Finance Watch: Lots Of Money, Big And Small, Flowing Into Drug Development

Big venture capital bets continue in biopharma, including Foresite's new $668m fund and Merck's $125m investment in Moderna, but small VC rounds could be making a comeback. In public company financings, Aslan and Evelo launched in the US, while Ascletis is testing Hong Kong’s IPO market.

The frenzied flow of funds into biopharma venture capital has resulted in a lot of big bets, but recent small financings are encouraging as cash is harder to come by at the earliest stages of drug discovery and development.

Merck & Co. Inc. invested $125m in Moderna Therapeutics LLC in what the messenger RNA (mRNA)-focused firm described on May 3 as a Series H preferred equity round, which also served as an upfront fee to expand the companies' existing arrangement. For Cambridge, Mass.-based Moderna, which has raised more than $2bn to date, including a $500m equity financing earlier this year, that's a small funding round. (Also see "Finance Watch: Another Mega-Round As Moderna Bucks Biopharma's IPO Trend" - Scrip, 5 Feb, 2018.)

Recent data show that the level of venture investment in biopharma during the first quarter puts the industry on track for a record-breaking year, but it also shows that small investments are dropping precipitously, with VC rounds totaling $5m or less dropping from 62% in 2010 to 45% in 2018 (see sidebar). 

Still, a number of companies have announced smaller venture rounds recently: NeuCyte Inc., for example, said on May 8 that it raised a $6.7m Series A round on May 8 to fund its neuroscience drug discovery.

Furthermore, there is more money in total going into biopharma these days, so perhaps more of it will sprinkle down to the start-up and preclinical proof-of-concept stage. Foresite Capital, for instance, said on May 3 that it closed its fourth and largest VC fund to date at $668m, bringing its total assets under management to $2bn.

Foresite describes itself as a "multi-stage" health care and life science investor and noted that "one focus for increased investment will be companies that apply the tools of data science and machine learning to solve critical problems in healthcare and the life sciences." The firm's prior biopharma investments include Intarcia Therapeutics Inc. and Aerie Pharmaceuticals Inc.

Moderna's Series H Half The Size Of CStone Round

The remarkable pace of investment in immuno-oncology firms continues, including investment in Chinese biopharma companies, most recently with a Series B round that was more than twice the size of Moderna's Series H investment from Merck.

Suzhou-based immuno-oncology specialist CStone Pharmaceuticals Co. Ltd. announced a $260m (RMB1.65bn) Series B round on May 8. The new financing comes less than two years after the company launched with $150m – China's largest-ever Series A round at the time. (Also see "Record CStone Funding Heralds New Era For China Startups" - Scrip, 6 Jul, 2016.)

CStone has 10 assets, including four clinical programs, in its pipeline. Its PD-L1 inhibitor CS1001 recently completed a Phase I dose-escalation study and is expected to move into registrational trials soon. The company established the Suzhou Translational Medicine Research Center at the end of 2017 to "enhance the efficiency of clinical development," it said. CStone's new funding will pay for clinical programs, additional R&D, external partnerships and recruiting new talent.

GIC Private Ltd., Singapore's sovereign wealth fund, led the series B round with participation from new investors Sequoia China, Yunfeng Capital, 6 Dimensions Capital, CITIC PE, Taikang Insurance Group, ARCH Venture Partners, Hillhouse Capital, King Star Capital, 3W Partners, AVICT and Terra Magnum Capital Partners. Prior investors also participated, including Oriza Seed Venture Capital, Boyu Capital and WuXi Healthcare Ventures (a 6 Dimensions Capital fund).

IO also was at the heart of the expanded Merck and Moderna collaboration. The companies have been working together under multiple agreements for three years. Merck's new investment in Moderna facilitates the expansion of a collaboration first inked in 2016 to develop personalized mRNA vaccines that would be tested in combination with Merck's blockbuster PD-1 checkpoint inhibitor Keytruda (pembrolizumab). (Also see "Merck Bets Moderna's Cancer Vaccines Can Prime Patients For Immunotherapy" - Scrip, 29 Jun, 2016.) 

