Start-Up Quarterly Statistics: Fundraising Fell, But Deal-Making Rose In Q3

Biopharmaceutical start-up companies – firms founded four years ago or less – raised fewer dollars during the third quarter than during the prior quarter despite Roivant Sciences GMBH's massive $1.1bn equity raise in August.

The slowdown isn't necessarily surprising, since business tends to slow down during the summer months. It also correlates with data reported recently in the Pitchbook-NVCA Venture Monitor, a quarterly review of venture capital financings produced by Pitchbook for the National Venture Capital Association, which showed that first financings for biopharma firms totaled just $99m for the first three quarters of 2017 versus $138m for all of 2016 – a quarterly average of $33m versus $34.5m.

Median deal sizes mostly increased for life science companies (both biopharma and medical device/diagnostic companies), which suggests that fewer firms are getting funded in light of the dip in the total dollars raised. The Venture Monitor reported that the median seed financing size has grown to $2.78m in 2017 versus $2.29m in 2016, with early venture deals rising to $10.5m from $10.43m, but late VC deals dipped to a median of $22.5m so far this year versus $23m last year.

Financings

Biopharma start-ups raised a total of $3.17bn during the third quarter of 2017, an 18% drop from the previous quarter's total of $3.86bn. Roivant Sciences GMBH's equity financing round raised $1.1bn, or 35% of the third quarter's total. [See Deal] Lead investor SoftBank Vision Fund and other backers, including Dexxon, provided the funding, which is the largest private biopharma round to date. (Also see "Finance Watch: Roivant Raises $1.1bn, Relying On Private Equity To Fund New Companies" - Scrip, 14 Aug, 2017.)

Roivant will use the proceeds to create new subsidiaries to join Axovant Sciences Ltd. (neurology), Dermavant Sciences Ltd. (dermatology), Urovant Sciences Ltd. (urology), Myovant Sciences Ltd.(endocrine diseases and women's health) and Enzyvant Sciences Ltd. (rare diseases). Of the 34 start-ups raising money this quarter, ten were public firms raising a combined $1.25bn. (See Exhibit 1.)

Exhibit 1 Start-Up Biopharma Financings, Q3 2017 ($m)

Total Raised: $3.17bn Source: Strategic Transactions

The second largest private financing round was genetic disease drug developer BridgeBio Pharma's $135m Series C in September from new investors Viking Global (lead), AIG, Aisling Capital, Cormorant Capital and Janus Funds, and returning shareholders KKR (co-lead) and Perceptive Advisors. [See Deal]

The two-year-old firm was established with the goal of taking on candidates which have been otherwise overlooked by biopharma companies or academia, and creating subsidiary companies to develop the projects into genetically-targeted therapeutics. (Also see "The Next Roivant Or Fortress? BridgeBio Raises $135m To Spin Out New Companies" - Scrip, 18 Sep, 2017.)

One company it formed, PellePharm Inc., raised $20m in Series B funding just two months prior to BridgeBio's Series C. [See Deal] PellePharm is developing the Phase III-ready topical hedgehog inhibitor patidegib for basal cell carcinoma and Gorlin syndrome. BridgeBio contributed to the round and plans to participate in a future PellePharm Series C to bring patidegib through NDA filing.

The cancer and central nervous system (CNS) drug developer SpringWorks Therapeutics LLC's $103m first financing round was the largest start-up Series A for the third quarter of 2017 and accounted for 51% of the Series A money raised. [See Deal] Participants were Pfizer Inc., which concurrently launched the firm, along with Bain Capital Life Sciences, Bain Capital Double Impact, OrbiMed, and LifeArc (formerly MRC Technology). (Also see "SpringWorks Launches With $103m, Four Pfizer Drugs And A Focus On Underserved Patients" - Scrip, 25 Sep, 2017.)

Gritstone Oncology had the biggest Series B round. [See Deal] The $92.7m investment is earmarked for pipeline development, including work on a lead candidate targeting tumor-specific neoantigens for non-small cell lung cancer and gastric cancer. Phase I is expected to commence in mid-2018. (Also see "Gritstone Grabs $92.7m To Test Personalized Vaccines In Humans" - Scrip, 11 Sep, 2017.)

