novo Ventures). In this magazine in April we noted a revival of sorts (see (Also see "Biopharma Venture Capital In Europe: Still Alive, And Starting To Wake Up" - Scrip, 1 Apr, 2011.)), and despite the tumult across the Continent and the United Kingdom, we continued to see new European companies emerge throughout the year. (See “A-List Investor Spotlight” in this issue for more on Imperial. (Also see "A-List Investor Spotlight" - Scrip, 24 Jan, 2012.)) That said, European VCs set a record low for fundraising in 2011, according to DowJones, so we'll have to see if the year's Series A activity proves to be a mirage. "The first quarter will be an important measure," says Forbion managing partner and chairman Bart Bergstein, whose firm announced the close of its second top-up fund, with about $50 million, just before the end of the year.

In biopharma, Series A investment totalled $887 million, an average of $14 million per round, but behind the top-line numbers was a growing need to find a buyer early. Options-to-acquire are nothing new, of course, but we began to see investors looking for exits even at creation. One example that makes this year's A-List is Quanticel Pharmaceuticals Inc., a cancer genomic analysis firm with drug-discovery ambitions that was incubated at Versant Ventures. Through exclusive licenses and options to acquire, it's tied to the hip of Celgene Corp., as we explain below. Whereas Quanticel is fresh out of academia, another example on this year's list, Arteaus Therapeutics LLC, is an attempt at asset financing – the asset being a preclinical anti-migraine antibody that Eli Lilly & Co. wasn't willing to develop itself. Lilly can buy it back after Phase II. To drive home the point about brand-new companies with potential buyers already on board, just as 2012 dawned Third Rock Ventures announced a new start-up, Warp Drive Bio Inc., with Sanofi putting up cash for options to acquire down the road. (A candidate for next year's A-List, perhaps.)

And in 2011, not surprisingly, Third Rock planted its Series A flag many times over – five by our count – often large and often solo. For the A-List, we've chosen Ember Therapeutics, which debuted in December with a $34 million commitment from Third Rock after a long incubation at the Boston firm, which often puts its own people in interim management positions of its portfolio companies. Diabetes and weight loss have been a graveyard of biopharma ambitions of late, as regulators set high safety standards for what would be drugs used by millions of people, but pharma and device firms addressing metabolic disease accounted for eight Series A rounds in 2011. Ember stands out because of its big bet on a new approach: drugs that stimulate the body's small reserves of "brown fat," until recently thought only found in babies, to help burn off regular, and far more plentiful, white fat.

We've also chosen to highlight the rise in popularity in 2011 of rare diseases by naming to the A-List Ultragenyx Pharmaceutical Inc., a Northern California firm with close ties to rare-disease stalwart BioMarin Pharmaceutical Inc. As we'll see, not only are its targeted diseases rare, its round of funding was, too: $45 million completely untranched.

In medical devices, meanwhile, we may glimpse into the future, not only in the technology being developed by the companies created, but also in how they were created. Overall, both deals and dollars were up over 2010, although the money committed – $150 million, up from $140 million last year – still looks anemic compared with the pre-recession heyday. The increase in device deals was more robust with 24 investments, a 50% improvement over the 16 deals that we recorded in last year’s list. But beyond the numbers we were struck by how many big name medical device firms aren’t on the list. We reached out to many VCs who privately said they’re still looking for Series A deals; they’re just more selective than ever in choosing the companies. One of the principal challenges is identifying syndicates of committed investors who are willing to stick with a company over the long haul. Friends like that are harder to find these days.

But deals are getting done by angels and regional entities that previously might have left the Series A investments to the established firms. We highlight one, JumpStart Ventures in Ohio, which defines itself as a seed and pre-seed investor but which joined RiverVest Venture Partners in a $750,000 Series A in Securus Medical Group Inc., a start-up developing a technique to accurately measure the internal temperature of the esophagus during cardiac ablation procedures. (See “A-List Investor Spotlight” in this issue for more on JumpStart.) Deals of that size helped drive down the average Series A haul in 2011 to just over $6 million, the second lowest average we’ve ever recorded for device deals. The smaller deal size makes sense as angels and government-aided entities don’t have the resources that venture capital firms do, or at least once did. But only time will tell if these nascent ventures get later-stage support to survive.

When the syndicates do sync, we’re seeing larger Series A investments. Read on and you’ll learn about 480 Biomedical Inc., which received $15 million from Polaris Venture Partners, North Bridge Venture Partners, Intersouth Partners and unnamed strategic investors. But that company came with an atypical level of comfort as the bioresorbable stent technology and CEO were spun from drug-delivery firm Arsenal Medical Inc., an existing portfolio company, of the three named investors. Like 480 Biomedical, Veniti Inc. is taking an unusual approach to providing products for peripheral vascular conditions. The company raised a $13.5 million Series A round from Baird Venture Partners, H&Q Capital Management, Prolog Ventures and St. Louis Arch Angels, which it used to roll up three separate vein technologies into a single entity. (See below.)

