Start-Up Quarterly Statistics: Q3 Financings Slump Despite Large Gossamer Series B, Big Rubius IPO
Executive Summary
Third quarter biopharma start-up financing activity decreased from the record-breaking Q2. A review of biopharma start-up dealmaking and financing activity from July through September 2018, based on data from Strategic Transactions.
In a summer slowdown, biopharmaceutical start-up fundraising declined 27% in the third quarter of 2018, but Gossamer Bio Inc. and Orchard Therapeutics Ltd. brought in large venture capital rounds totaling $230m and $150m, respectively; Orchard has since gone public in the US during the fourth quarter. However, Q3 saw just four drug developer start-ups launch initial public offerings, including Rubius Therapeutics Inc., which brought in almost $258m during the quarter.
In dealmaking, two biopharmas negotiated alliances potentially worth more than $1bn and Roivant proved to be one of the third quarter's most prolific dealmakers, mostly via its subsidiaries. Mergers and acquisitions activity included some high-profile start-up purchases and a reverse merger.
Financings
Biopharma start-ups raised a total of $3.04bn during the third quarter of 2018, a 27% decrease from the record-setting second quarter total of $4.19bn. In terms of deal volume, the Series A financing category took the top spot with 16 deals, generating a total of $505m. Follow-on offerings generated the most money with $643.7m (21% of the Q3 financing total). (See Exhibit 1.)
Two companies tied for the top spot in Series A fundraising. Two-year-old cancer firm Twentyeight-Seven Therapeutics Inc. raised $65m to support its lead project being designed to inhibit Lin28, an RNA-modulating protein that reduces levels of Let-7, a tumor suppressor miRNA. [See Deal]
Also, Poseidon Innovation LLC, a newly created joint partnership between University of California, San Diego (UCSD) and Deerfield Management, received a $65m commitment from Deerfield. [See Deal] The company is focused on accelerating UCSD's drug development cycle, allowing patients to receive treatment faster.
In the largest Series B round, Gossamer pulled in $230m to fund pipeline expansion of candidates aimed at autoimmune, gastrointestinal (GI), allergy/inflammation and immuno-oncology indications. It says the funds should allow it to move its programs through early- and mid-stage clinical trials. [See Deal]
Orchard brought in $150m through an oversubscribed Series C round led by Deerfield Management. [See Deal] The company plans to use some of the funds to support registration and commercialization activities for its three most advanced autologous ex vivo gene therapy candidates, which have all received US rare pediatric disease designations and are eligible for priority review vouchers from the FDA. (Orchard licensed the portfolio of rare disease gene therapies from GlaxoSmithKline PLC earlier this year.) [See Deal] OTL101 is for adenosine deaminase severe combined immunodeficiency, OTL103 is for Wiskott–Aldrich syndrome, and OTL200 is for the metabolic disorder metachromatic leukodystrophy. (Also see "Orchard Raises Another $150m For Gene Therapy Pot" - Scrip, 13 Aug, 2018.)
During Q3 2018, only four start-ups completed initial public offerings, compared to 12 in Q2, the largest number to date in a single quarter. (See Exhibit 2.) Raising the most was Rubius, netting $257.9m in an upsized IPO of 12m common shares at $23 each. [See Deal] The start-up is engineering red blood cells into cell therapies for rare diseases, cancer, and autoimmune disorders. The candidates, called Red Cell Therapeutics, are off-the-shelf (as opposed to current T-cell treatments, which are autologous) and offer the potential for long-lasting treatment due to red blood cells' 120-day life span. Lead program RTX134 is entering the clinic for phenylketonuria. (Also see "Finance Watch: Summer Heat Extends To Biopharma IPOs With Nine In July, 45 This Year" - Scrip, 1 Aug, 2018.)
| Date | Company | Amount Raised ($m) |
| July | Rubius Therapeutics | 257.9 [See Deal] |
| September | Urovant Sciences | 130.2 [See Deal] |
| September | Y-mAbs | 102.7 [See Deal] |
| September | Entasis Therapeutics | 68.8 [See Deal] |
| Total: $560.5m |
One other start-up – LogicBio Therapeutics Inc. – filed for an IPO in Q3. [See Deal] (It went public in Q4 netting $74.9m.) The four-year-old gene editing company is developing therapies using its GeneRide technology, which was designed based on IP licensed from Stanford University and the University of Texas.