Five start-ups were successful in going public during the third quarter. (See Exhibit 2.) Raking in the most via its initial public offering was Chinese biopharma company Zai Lab Ltd., which netted $160m in the US. [See Deal] The three-year-old firm is developing candidates for cancer and autoimmune and infectious diseases for China and other markets.

It intends to use proceeds for ongoing development of niraparib (entering Phase III for ovarian, breast and other cancers), omadacycline (entering Phase III for acute bacterial skin and skin structure infections), and brivanib (in Phase II for hepatocellular carcinoma). (Also see "Zai Lab Soars On Nasdaq Debut" - Scrip, 21 Sep, 2017.) Rights to the three candidates for China were licensed from Tesaro Inc. (September 2016), Paratek Pharmaceuticals Inc. (April 2017; also Hong Kong, Macau and Taiwan), and Bristol-Myers Squibb Co. (March 2015), respectively. 

Gene therapy developer Spark Therapeutics Inc. closed on a significant follow-on offering, netting $380.4m. [See Deal] The firm's lead program Luxturna (voretigene neparvovec) is an AAV-mediated gene therapy in pre-registration for inherited retinal disease (IRD) caused by RPE65 gene mutations such as in Leber's congenital amaurosis or retinitis pigmentosa. There currently are no pharmacologic treatment options for people with RPE65-mediated IRD. In mid-October the FDA advisory committee unanimously recommended approval of the drug. (Also see "Spark's Gene Therapy Is On The Cusp Of Approval; Now It Gets Interesting" - Scrip, 12 Oct, 2017.)

Alliances

In the alliance with the highest potential deal value, Wuxi Biologics and partner Harbin Gloria Pharmaceuticals Co. Ltd. licensed Arcus Biosciences Inc. exclusive rights to develop and sell the anti-PD-1 antibody GSL010 in North America, Europe, Japan and other undisclosed territories. [See Deal]

Arcus paid the licensers $18.5m up front and could hand over up to $422.5m in development and regulatory milestone fees (for up to 11 potential projects that could use GLS010 as a component), $375m for sales milestones, and high single- to low double-digit royalties (Strategic Transactionsestimates 7-29%). Arcus will develop GLS010 as a combination therapy with other candidates in its pipeline, including the A2aR/A2bR inhibitor AB928 and TIGIT checkpoint inhibitor AB154, both of which are in preclinical studies. (Also see "Deal Watch: WuXi/Gloria License PD-1 Inhibitor To Arcus For Up To $816m" - Scrip, 17 Aug, 2017.)

In exchange for $675m, Foundation Consumer Healthcare acquired some of Teva Pharmaceutical Industries Ltd.'s women's health assets. Included in the deal were Plan B One-Step, Take Action, Aftera, and Next Choice One Dose emergency contraceptives. [See Deal] Combined, the products generated $140m in 2016 annual sales. Concurrently, Teva sold CVC Capital Partners other women's health brands for contraception, fertility, menopause, and osteoporosis. [See Deal] The divestments are part of Teva's strategy to pay down debt and focus on core areas of CNS and respiratory. (Also see "Teva Offloads Women's Health Business To Two Firms For $1.38Bn" - Scrip, 18 Sep, 2017.)

Teva penned a third pharma deal, this time with start-up Nuvelution Pharma Inc. The partnership involves Teva's Austedo (deutetrabenazine), but only in Tourette's syndrome in the US. [See Deal] Nuvelution will fund and manage clinical development of Austedo in that indication, while Teva will handle regulatory activities and commercialization. The agreement is based on a risk-sharing funding framework with a success-based investment return for Nuvelution, where Teva will pay the company a pre-arranged return on its invested capital upon FDA approval of the drug. (Also see "Nuvelution Puts Business Model Into Action With Teva/Austedo Deal" - Scrip, 19 Sep, 2017.) Austedo already is approved for tardive dyskinesia and Huntington's disease. (Also see "Nuvelution Puts Business Model Into Action With Teva/Austedo Deal" - Scrip, 19 Sep, 2017.)

Two reverse licensing deals took place during the quarter. Takeda Pharmaceutical Co. Ltd. licensed recently formed Cardurion Pharmaceuticals LLC rights to a pipeline of preclinical cardiovascular disease candidates. [See Deal] In addition to compounds, Takeda is providing the start-up with a 12-person research team as well as fully equipped lab space and additional resources. (Also see "Deal Watch: Takeda Continues Transaction Spree With Four More Deals" - Scrip, 4 Aug, 2017.)