The more interesting innovation might lie not in technology but in the business models being funded by device VCs. In one case, Venrock Associates led an investment in Adavium Medical, a “specialty device” company that hopes to assemble a line of commercial-ready devices to tap into the Latin American market, starting with Brazil. We’re also intrigued by a burgeoning effort by device investors to avoid company creation altogether, choosing instead to fund the development of products. To do that a few investors have created entities such as Allied Minds Devices LLC, a subsidiary of device investor Allied Minds Inc., which hopes to take new medical device technologies directly from universities and other sources and develop them into commercially viable products within two years.

Exhibit 1

By The Numbers

	2004	2005	2006	2007	2008	2009	2010	2011
Biopharma
$ (mm)	$866.1	$1,003.7	$1,018.7	$1,159.9	$1,207.5	$979.8	$654.5	$886.6
Deals	69	43	52	77	78	60	62	63
$ Avg. Size (mm)	$12.5	$23.3	$19.6	$15.1	$15.5	$14.76	$10.5	$14.1
Diagnostics
$ (mm)	$30.9	$4.3	$117.4	$153.6	$82.2	$140.1	$92.3	$48.1
Deals	4	1	7	18	14	12	10	10
$ Avg. Size (mm)	$7.7	$4.3	$16.8	$8.5	$5.9	$11.7	$9.23	$4.81
Medical Devices
$ (mm)	$98.3	$100	$244.2	$197	$289	$167.5	$140	$150.6
Deals	10	12	26	24	41	35	16	24
$ Avg. Size (mm)	$9.8	$8.3	$9.3	$8.2	$7.1	$4.79	$8.75	$6.27
Total
$ (mm)	$955.3	$1,108	$1,380	$1,508	$1,578.7	$1,177.6	$876.3	$1,085.3
Deals	83	56	85	119	133	107	88	97
$ Avg. Size (mm)	$12	$19.8	$16.2	$12.4	$11.9	$11	$10	$11.2

Elsevier’s Strategic Transactions

Exhibit 2

The 2011 A-List

Company	Amount	Investors
480 Biomedical Inc.	$15 million	Polaris Venture Partners, North Bridge Venture Partners, Intersouth Partners, unnamed strategic investors
Advance Medical Inc.	$6 million	Venrock, Undisclosed Brazilian Investors, individuals
Arteaus Therapeutics LLC	$18 million	Atlas Venture, OrbiMed Partners
Ascletis Inc.	$100 million	Hangzhou Binjiang Investment Holding Co., other private backers
Cleave Biosciences	$44 million	5AM Ventures, US Venture Partners, Clarus Ventures, OrbiMed Advisors, , Astellas Venture Management, Osage University Partners
Ember Therapeutics	$34 million	Third Rock Ventures
Nimbus Discovery LLC	$24 million	Atlas Venture, Lilly Ventures, SROne, Bill Gates
Quanticel Pharmaceuticals Inc.	Undisclosed	Versant Ventures, Celgene
Sapiens Steering Brain Stimulation GMBH	€13mm ($19mm)	Wellington Partner, Edmond de Rothschild Investment Partners, Life Science Partners
Ultragenyx Pharmaceutical Inc.	$45 million	TPG Biotech, Fidelity Biosciences, Pappas Ventures, HealthCap
Veniti Inc.	$13.5 million	Baird Venture Partners, H&Q Healthcare Investors, Prolog Ventures, St. Louis Arch Angels

Elsevier’s Strategic Transactions

480 Biomedical

Making Stenting Problems Disappear

$15 million, October 2011

Polaris Venture Partners, North Bridge Venture Partners, Intersouth Partners, unnamed strategic investors

480 Biomedical Inc.

480 Biomedical Inc. hopes to make one of the significant challenges in treating peripheral arterial disease (PAD) simply go away. Just as veins in the lower extremities challenge treatment, arteries running down through the legs also can be difficult to treat.

Physicians encounter particular difficulty applying interventional techniques in the superficial femoral artery (SFA) and popliteal arteries, which extend some 50 centimeters in length from mid-thigh to below the knee. Lower extremity PAD affects more than eight million people in the US, and some 20% have disease significant enough to warrant intervention. (See (Also see "The Next Wave in Peripheral Vascular Interventions" - Medtech Insight, 1 Mar, 2010.).)

The plaque that presents in lower limb PAD is difficult to clear, and restenosis remains a huge hurdle. Not only is restenosis an issue, but lesions in these vessels, particularly those in and around the knee, are also subjected to significant mechanical forces, including axial compression, extension, torsion, and bending forces that increase the risk of stent deformity and fracture.

480 Biomedical spun out of privately held Arsenal Medical Inc.[See Deal] to develop a line of completely bioresorbable stenting for the treatment of SFA occlusive disease. After the plaque is cleared through interventional techniques, 480 Biomedical’s bare or drug-eluting scaffolds could be inserted to hold the artery open, providing a form that’s as strong and flexible as nitinol, at least until it’s resorbed into the body in about a year.

480 Biomedical raised $15 million to fund clinical studies for the SFA scaffold that began in 2011. The capital came from Arsenal’s current investors Polaris Venture Partners, North Bridge Venture Partners and Intersouth Partners as well as unnamed strategic investors . Duke Collier, who had been CEO of Arsenal, assumed the same position with 480 Biomedical. He retained the executive chairman role at Arsenal.