Four start-ups completed follow-on public offerings during the quarter generating an aggregate $643.7m, of which 48% was attributed to Idorsia Pharmaceuticals Ltd. The company placed 11.9m new shares at $25.81 per share for gross proceeds of $307.4m. It concurrently secured $201.5m in senior convertible redeemable bonds. [See Deal]
Alliances
Thirty partnerships involving start-ups were signed during the quarter. Two of those deals could be worth in excess of $1bn. In the alliance with the highest potential deal value, Gritstone Oncology agreed to use its EDGE personalized neoantigen platform to provide ten tumor-specific targets (and T-cell receptors directed to those targets) for bluebird bio Inc.. [See Deal]
Gritstone’s artificial intelligence platform utilizes sequence data from a patient’s tumor biopsy to predict mutations that will generate tumor-specific neoantigens most likely to be present on the tumor cell surface. Bluebird paid $20m up front and made a $10m equity investment in Gritstone’s concurrent $21m Series C financing. Gritstone could also get up to $1.2bn in development, regulatory, and commercialization milestones, plus tiered single-digit royalties.
The deal was one of two penned by Gritstone. It also formed a trial collaboration with Bristol-Myers Squibb Co. to study immunotherapy combinations for advanced solid tumors. [See Deal] Gritstone’s patient-specific neoantigen immunotherapy GRANITE001 (in preclinical studies for bladder, stomach, colorectal, esophageal, non-small cell lung and other solid cancers) will be combined with Bristol’s marketed immune checkpoint inhibitor therapy Opdivo (nivolumab) and Opdivo plus the anti-CTLA-4 agent Yervoy (ipilimumab). The combo therapy will enter Phase I for solid tumors.
Anima was one of six start-ups to partner with big pharma during the quarter. (See Exhibit 3.) Another was Revolution Medicines Inc., which teamed up with Sanofi to develop and sell small-molecule SHP2 inhibitors for cancers, initially non-small cell lung and other cancers with specific genetic mutations. [See Deal] The parties will jointly develop SHP2 inhibitors based on Revolution’s precision oncology discoveries, including lead preclinical candidate RMC4630. (Also see "Deal Watch: Gilead Continues To Add To IO Armamentarium In Collaboration With Gadeta" - Scrip, 20 Jul, 2018.)
The start-up will conduct early R&D activities for RMC4630 and related projects, and Sanofi will take over later development and get exclusive worldwide rights to resulting therapies. Revolution received $50m up front and stands to gain up to $500m in clinical and regulatory milestone fees, plus mid-double-digit sales royalties. They entered into a 50/50 profit and loss sharing arrangement in the US, where Revolution holds an option to co-promote approved therapies.
| Headline / Date |
| Sanofi gets global rights to Revolution's SHP2 inhibitors / July [See Deal] |
| Drug discovery start-up Anima Biotech strikes $1.1bn deal with Lilly / July [See Deal] |
| BMS and Gritstone enter solid tumor trial collaboration / July [See Deal] |
| Laekna in-licenses two more oncology pipeline assets from Novartis / July [See Deal] |
| LifeMax gains global license to Novartis' BPR277 for Netherton syndrome / August [See Deal] |
| Ambys finds its first strategic partner in Takeda / August [See Deal] |
Novartis AG was the only big pharma to sign a pair of alliances, both of which were reverse licensing arrangements in which a biotech or research-focused partner licenses rights from a larger company. It kicked off the quarter granting Laekna Therapeutics Shanghai Co. Ltd. exclusive worldwide rights to the oral pan-AKT kinase inhibitors UPB795 (uprosertib) and ASB183 (afuresertib). [See Deal] Uprosertib is in Phase I for various cancers, including colorectal, endometrial, ovarian and pancreatic, and lymphoma. Novartis had afuresertib in the clinic for solid and hematologic tumors, but discontinued development in 2016. The compound is in preclinical studies in unspecified solid tumors. (Also see "Deal Watch: Harbour Expands Horizons Beyond China" - Scrip, 21 Aug, 2018.)
LifeMax Healthcare International Corp. got exclusive global rights to develop, manufacture, and commercialize Novartis’ Phase III-ready topical ointment BPR277 (renamed LM030) for Netherton syndrome, a rare genetic disorder affecting the skin, hair, and immune system. [See Deal] LifeMax's pipeline includes candidates for nonalcoholic steatohepatitis, schizophrenia, idiopathic pulmonary fibrosis, and an undisclosed monogenic rare disease. (Also see "Deal Watch: Emergent Strikes Again, Acquiring Adapt And Its Opioid Overdose Drug For $635m" - Scrip, 29 Aug, 2018.)
In the quarter’s only other reverse licensing, GlaxoSmithKline sold Dermavant Sciences Ltd. global rights (with the exception of China) to its Phase III-ready compound tapinarof for psoriasis and atopic dermatitis. [See Deal] Dermavant paid GSK $198m up front and is on the line for up to $132m in potential milestone payments. In a double-blind placebo-controlled Phase IIb study for atopic dermatitis, the drug achieved 75% or greater improvement in psoriasis area and severity index scores after three months versus 5% in the placebo. Dermavant also got worldwide rights to tapinarof's preclinical topical back-up program.