Concurrently with the previously mentioned Series A, SpringWorks licensed from Pfizer four of its rare disease programs. [See Deal] The programs are Phase III-ready nirogacestat (PF03084014) for desmoid tumor, Phase III-ready PD0325901 for neurofibromatosis, Phase I senicapoc (PF05416266) for hereditary xerocytosis, and Phase I PF0445784 for post-traumatic stress disorder. (Also see "SpringWorks Launches With $103m, Four Pfizer Drugs And A Focus On Underserved Patients" - Scrip, 25 Sep, 2017.) Pfizer and Takeda were two of five Big Pharma companies to partner with start-ups in the third quarter. (See Exhibit 3.)

NantWorks LLC's cancer-focused subsidiary NantCell LLC penned a pair of deals during the quarter. From CytRx Corp. it received exclusive global rights to the Phase III DNA topoisomerase inhibitor aldoxorubicin for soft tissue sarcoma. [See Deal] The compound also is in earlier studies for other cancers including brain, pancreatic, lung and ovarian. NantCell purchased $13m of CytRx’s common stock and committed to pay up to $343m in regulatory and sales milestone fees, plus tiered double-digit royalties for sales of the drug in soft tissue sarcoma indications and mid-to-high single digits for all other diseases. NantCell also received an 18-month warrant to buy another 3m common shares at $1.10. (Also see "Deal Watch: Takeda Continues Transaction Spree With Four More Deals" - Scrip, 4 Aug, 2017.)

NantCell also gained exclusive global rights to four of GlobeImmune Inc.’s cancer projects. [See Deal] The programs are Phase II GI4000 for non-small cell lung cancer (NSCLC), pancreatic and colorectal cancers; Phase I/II GI6207 for NSCLC, colorectal, breast and prostate cancers; and GI6301, which is in Phase II for bone cancer and Phase I for breast cancer and other advanced tumors. (Also see "Deal Watch: CSL Behring's Calimmune Buy Builds On Its Base & Adds Platform Tech" - Scrip, 28 Aug, 2017.) In addition, NantCell exercised an option to license GlobeImmune's preclinical GI6100 targeting the MUC1 protein. The deal came five months after NantCell acquired a controlling stake in GlobeImmune, which at the time had been struggling following a key trial failure. [See Deal]

Provention Bio Inc. was also involved in two deals. It kicked off the quarter licensing its first program – a preclinical enterovirus vaccine – from Vactech Oy. [See Deal] The start-up will initially focus on developing a vaccine against coxsackie virus B infection. In September, Provention licensed two clinical-stage GI assets from Johnson & Johnson's Janssen Pharmaceutica NV – JNJ40346527 (renamed PRV6527) for Crohn’s disease and JNJ42915925/CNTO3157 (PRV300) for ulcerative colitis. [See Deal] PRV6527 is expected to enter Phase IIa in the first half of 2018 and PRV300 is in Phase I/II. (Also see "Provention Builds On J&J Disease Interception Model" - Scrip, 21 Sep, 2017.) The start-up raised $28.4m back in April and will use those funds to develop its three programs.

Three start-ups inked agreements with tech transfer entities. PreveCeutical Medical Inc.entered into a four-year agreement with the University of Queensland's commercialization arm UniQuest Pty. Ltd. for the development of dual-gene therapies for diabetes and obesity. [See Deal] The work will be done by the university in collaboration with professors from fellow Australian institutions QIMR Berghofer Medical Research Institute and Murdoch University. PreveCeutical will own any intellectual property coming out of the deal and can opt to license exclusive global rights to UniQuest’s background intellectual property in an agreed-upon field.

Duke University granted its spin-out Grid Therapeutics LLC exclusive rights to all IP and patents associated with complement factor H antibodies for use in developing cancer therapies and diagnostics. [See Deal] An initial candidate could enter the clinic in early 2019. (Also see "Tech Transfer Roundup: Neon Licenses NKI IP To Advance Cell Therapy Into Clinic" - Scrip, 9 Oct, 2017.)

Mitobridge Inc. closed out the third quarter gaining exclusive worldwide rights to IP surrounding modulation of the nicotinamide adenine dinucleotide pathway from the Ecole Polytechnique Federale de Lausanne. [See Deal] The start-up seeks to create compounds for various mitochondrial dysfunction-associated diseases and conditions of aging.