480 Biomedical’s leadership team includes Maria Palasis, PhD, who has been leading research and development efforts at Arsenal Medical. A former employee at Boston Scientific, Palasis was an early member of the team that created the TAXUS drug-eluting stent. She’ll be EVP and chief technology officer of 480 Biomedical.

Advance Medical

Opening Devices’ Doors To Brazil

$6 million, June 2011

Venrock, undisclosed Brazilian investors, individuals

Advance Medical Inc.

As the medical device industry grapples with the Food and Drug Administration over product approvals, its collective gaze strays abroad to Europe and Asia where regulatory approvals come easier and commercial markets are untapped. Adavium Medical is hoping to draw some of those eyeballs south, specifically to Brazil.

Founded last year on $6 million from Venrock Associates and undisclosed Brazilian individual and institutional investors [See Deal], Advance Medical is positioning itself as a “specialty medical device” company capable of helping medical device companies from the US and abroad in their bid to penetrate the Brazilian market.

Born and raised in Brazil, Venrock general partner Fred Aslan, MD, sees Brazil as an attractive alternative to the emerging markets of China and India that draw most of the attention but don’t necessarily offer a larger opportunity. Aslan notes that Latin America’s gross domestic product is comparable to China’s ($4.08 trillion versus $5.88 billion in 2010, according to the International Monetary Fund).

But Advance Medical says the opportunity to reach an emerging market might be easier in Brazil than in China. Latin America’s health care spending is twice that of China’s (on an absolute basis and four times on a per capital basis). The spending is concentrated in a few regional hubs where only two languages are spoken. Latin America also offers the familiarity of time zones, geographic proximity, democratically elected governments and a long history of trade with the US.

The region is well known to larger multinational companies, so Advance Medical is positioning itself as a potential path for smaller device companies like its first client, Zeltiq Aesthetics Inc., maker of a device that helps slim the body by burning off fat cells. The company went public this year in the US and launched CoolSculpting in Brazil. [See Deal]

Venrock’s Aslan resists any attempt to label Advance Medical as a distributor. In his mind, a distributor typically just sells the device; Advance Medical will help companies obtain regulatory approval, establish importing practices, and provide training and technical support – “Everything a device companies does without the R&D.”

Advance Medical signed a fairly typical distribution agreement with Zeltiq, but as it builds a reputation it hopes to negotiate more extensive licensing agreements that would give it more product ownership than a distributor. As more US medical device companies look outside the country for economic opportunities, Advance Medical could develop into a significant player in one of the more promising economic regions.

Arteaus Therapeutics

Relieving Lilly's Asset-Financing Headache?

$18 million, October 2011

Atlas Venture, OrbiMed Advisors

Arteaus Therapeutics LLC

We've highlighted asset financing in previous A-Lists. Last year, Mind-NRG SA, funded by Index Ventures, made the cut, a virtual company based on an in-licensed compound. [See Deal] (See (Also see "The A-List: 2010's Trend-Shaping Series A Financings" - Scrip, 1 Jan, 2011.).) We're going back to the asset-financing well with Arteaus Therapeutics LLC, however, for a few reasons. There's been more talk about virtual development of single assets, but the model, which is intriguing for VCs who don't want – or can't afford – to see a company through to a sale or an IPO, is proving stubbornly difficult to put in play. In April START-UP compared nascent efforts by Atlas Venture, through its Development Corp. (AVDC), and CMEA Capital, through its Velocity Pharmaceutical Development. Atlas was first to debut, teaming equally with OrbiMed Advisors to fund Arteaus Therapeutics with an $18 million A round. [See Deal]

Arteaus is just one thing: an in-licensed migraine drug from Eli Lilly & Co.[See Deal]; no office, no outside management, and no backup R&D programs. The compound in question is a monoclonal antibody that binds with calcitonin gene-related peptide, or CGRP, a potent vasodilator linked to migraines and implicated in transmission of pain. The larger point is that Lilly wanted to share the risk of developing it, and Atlas has provided a vehicle for doing just that, all while separating the value of the asset from the distraction of building a stand-alone company to house that asset. Or, you might say, the distraction of fighting for resources inside Lilly.

Arteaus makes the A-List not because it's beaten CMEA to the punch, but because of its strikingly odd circumstances (and what they say about the prospects of asset financing generally). Lilly has made noise the past year or so about building a network of three "mirror" funds to take compounds that Lilly doesn't want to develop on its own, bring in outside funding help, and give Lilly a "clawback" option once the drug reaches an agreed-upon milestone.

The odd part is, Atlas isn't one of Lilly's mirror funds. Which either means Atlas and OrbiMed gave Lilly a deal it couldn't refuse, or the mirror fund project isn't quite proceeding to plan. The latter was clear already, to some extent. CMEA named Lilly as a strategic backer in its early Velocity fundraising material, but those plans disintegrated in late 2010 or early 2011, and when Velocity formally launched in June, it was no longer part of the Mirror scheme. (See (Also see "CMEA Ventures Into Development, But Not Tied To Lilly As Expected" - Pink Sheet, 27 Jun, 2011.).) For its part, Lilly said in February 2011 that one of its mirror funds had acquired two compounds. (See (Also see "Unnamed Lilly "Mirror Fund" Acquires First Two Compounds" - Pink Sheet, 15 Feb, 2011.).)