Dermavant is a subsidiary of Roivant, which was created in 2014 and has since established twelve “vant” biotechs. In addition to Dermavant, three other Roivant companies penned deals during the third quarter of 2018.
In a July pact worth potentially $665m, Axovant Sciences Ltd. licensed exclusive global rights to Benitec Biopharma Ltd.'s preclinical oculopharyngeal muscular dystrophy candidate BB301 (renamed AXO-AAV-OPMD). [See Deal] The two also agreed to collaborate on five neurology programs incorporating Benitec's DNA-directed RNA interference platform. (Also see "Axovant Hopes Gene Silence Is Golden With Benitec Pact" - Scrip, 9 Jul, 2018.)
Later that month Sinovant Sciences Ltd. licensed exclusive rights to develop and commercialize Renexxion LLC’s naronapride in China, Hong Kong, Macau, and Taiwan. [See Deal]
Finally, Urovant Sciences Ltd. licensed exclusive worldwide development, manufacturing and commercialization rights to Ion Channel Innovations LLC’s naked DNA gene therapy hMaxi-K for overactive bladder. [See Deal] (Urovant also successfully went public in Q3.) [See Deal]
In September, Roivant itself penned a deal in which it acquired global rights to Patara Pharma Inc.’s pulmonary therapeutic PA101 and related assets. [See Deal]
An M&A option was part of one Q3 deal. Kite Pharma Inc. penned an alliance with Gadeta BV for the discovery and development of TCR therapies for solid and blood cancers. [See Deal] Gadeta’s technology engineers alpha beta T-cells with gamma delta T-cell receptors (called TEGs, or T-cells Engineered to express a defined Gamma delta TCR) to create optimized gamma delta TCRs with enhanced anticancer reactivity.
Kite makes an undisclosed equity investment up front and will provide R&D funding, as well as regulatory milestone fees. It also could increase its equity investment following achievement of certain R&D milestones, and holds an exclusive option to acquire Gadeta. (Also see "Deal Watch: Gilead Continues To Add To IO Armamentarium In Collaboration With Gadeta" - Scrip, 20 Jul, 2018.)
Acquisitions
During the third quarter, six biopharma start-up acquisitions were completed. In the highest-valued M&A deal, Roche paid $82m in cash up front for privately held cancer-focused Tusk Therapeutics Ltd. [See Deal] Roche also could shell out up to $684m in earn-outs.
Since its founding in 2014, Tusk has been working on antibodies in the immuno-oncology space, specifically focusing on immune cell activation, modulation or depletion in the tumor microenvironment. The company’s most advanced programs are in preclinical studies. Its lead compound targets CD25 to deplete regulatory T-cells and enable anti-tumor immunity. (Tusk holds rights to the program from Cancer Research Technology Ltd. and University College London.) The start-up plans to move the candidate into the clinic near the end of 2019 and says it may eventually combine it with Roche’s PD-L1 inhibitor Tecentriq (atezolizumab).
With the acquisition, Roche is acquiring only the antibody targeting CD25. (Also see "Just What We Were Looking For: Roche Pays €70m For Preclinical Anti-CD25 Asset " - Scrip, 28 Sep, 2018.) All of Tusk’s other projects will be owned by Black Belt Therapeutics, a new entity that Tusk has concurrently spun off. [See Deal] Black Belt gets a CD38 immune checkpoint antibody and immune-modulating antibodies. Tusk’s majority backer Droia Oncology Ventures will be a Black Belt shareholder.
Allergan PLC handed over $195m up front to buy Bonti Inc., which is developing botulinum neurotoxin serotype E (BoNT/E)-derived candidates. [See Deal] Bonti was founded as Endurance Biotech in 2015 by former Allergan executives. It raised a total of $36.1m through three rounds, most recently a $15.5m Series C financing in January 2018. [See Deal] (Also see "Finance Watch: Another Mega-Round As Moderna Bucks Biopharma's IPO Trend" - Scrip, 5 Feb, 2018.)
Bonti has two Phase II BoNT/E programs: EB001A (aesthetic uses such as wrinkle and scar reduction) and EB001T (therapeutic uses; ongoing studies in post-operative musculoskeletal pain and a recently initiated trial in wound healing). Allergan was most attracted to EB001A, which acts within 24 hours of administration and has a two to four-week period of treatment effect, versus the three- to seven-day onset and three- to four-month duration of Allergan's flagship Botox Cosmetic (onabotulinumtoxinA). Between now and 2025, Allergan plans to double its aesthetics business to $7bn-$8bn in net sales by ramping up its direct-to-consumer advertising, increasing its sales force and investing more in R&D. (Also see "Allergan Buys Bonti, Releases New Data In Defense Of 'Iconic' Botox Brand" - Scrip, 14 Sep, 2018.)