A Phase I study began in November to test the personalized vaccine mRNA-4157 alone in patients with resected solid tumors and in combination with Keytruda to treat unresected solid tumors.

The cancer vaccine partnership was amended to incorporate shared-antigen mRNA cancer vaccines, including Moderna's KRAS vaccine mRNA-5671, which the companies will jointly advance into human studies. They intend to test mRNA-5671 in combination with various IO drugs. Merck is responsible for clinical development, while Moderna is responsible for clinical supply.

Merck can pay an undisclosed fee to opt-in for further development of mRNA-5671 following initial human proof-of-concept studies, at which time the partners will share costs and profits associated with the program. Merck also may opt-in to develop other shared antigen mRNA vaccines.

The Under $100m Crowd

Cambridge, UK-based Crescendo Biologics Ltd. closed a $70m financing at the end of April, which was the largest Series B round so far this year in Europe.

Also, Accelerator Life Science Partners launched Proniras Corp. on April 27 to develop tezampanel (LY-293,558) for the treatment of various seizure disorders. The small molecule, which acts on the central nervous system by antagonizing glutamate signaling through the GluK1 receptor subunit, was licensed from Eli Lilly & Co. and previously tested as an acute migraine therapy. The start-up expects to submit an investigational new drug (IND) application to the US FDA in 2020.

Initial funding comes from Lilly, Alexandria Venture Investments, ARCH Venture Partners, [Johnson & Johnson Innovation - JJDC Inc.], Watson Fund LP, WRF Capital and WuXi AppTec Corporate Ventures. However, Proniras also may receive up to $89.5m over a five-year period under a contract with the US Department of Health and Human Services' Biomedical Advanced Research and Development Authority (BARDA) to develop tezampanel as a medical countermeasure for nerve agent-induced seizures.

In other recent VC financings:

• San Diego-based Synthorx Inc. said on April 30 that it closed a $63m Series C round led by OrbiMed with participation from new investors Medicxi and Osage University Partners, and prior backers Avalon Ventures, RA Capital Management and Correlation Ventures. The cash will be used to advance a pipeline of Synthorin cytokines, including an Interleukin-2 (IL-2) that's tuned to act on certain immune cells. The synthetic biology specialist's platform allows for specific receptor pharmacology and extended half-life for engineered cytokines that may enhance the activity of other IO drugs. Synthorx has shifted its focus since 2016, when it closed a $10m Series A round with the intent of exploring its technology in pain, metabolic diseases and infectious diseases. (Also see "VC Roundup: Cleave Raises $37m To Maintain Phase I Momentum, Plus $233.5m In Recent Financings" - Scrip, 10 Aug, 2016.)
• Also in San Diego, Neurana Pharmaceuticals Inc. said on May 7 that it completed a $60m Series A round led by Sofinnova Ventures, primarily to fund development of the novel skeletal muscle relaxant tolperisone – approved and used widely in Europe and Asia for neuromuscular conditions – for the treatment of acute, painful muscle spasms and spasticity without sedation. New Leaf Ventures, HIG BioHealth Partners, Longitude Capital and MagnaSci Ventures also participated in the funding round. Neurana licensed tolperisone from Sanochemia Pharmazeutika AG to develop a patented composition of the drug that meets ICH guidelines in North America (the formulation marketed ex-US has an impurity that exceeds ICH guidelines). Studies in preparation for clinical trials showed sedation effects similar to placebo versus sedation that caused significant impairment for healthy volunteers who took Flexeril (cyclobenzaprine). A Phase II dose-ranging study is expected to begin later this year, treating patients with acute neck and back spasms.
• Third Rock Ventures funded a $58.5m Series A round for the start-up Casma Therapeutics Inc., which will develop therapeutics that boost autophagy – the natural cellular process through which cells break down surplus or dysfunctional protein – to arrest or reverse rare genetic diseases and broader pathologies, such as neurodegeneration. Cambridge, Mass.-based Casma will capitalize on its scientific founders' understanding of autophagy to identify and drug-specific drivers of the cellular process to improve the clearance of unwanted proteins, organelles and pathogens. Preclinical data show applicability in the treatment of lysosomal storage disorders, liver and muscle diseases, inflammatory disorders and neurodegeneration.
• The pharma-backed digital medicine developer Akili Interactive Labs Inc. has closed a $55m Series C round, led by Temasek with participation from various institutional and strategic investors, including Baillie Gifford, Amgen Ventures, Merck KGAA's M Ventures, Jazz Venture Partners, Canepa Advanced Healthcare Fund and Brooklands Capital Strategies. Amgen Inc., Merck KGaA, Jazz Pharmaceuticals PLC, Shire PLC and Pfizer Inc. previously invested in or partnered with the PureTech-founded Akili, which is developing therapeutic video games. (Also see "Merck, Amgen Invest In Medical Video Game Developer Akili" - Scrip, 25 Jul, 2016.) The company said on May 9 that it plans to seek clearance from FDA in the coming months for AKL-T01 for the treatment of pediatric attention deficit hyperactivity disorder (ADHD). Results are expected this year from studies of AKL-T02 in autism and AKL-T03 for cognitive dysfunction in adults with depression and cognitive dysfunction in patients with multiple sclerosis.
• San Leandro, Calif.-based BioClin Therapeutics Inc., which closed a $30m Series B round in March 2017, revealed on May 9 that the round has grown to $50m with additional investment from new investors Sectoral Asset Management and INKEF Capital. They joined prior backers Sofinnova Ventures, Ysios Capital, HealthCap, Tekla Capital Management funds and Life Sciences Partners. (Also see "Finance Watch: Raising Cash Before A Trump Slump, La Jolla Nabs $125m, Akcea Eyes $100m IPO" - Scrip, 27 Mar, 2017.) The company has raised $79m to date to develop B-701, its fibroblast growth factor receptor 3 (FGFR3) inhibitor for metastatic bladder cancer that's being tested in one Phase II trial in combination with Keytruda and a second Phase II study in combination with docetaxel. BioClin expects to complete enrollment in the second half of 2018 and report initial results from both studies by the end of the year.
• Escient Pharmaceuticals launched on May 9 with $40m in series A venture capital to develop novel G protein-coupled receptor (GPCR)-targeting drugs across a range of diseases, including therapies that target specific orphan GPCRs, including Mas-related G-protein receptors. The San Diego-based company will initially pursue programs in neuro-immuno-inflammatory and autoreactive diseases. The Column Group and 5AM Ventures led the series A, which was joined by Osage University Partners. CEO Alain Baron and Chief Scientific Officer Marcus Boehm previously co-founded and led multiple drug discovery and development firms, including Elcelyx Therapeutics Inc. (Baron) and Receptos Inc. (Boehm).
• Jerusalem-based NovellusDx has raised $6m, with investment from Helsinn Investment Fund, Bio Capital Impact Fund and Windham Venture Partners. This adds to the nearly $17m already raised by the company, which is developing technology to provide functional information about mutations and their responses to drugs so that oncologists can treat patients with precision therapies and biopharma companies can develop drugs more effectively.
• Also, Attenua Inc. in Mountain View, Calif., said on April 30 that it closed a $35m Series A round to fund development of novel treatments for chronic cough. Palo Alto, Calif.-based Kodiak Sciences Inc. revealed a $33m mezzanine financing on April 26 to take lead product candidate KSI-301, an anti-VEGF therapy for wet age-related macular degeneration and diabetic retinopathy, into the clinic. DisperSol Technologies Inc. in Georgetown, Texas, said on April 26 that it raised $27m in equity to continue development of its bioavailability-enhanced 505(b)2 drug candidates. Menlo Park, Calif.-based Refuge Biotechnologies Inc. closed a $25m Series B round that it said on May 2 will fund development via gene engineering of "intelligent cell therapeutics" in oncology. NanoBio Corp. in Ann Arbor, Mich., a clinical-stage developer of intranasal vaccines for respiratory and sexually transmitted diseases, said on May 7 that it closed a $10m Series A round and changed its name to BlueWillow Biologics. Palo Alto, Calif.-based antibiotic developer Arixa Pharmaceuticals Inc. completed an $8m seed funding round that it said on May 1 it will use to start a Phase I trial in 2019 for ARX-1796, an oral formulation of the beta-lactamase inhibitor avibactam. OnKure Inc. of Boulder, Colo., said on May 2 that it closed a $7m Series A round to advance its oral HDAC inhibitor for cancer into Phase I and to license additional assets.