Another twist is that AVDC will contract with Lilly's Chorus division, a semi-autonomous R&D group meant to drive proof-of-concept development faster than Lilly's traditional process, to run the migraine compound's Phase I and II trials. Lilly has an option to re-acquire the drug after proof-of-concept. If it does, Atlas and OrbiMed would be owed undisclosed milestones and royalties, as well as an up-front payment.

Ascletis

A Two-Way Bridge To China

$100 million, April 2011

Hangzhou Binjiang Investment Holding, other private backers

Ascletis Inc.

China offers a massive opportunity for biotechs, thanks to a fast-growing economy, a growing middle class with strong purchasing power, unmet medical needs, a growing talent pool, and high-capital efficiency. Whereas some companies have had mixed results building new companies that combine Western innovations and Chinese growth, newly launched Ascletis Inc. is the most richly funded start-up yet in that vein, with lofty ambitions to match its capital windfall. The company took in the first $50 million tranche of its $100 million round in April [See Deal], with the second half slated to arrive when the firm reaches milestones in building out its manufacturing capacity in China.

Ascletis’ hybrid model is designed to bring new drugs both into and out of China. The company is nearing its first deal to license a clinical-stage candidate from another pharma; it plans to develop the drug further and bring it to market in China, as it will do with other compounds in oncology and infectious disease. Ascletis also aims to perform drug discovery in China with the goal of commercializing or licensing the products globally, although it’s still building a team for that purpose. The company also broke ground on a research facility in Hangzhou, where it will perform discovery in the future. President and CEO Jinzi Wu, PhD, a veteran of GlaxoSmithKline's HIV drug discovery team, says about 80% of Ascletis’ staff is already in China.

Perhaps it’s a sign of the times that the year’s biggest Series A round didn’t include any traditional venture firms. Most of Ascletis’ $100 million came from billionaire real estate developer Jinxing Qi, who invested through his Hangzhou Binjiang Investment Holding; other unnamed private investors in the US, China and elsewhere contributed the balance. That’s by design, according to Wu, who wanted to avoid the pressure that comes with an investor seeking a short-term exit. “VCs right now don’t have patience,” he told START-UP in April. START-UP profiled Gerald Chan, another billionaire real-estate mogul with an eye on Chinese biotech, in November. (See (Also see "Morningside Group" - Scrip, 30 Nov, 2011.).)

The deal is double the size of another Chinese start-up’s Series A round. A syndicate including traditional VCs such as Venrock and ARCH Venture Partners backed Hua Medicine Ltd. with $50 million in September [See Deal]; that start-up has already in-licensed a diabetes drug from Roche with the goal of commercializing it in China. [See Deal]

Cleave Biosciences Inc.

First-Run Syndication

$44 million, October 2011

5AM Ventures, US Venture Partners, Clarus Ventures, OrbiMed Advisors, Astellas Venture Management, Osage University Partners

Cleave Biosciences

If the high risks of early-stage investing have driven some VC firms away from Series A deals for young start-ups, those who remain in the game sometimes find it easier to work together early in the process than to go it alone. Case in point: four deep-pocketed investors invested equal amounts in a $42 million round to launch Cleave Biosciences Inc.[See Deal], which intends to develop oncology drugs that regulate protein homeostasis. “In a different economic environment, we would have been more aggressive on our own,” says 5AM Ventures’ managing partner Andy Schwab. “We’re finding that strong syndicates are now more important at the beginning.”

Two firms were each involved with key pieces of what would become Cleave by mid-2010, although the Series A wasn’t completed until much later. 5AM tapped former Phenomix Corp. CEO Laura Shawver, PhD, as an entrepreneur-in-residence in 2010 with a goal of forming a small-molecule cancer drug company. Meanwhile, members of Cleave’s co-founding scientific team, including academic researchers from California Institute of Technology and the University of California’s University of California, San Diego, were already holding conversations with another firm, US Venture Partners. When USVP learned of 5AM’s interest in the scientists’ work, the two firms agreed to work together, adding Clarus and OrbiMed to the mix in order to share the risk. Astellas Venture Management joined the main four investors with a small amount, and Osage University Partners added $2 million in November to bring the total to $44 million.

Burlingame, CA-based Cleave has taken a specific interest in treating cancers resistant to chemotherapy by restoring the balance between protein synthesis and protein degradation. Small molecules that regulate protein homeostasis have been explored in the past, notably by Takeda Pharmaceutical Co. Ltd.’s Takeda Oncology, whose Velcade (bortezomib) reached the market in 2003, and Onyx Pharmaceuticals Inc., whose carfilzomib is undergoing FDA review with a PDUFA date of July 27, 2012. Cleave will likely aim for next-generation molecules that affect pathways implicated in solid-tumor as well and blood cancers, although the company hasn’t revealed specifics of its research, future clinical strategies or marketing aspirations. Schwab says the broad syndicate will help defray the financial risks: all firms have resources for a Series B round, if a pharma partner hasn’t already licensed one of Cleave’s programs in exchange for non-dilutive cash.