Supernus Pharmaceuticals Inc. agreed to acquire epilepsy-focused start-up Biscayne Neurotherapeutics Inc. (BNT) for up to $183m ($15m up front and up to $168m in earn-outs). [See Deal] BNT was spun out of predecessor company Biscayne Pharmaceuticals Inc. in January 2017 to take over development of BIS001 (re-named SPN817 by Supernus), an anticonvulsant for Dravet syndrome for which the compound has orphan drug status. It is also in a Phase II proof-of-concept trial in adults with refractory complex partial seizures to study the safety and pharmacokinetics profile of an oral extended-release formulation designed to enhance tolerability across various doses. (Also see "Deal Watch: Cigna Acquisition Of Express Scripts OKed By US Justice Dept." - Scrip, 17 Sep, 2018.)
Supernus will focus on completing and optimizing the synthesis process of SPN817 and plans to develop a novel dosage form for pediatric epilepsy disorders. SPN817 fits in nicely with Supernus' own CNS disease portfolio, which includes Oxtellar XR (extended-release oxcarbazepine) for epilepsy and Trokendi XR (extended-release topiramate) for migraine and epilepsy. Supernus’ neurology and psychiatry pipeline is led by Phase II SPN812 for attention deficit hyperactivity disorder and Phase III SPN810 for impulsive aggression in ADHD.
In an all-stock deal, Nasdaq-traded Apricus Biosciences Inc. reverse merged with privately held CNS-focused start-up Seelos Therapeutics Inc. [See Deal] Seelos stockholders will own an 86% stake in the combined company and take over Apricus' Nasdaq listing while retaining the Seelos name, management team and New York headquarters. (Also see "Deal Watch: LEO Pharma Expands Market Reach Through Bayer Dermatology Deal" - Scrip, 31 Jul, 2018.)
In Apricus' April 2018 end-of-review meeting regarding its NDA for lead compound Vitaros (alprostadil), a topical erectile dysfunction cream, the FDA suggested Apricus address several issues cited in its February 15, 2018, complete response letter and additionally conduct two new Phase III efficacy trials with a reformulated product prior to resubmitting another NDA for Vitaros. Because the cost and timeline associated with a reformulation and additional Phase III trials exceeded Apricus' resources, the company’s board reviewed strategic alternatives, deciding this merger was the best option to create value for shareholders.
As part of the current transaction, Apricus shareholders get one contingent value right per Apricus share owned to receive 90% of the cash amount exceeding $500,000 following successful out-licensing of the Vitaros assets, and for any payment other than cash, 90% of the fair market value of such consideration. (Also see "Deal Watch: LEO Pharma Expands Market Reach Through Bayer Dermatology Deal" - Scrip, 31 Jul, 2018.)
The combined company is expected to advance Seelos' five development programs toward US approval and commercialization, with clinical and regulatory milestone fees anticipated in the near term. Seelos' lead compound is SLS002 (racemic ketamine), a Phase II intranasal formulation for post-traumatic stress disorder and major depressive disorder. The company also is developing four compounds in-licensed from Ligand Pharmaceuticals Inc. in September 2016. As part of that agreement, Ligand is expected to be a shareholder of Seelos at the closing of the merger through an equity milestone payment from Seelos and is entitled to other potential future milestones and royalties related to the licensed programs.
In the last Q3 M&A deal, Astellas Pharma Inc. bought ophthalmic-focused UK start-up Quethera Ltd. for up to $109.3m in the form of upfront and earn-out payments. [See Deal] Quethera is a gene therapy company focused on eye diseases that result in blindness. It initially is working on treatments that reduce progressive visual loss conditions, such as glaucoma, that affect the optic nerve.
Quethera uses recombinant adeno-associated viral vectors (rAAV) to introduce therapeutic genes into target retinal cells for glaucoma. Its lead program in preclinical studies has been shown to improve the survival of retinal ganglion cells, which are damaged in glaucoma patients. As of now, all therapeutic approaches for treating glaucoma work by lowering the pressure inside the eye. Astellas says the rAAV program can provide a new treatment option for refractory glaucoma via an intraocular pressure-independent mechanism. (Also see "Deal Watch, Focus On Acquisitions: Emergent Acquires PaxVax, Pair Of Commercialized Vaccines" - Scrip, 14 Aug, 2018.)
From the editors of Start-Up