New IPOs, Handful Of Public Financings

Biopharma initial public offerings in the US are keeping up a fast and furious pace. There were 16 IPOs in the US during the first four months of 2018 and three more drug developers have gone public as of May 8. (Also see "IPO Update: Returns Halved As Two Biopharmas Go Public In April; Unity Is May's First" - Scrip, 2 May, 2018.) The two most recent were Aslan Pharmaceuticals Pte. Ltd. and Evelo Biosciences Inc.

Singapore-based Aslan offered 6m American Depository Shares (ADSs) at $7.03 each to gross $42.2m before the sale of 900,000 ADSs set aside for overallotments, but the company's share price immediately slumped. The stock closed at $6.25 on May 9. 

Evelo in Cambridge, Mass., had better luck with its IPO, which grossed $85m before overallotments from the sale of 5.3m shares at $16 each on May 8, pricing in the middle of a proposed $15 to $17 range. The company's stock closed at $16.25 on May 9 for a 1.6% gain.

London-based Autolus Ltd. said in March that it filed a confidential registration statement with the US Securities and Exchange Commission to signal its intent to pursue an IPO and on May 7 the T-cell engineering made its registration public, indicating that it would raise up to $100m in a US offering. (Also see "Finance Watch: Biopharma IPOs Defy Broader Stock Performance Trends" - Scrip, 9 Mar, 2018.)

Finally, in Hong Kong where the stock exchange has changed its rules to allow pre-revenue biotech companies to go public, Ascletis Pharma Inc. indicated its intention to pursue an IPO. (Also see "Asia's Nasdaq? Hong Kong‘s Quest To Be IPO Power House Has Blessings And Curses" - Scrip, 27 Mar, 2018.) The company said early last year that it intended to eventually pursue a public offering to fund the development and commercialization of its drug candidates for the China market, including lead asset danoprevir for hepatitis C. (Also see "Ascletis Eyes Launch Of China’s First Oral HCV Drug, Possible IPO" - Scrip, 12 Jan, 2017.)

Among already public companies:

• Newtown, Pa.-based Onconova Therapeutics Inc. priced 58.8m shares and warrants to purchase up to 1.5m shares of convertible preferred stock at $0.425 per common share for $25m in immediate proceeds on April 27. Another $28.5m could be realized through the eventual conversion of the preferred stock warrants. The company has three clinical-stage cancer drug candidates, including rigosertib for myelodysplastic syndromes, which is in Phase III following a successful Phase II study. (Also see "Pipeline Watch: Phase III Starts With Murepavadin, CSL112 And Vibegron" - Scrip, 4 Apr, 2018.)
• Genprex Inc., which launched its IPO in March at $5 per share, took advantage of its strong stock price performance to raise $10m on May 7 in a private placement of shares at $12.07 each and warrants that can be converted to stock at $15.62 each. The gene therapy company is developing cancer immunotherapies. (Also see "IPO Update: Will Declining Returns Slow Fast Pace Of Biopharma Offerings?" - Scrip, 3 Apr, 2018.)
• Emeryville, Calif.-based Xoma Corp., which has shifted its focus from drug development to royalty collection, entered into a $20m credit facility agreement with Silicon Valley Bank. (Also see "Finance Watch: 2Q Brings Cost Cuts, Strategic Reviews For Many Biotechs" - Scrip, 18 Aug, 2017.) Xoma will use the proceeds to license additional assets.

Lucie Ellis also contributed to this column.