Ember Therapeutics

Heating Up Metabolism

$34 million, December 2011

Third Rock Ventures

Ember Therapeutics

Metabolic disorders are a paradox right now. They are a huge unmet medical need, but regulators, wary of safety in widespread patient populations, have set a frustratingly high bar to approve drugs to treat them. In START-UP's inaugural VC survey last September, respondents who said metabolic disease was an unattractive investment space outnumbered nearly two to one those who called it attractive nearly two to one. Among major therapeutic areas, only cardiovascular got more negative votes. (See (Also see "START-UP's 2011 Life Science Venture Capital Survey: Biopharmaceutical Investors Let Some Sunshine In" - Scrip, 1 Sep, 2011.).) So when big metabolic deals happen, it's wise to take notice. We did so in last year's A-List when Catabasis Pharmaceuticals Inc. reeled in $22 million [See Deal], or 3% of the total biopharma Series A dollars for the year. For 2011, we give a nod to Ember Therapeutics, which nabbed $34 million from a single investor, Third Rock Ventures [See Deal], after the early-stage specialist nurtured the technology in a Scripps Research Institute lab for much of the year.

Ember is working on two approaches. It looks to capitalize on the recent discovery that brown fat, which burns calories and was once thought to be present only in infants, remains vestigially in adults. The idea is to activate it, either with large or small molecules, and burn calories stored in more abundant white fat. “It’s been shown in preclinical models that when brown fat is augmented, it has beneficial effects on obesity and diabetes,” Third Rock partner Lou Tartaglia, PhD, and Ember's president and interim CEO told "The Pink Sheet" in December. (See (Also see "Third Rock Launches Ember Therapeutics With Focus On Obesity And Type 2 Diabetes" - Pink Sheet, 15 Dec, 2011.).) “We live in an environment where there is plenty of food and the opportunity to avoid exercise, so [the evolution of] metabolic efficiency and very reduced brown fat levels is getting us into trouble with obesity and type 2 diabetes.”

In September Tartaglia said Third Rock had already seeded Ember, then known as Adipothermics, with a couple of million dollars. The full commitment was revealed at year's end. Tartaglia says the cash is meant to get Ember through an IND filing. The firm is also going after insulin sensitization through the mechanism of PPAR-gamma agonism, an approach that has run into safety problems with the drugs Actos (pioglitazone) and Avandia (rosiglitazone). Ember's founding scientists think they have a work-around, blocking the phosphorylation of PPAR-gamma by the kinase Cdk5, which they believe is the source of the serious side effects. If Third Rock opts to bring in a pharma partner, it's possible the partner's venture arm could join as a Series A investor, Tartaglia said. That would be a sign that the industry is shifting back to see the rewards of tackling metabolic disease outweighing the risks.

Nimbus Discovery

Drug Discovery In The Cloud

$24 million, June 2011

Atlas Venture, Lilly Ventures, SR One, Bill Gates

Nimbus Discovery LLC

With its $24 million Series A [See Deal], Nimbusis among the best-funded companies that bridge health care and information technology, drawing upon high-powered computing resources to discover new drugs. Nimbus Therapeutics is on this year's A-List not just because it's a prime example of the shift in health care venture resources to information technology. (See (Also see "Health Care Information Technology: Venture's New Darling?" - Scrip, 1 Jun, 2011.).) The company has embraced two other growing trends: an innovative structure meant to simplify asset sales as its clinical programs mature, and alternative investors, including an angel investor named Bill Gates who knows a bit about the transformational power of computing. (The investment is his personally, not through the nonprofit Bill and Melinda Gates Foundation.)

Nimbus maintains a close relationship with computational drug design firm Schrodinger LLC, whose co-founder Richard Friesner, PhD, is also a seed-stage investor in Nimbus. [See Deal] Using Schrodinger’s software, chemists, and cloud-computing resources, Nimbus aims to discover drug candidates for difficult-to-reach targets. One key is Schrodinger’s WaterMap technology, which gives visibility into activity around binding sites by evaluating the energy contained in water molecules in close proximity. Already, the company has homed in on a program addressing the blood cancer diffuse large B-cell lymphoma using IRAK-4 inhibitors, implicated in autoimmune pathways and inflammatory disease, and metabolic disease via the enzyme ACC, which is involved in fat-burning.

Nimbus is also the latest experiment for Atlas Venture, a firm whose portfolio is increasingly peppered with start-ups designed to deliver clean exits. Nimbus itself is a limited-liability corporation, allowing a “pass-through” tax benefit to its stakeholders, while each asset Nimbus brings into the clinic will be housed in its own C-corporation – each asset can be sold independently, bringing returns to the VCs.

Quanticel Pharmaceuticals

Single-Cell Analysis: Single Partner, Single Buyer

Funding undisclosed, November 2011

Versant Ventures, Celgene

Quanticel Pharmaceuticals Inc.

Quanticel Pharmaceuticals Inc. makes this year's A-List without a dollar sign attached to its Series A round. Or, at least not dollars from its main backer, Versant Ventures. But Versant, which intends to start raising its fifth fund next year without four longtime partners, found plenty of non-dilutive cash for the cancer genomic analysis company in an unusual way. (See (Also see "Versant Forges Ahead With Fewer Partners" - Scrip, 27 Dec, 2011.).) Celgene Corp. paid $45 million up front, with more to come in potential milestones, mainly in the form of a license fee for exclusive rights to Quanticel's technology [See Deal], which aims to shed light on the role of drug resistance due to cellular genetic diversity within a tumor. Celgene plans to apply the analysis to drugs already in its pipeline or earlier in the discovery process. The exclusivity extends for three and a half years, and the rights also include more than one option to buy. The option triggers and purchase points were undisclosed, as was Celgene's equity stake, although people familiar with the deal said it was very small. Versant remains majority owner; there are no other investors.

Spun out of the laboratories of two Stanford University professors, Quanticel isn't the only cancer-genome diagnostic firm to attract early attention. Foundation Medicine Inc. topped up its Series A in 2011 after announcing the first tranche in 2010 [See Deal]; it has taken a different strategic tack, licensing its technology nonexclusively last year to four drugmakers, including Celgene and most recently, Johnson & Johnson’s Janssen R&D LLC. [See Deal] (Another single-cell cancer diagnostic firm, Nodality Inc., closed a $15.5 million Series B round in 2010. [See Deal])

Quanticel makes the cut for us, however, because of Versant's willingness to tie the firm to its buyer from the get-go. (A similar blueprint was writ larger as START-UP went to press, with Third Rock Ventures and Greylock Partners teaming with Sanofi to launch Warp Drive Bio with up to $125 million committed.) [See Deal][See Deal]

The deal is good for Versant because it guarantees at least a minimum return – if Celgene says yes, that is – but potentially limiting if Quanticel turns out to be good enough to have generated more than one bidder. The plan explicitly calls for a Celgene acquisition, and Quanticel is counting on its platform to sweeten the lure and power its own internal discovery in undisclosed areas of oncology. Versant managing director Brad Bolzon, PhD, says he'd like to apply the find-the-buyer-early model to more portfolio companies. It's surely a sign of the times that a venture firm is enthusiastic about capping its upside in exchange for a much larger ownership slice. Quanticel marks the second A-List entry for Stanford professor Stephen Quake, PhD, whose work was behind 2004 alumnus Helicos BioSciences Corp. (See (Also see "The A-List: 2004's Trend-Shaping Series A Financings" - Scrip, 1 Jan, 2005.).)

Sapiens Steering Brain Stimulation

An Array Of Opportunity For Neuromodulation

€13 million ($19 million), June 2011

Wellington Partners, Edmond de Rothschild Investment Partners, Life Sciences Partners

Sapiens Steering Brain Stimulation GMBH

In spinning out Sapiens Steering Brain Stimulation BV into a start-up, Philips Research Laboratories, a division of Royal Philips Electronics NV in Eindhoven, the Netherlands, found a more suitable home for a preclinical-stage technology that could advance the field of neuromodulation.

Sapiens’ roots actually trail back six years to when Philips Research identified neuromodulation as an area where it could grow new business. Deep brain stimulation in particular piqued the company’s interest. The market had taken some shape with Medtronic PLC as a leader but was undeveloped enough to benefit from new technologies and approaches that Philips felt it could deliver.

The benefits specifically centered around developing a method of stimulating the brain without the unintended side effects. Philips also sought to make a neuromodulation technology that was MRI-compatible and would provide surgeons with better image-guided procedures.

The answer came in a thin-film technology capable of carrying multiple electrodes to deliver energy rather than just one or two. Sapiens executives state that neurosurgeons say the imprecision of one or two electrodes leaves them with limited options in managing the voltage. The string of multiple arrays will allow neurosurgeons to steer the electrical field toward or away from specific areas of the brain.

The team's initial focus is on Parkinson's disease, where validated targets in the brain provided a known starting point. Despite the solid targets, treatment still includes risk for serious side affects such as speech impairment or blurred vision.

Sapiens sees an opportunity in solving these problems. Its goal is to give hospitals a complete solution for DBS, everything from mapping the best route through the brain ahead of time, to guidance for placing the implants and the tuning of the electrodes to deliver the proper electrical dose precisely to the target. The Sapiens suite of products would combine imaging and informatics to provide clinicians with a three-dimensional view of the brain, treatment confirmation in the form of software that analyzes microelectrode recordings, and "image-based tuning," a software product that permits the clinical team to visualize the stimulation field with respect to the targets.

The precision and wealth of information that Sapiens provides might enable the field of DBS to advance to other, more challenging indications: for example, psychiatric diseases like obsessive compulsive disorders or clinical depression. But the company is focusing for now on getting a Parkinson’s-oriented product on the market in Europe.

Ultragenyx Pharmaceutical

Rare But Not Forgotten

$45 million, June 2011

TPG Biotech, Fidelity Biosciences, Pappas Ventures, HealthCap

Ultragenyx Pharmaceutical Inc.

Rare diseases were a common topic of discussion in 2011. The activity seemed constant, from the top of the year, when Sanofi finalized its $21 billion takeover of Genzyme Corp. to the last few weeks [See Deal], when the National Institutes of Health announced a new round of rare-disease awards (see (Also see "Therapeutics For Rare And Neglected Diseases" - Scrip, 27 Dec, 2011.)) and Shire PLC and Atlas Venture agreed to scout together for rare-disease programs. (See (Also see "Shire And Atlas Venture To Work Together To Incubate Rare Disease Research Projects" - Pink Sheet, 19 Dec, 2011.).) Right in the middle of the year was the $45 million Series A funding of Ultragenyx Pharmaceutical Inc. led by TPG Biotech and Fidelity Biosciences with participation from HealthCap and Pappas Ventures. [See Deal]START-UP profiled the firm in May, when, a year old, it had just five employees and $3.4 million in seed funding. (See (Also see "Ultragenyx Pharmaceutical LLC" - Scrip, 1 May, 2011.).) A month later, the Series A was announced, and it was rare, too: the entire amount was untranched, according to president and CEO Emil Kakkis, MD, PhD. The lead investors, Ben Auspitz of Fidelity Biosciences and Eran Nadav, PhD, of TPG Biotech, declined to comment specifically but say the total amount was a "robust indication" of their trust in management and Kakkis' experience developing the enzyme replacement therapy Aldurazyme (laronidase) and others while at BioMarin Pharmaceutical Inc.

Ultragenyx is headquartered down the street from Kakkis’ former employer in Novato, CA, a San Francisco suburb, and he has brought on board several BioMarin veterans in senior positions. All three compounds in its portfolio are licensed from academic labs, and its lead, UX001, is partnered with Nobelpharma Co. Ltd. of Japan. Now in Phase I, UX001 is an extended-release version of sialic acid for hereditary inclusion body myopathies (HIBM), of which the company estimates there are 2,000 cases worldwide. No treatment exists. The symptoms usually start to present in people aged 20 to 30. Those afflicted experience muscle weakness, often beginning in the feet or hands, and the disease progresses to muscle wasting.

The trial began in August. As of mid-January, no data have been released, although Kakkis says the company is seeing "good steady exposure levels" of the drug. The compound received FDA orphan drug designation in October. The firm plans to start a Phase II trial in 45 patients in the second quarter of 2012 and hopes to bring two more programs for undisclosed lysosomal storage diseases into the clinic in the next year or two.

At the time of the Ultragenyx Series A, TPG and Fidelity had recently exited from another rare-disease company, FoldRx Pharmaceuticals, which they sold to Pfizer Inc. in September 2010. [See Deal] Both lead firms have long-standing interest, and it won't wane soon with big drug companies bulking up their portfolios. "If there's one area where we try not to miss anything, it's rare diseases," Auspitz told START-UP.

Veniti

Gets A Leg Up On The Venous Market

$13.5 million, March 2011

Baird Venture Partners, H&Q Capital Management, Prolog Ventures, St. Louis Arch Angels

Veniti Inc.

As a target for innovation, venous disease has long taken a backseat to arterial afflictions, for a number of reasons. Although diseases of the vein are prevalent, they tend to become deadly only over time, as compared with the artery-obstructing clots that demand urgent attention. The vein markets have also been fragmented, consisting of numerous specialties – interventional radiology, vascular surgery, interventional cardiology and even wound care, making it difficult for innovators to capture markets large enough to reward investments. Medtronic Minimally Invasive Therapies’s Covidien Ltd. was the first large company to take down the silos, acquiring, in 2009, vein ablation company VNUS Medical Technologies Inc.[See Deal] and Bacchus Vascular Inc., the developer of a novel thrombolytic device to treat clogged veins. [See Deal] Covidien followed up in 2010 with the acquisition of ev3 Inc., and its portfolio of devices for peripheral applications including veins. [See Deal] (See ( (Also see "Covidien Runs Familiar But Different Plays to Build Vascular Franchise" - In Vivo, 1 Jun, 2010.).)

In 2011, start-up Veniti Inc. believed that the time was right for a roll-up strategy of its own. In March 2011 the new company simultaneously announced its $13.5 million Series A financing round [See Deal] and the roll-up of three separate vein technologies into a single entity, such that it now offers three products in three major venous categories. (See (Also see "Vein Device Companies Dig Deeper " - Medtech Insight, 1 Mar, 2011.).) Veniti began with the mission of developing the first stent specifically for veins, and to that pipeline it folded in an endovenous ablation product for varicose veins from Varix Medical Corp. and an improved inferior vena cava filter acquired from Teneo Medical Development Inc.[See Deal] Conventional vena cava filters have, unfortunately, been too often in the news, because of an accumulating body of adverse events caused by fractures, device migration and device embolization. Veniti hopes to advance a device that is safer and more reliable.

Venous diseases, which include deep vein thrombosis, chronic venous insufficiency, pulmonary embolism, and venous ulcers, are prevalent and growing, as a consequence of diabetes, obesity, and the overall aging of the population. Veniti sprang to life, fully formed, with innovative products for all of the major complaints of the veins, at a time when clinicians are also clamoring for more cohesion in the space. Veniti saw, came, and hopes to conquer.

Where Are They Now?

In a year during which life sciences IPOs were scarce, just two A-List alumni from the classes of 2006 through 2010 managed to go public. First, Clovis Oncology Inc., whose $146 million Series A in 2009 [See Deal] was one of the richest in history, priced its IPO in November 2011, netting $129 million. [See Deal] Forty percent of the issue was bought by its Series A investors to make up the bulk of their original A-round commitment. A modest aftermarket bump has driven Clovis' market capitalization above $300 million as of this writing. Meanwhile, 2008 Pfizer spin-out RaQualia Pharma Inc., designed to develop drugs through proof-of-concept before licensing them to other pharmas, listed in July on Japan’s Jasdaq and netted 5.92 billion yen ($74.9 million). [See Deal] The offering was delayed by the tsunami disaster earlier in the year. Meanwhile, 2006 A-List alumnus Aegerion Pharmaceuticals Inc., which went public in 2010 [See Deal], followed on with a $47.5 million offering in June. [See Deal]

Just one biopharma A-Lister was acquired in 2011, when Finland's Biotie Therapies Corp. acquired neurology drug developer Synosia Therapeutics (known as Synosis when we listed it in 2006) for €85.4 million. [See Deal] Many others enjoyed non-dilutive funding from business development deals; the most prolific was Heptares Therapeutics Ltd., which forged platform discovery deals with AstraZeneca PLC[See Deal] and Takeda [See Deal] as well as an arrangement that gave Shire an option to license one drug. [See Deal] The 2008 alum Enlight Biosciences LLC, with its novel business model that includes collaboration among pharmas and academics, also made multiple deals, tying up with AstraZeneca and Novo Nordisk AS. Another 2008 A-Lister, miRagen Therapeutics Inc., landed $45 million up front in a deal with Servier SA for cardiovascular drugs [See Deal] that could bring in $352 million in future payments, while Proteostasis Therapeutics Inc.'s discovery deal with Elan Corp. PLC brought in $20 million up front. [See Deal]

Many others are still raising private capital and raising the stakes for a future exit. Agios Pharmaceuticals Inc.’s $78 million Series C round [See Deal] will fuel its ambitions in cancer metabolism, as will an updated partnership with Celgene that yielded another $20 million. [See Deal] Cerulean Pharma Inc., known as Tempo Pharmaceuticals as a 2007 A-Lister, raised $15 million in its Series D round [See Deal], while F-star GMBH landed the same amount in its Series B. [See Deal]

Among the device alumni, Nanostim Inc.’s plans for a lead-less pacemaker earned it a place as one of our Series A deals of the year in 2008. (See (Also see "The A-List: 2008's Trend Shaping Series A Financings" - Scrip, 1 Jan, 2009.).) Three years later, the technology’s potential convinced St. Jude Medical Inc. to not only make an equity investment in the company, but also to secure an option to purchase. [See Deal] The deal followed Nanostim’s closing of a $12.5 million Series B from undisclosed investors. [See Deal] The syndicate may have included St. Jude, InterWest Partners, US Venture Partners, Emergent Medical Partners and Life Science Angels, the suppliers of the company’s $9.7 million Series A. [See Deal] Nanostim’s pacemakers are implanted into the heart percutaneously through a catheter.

Two other members of the same Series A class went on to raise Series B rounds. CyberHeart Inc., which is developing a noninvasive radiosurgical system for cardiac arrhythmias, secured a $2.2 million second round from 16 undisclosed investors. [See Deal] CyberHeart brought in $9 million via its 2008 round [See Deal] and $3.6 million from a debt sale in late 2009. The company licensed the radiosurgery robotic technologies from Accuray Inc. to develop a new method of cardiac ablation. [See Deal] Endoscopic device developer Xlumena Inc. raised $7 million in its Series B financing to 11 investors including first-time backers Aperture Venture Partners and Western Technology Investment, and returning shareholders Prism Ventures, Charter Life Sciences and Ascent Biomedical Ventures. [See Deal] The funds will go toward supporting US and European marketing activities for products such as the FDA-approved Navix endoscopy system and CE-marked Axios stent and delivery system.

Meanwhile, two companies bearing more recent Series A designations reported success at the FDA. NinePoint Medical Inc., a member of the 2010 list, received 510(k) clearance from the Food and Drug Administration to market its Nvision VLE Imaging System, a high-resolution optical imaging technology. And Novocure Ltd. overcame a lukewarm recommendation from an FDA panel to obtain approval for its NovoTTF-100A electric field-based brain tumor treatment system. Worn on the head, the device targets glioblastoma multiforme (GBM) brain tumors that resist chemotherapy. The company says its system is the first device to be approved as an alternative to chemotherapy. NinePoint raised its $33 million Series A in 2010. [See Deal] NovoCure secured an undisclosed amount in 2009. [See Deal]