Acquisitions

Eight biopharma start-up acquisitions were announced in the third quarter. The deal with the biggest value was Bristol-Myers Squibb's purchase of IFM Therapeutics for $300m up front plus potentially another $2.02bn in earn-outs. [See Deal] Two-year-old IFM is working on small-molecule therapies aimed at controlling innate immune responses. In preclinical studies the start-up has NLR protein (NLRP) antagonists that prevent the immune system from attacking itself. It expects to have candidates ready to enter clinical studies later this year or in early 2018.

Through the acquisition, BMS is gaining IFM's oncology assets. The remainder of the start-up's pipeline – aimed at inflammation, liver fibrosis/NASH, inflammatory bowel disease, and gout – were concurrently spun off into the new company IFM Therapeutics LLC. [See Deal] And under yet another deal penned on the same day, the newly created IFM granted BMS a right of first refusal on its preclinical NLRP3 antagonist program in inflammatory diseases and fibrosis. [See Deal]Under that agreement, BMS paid IFM an up-front fee and will make a future investment in the firm. (Also see "An Inflammatory Deal: Bristol Commits Up To $2.3bn To Buy IFM Therapeutics" - Scrip, 4 Aug, 2017.)

BMS wasn't the only big pharma acquiring a start-up in the quarter. Merck & Co. Inc. shelled out $136.9m for Rigontec GMBH, which is developing immuno-oncology therapies targeting the retinoic acid-inducible gene I (RIG-I) pathway in the innate immune system. [See Deal] Merck could also pay up to $415.4m in development, regulatory and commercialization earn-outs. (Also see "Deal Watch: AstraZeneca Offloads US Anesthesiology Portfolio To Aspen" - Scrip, 14 Sep, 2017.)

Rigontec spun out of the University of Bonn in January 2014. Its lead program RGT100 is in Phase I for solid tumors and lymphoma. The compound targets the RIG-I receptor to activate the body’s innate immune response and produce interferons or silence certain genes, both resulting in tumor cell death. (Also see "Rigontec Buy Adds RNA Tech To Merck & Co IO Portfolio" - Scrip, 6 Sep, 2017.) Rigontec is backed by investors including Boehringer Ingelheim Venture Fund, Forbion Capital Partners, High-Tech Grunderfonds, MP Healthcare Venture Management, NRW.BANK, Sunstone Capital and Wellington Partners Life Sciences.

Ultragenyx Pharmaceutical Inc. outbid REGENXBIO Inc. to acquire Dimension Therapeutics Inc.[See Deal] Ultragenyx first offered $5.50 per share in cash, but ended up paying $6 per share, valuing the company at nearly $151m. (Also see "Deal Watch: Celgene The Latest To Buy Into Nimbus’ Computational Chemistry Approach" - Scrip, 3 Oct, 2017.) In August, REGENXBIO proposed to buy Dimension for $3.41 per share in cash. [See Deal]

Ultragenyx will leverage its advanced clinical and regulatory expertise and its commercial infrastructure to Dimension's rare metabolic disease-focused gene therapies. Dimension's two lead programs are DTX301 (in Phase I/II for ornithine transcarbamylase deficiency) and DTX401 for glycogen storage disease Type Ia (an IND is expected to be filed in early 2018).

Lentigen Technology Inc. acquired cancer immunotherapy start-up Living Pharma Inc. for an undisclosed sum. [See Deal] A 2016 University of Maryland spin-off, Living Pharma has exclusive rights to the university's IP related to anti-tag chimeric antigen receptor (AT-CAR) engineered T-cell therapies, which can recognize tagged tumor-targeting molecules and can be tailored to each patient’s specific cancer and disease phenotype.

Three reverse mergers were penned during the third quarter. Non-medical company Monster Digital Inc. merged with gastrointestinal disease-focused Innovate Biopharmaceuticals Inc. in a stock swap. [See Deal] Innovate has a 91% stake in the combined firm and Monster the remaining 9%. The new entity retains the Innovate Biopharmaceuticals name and is led by the current Innovate management team. (Also see "IPO Update: New Filings Feed Investor Fervor As Biopharma Stocks Rise" - Scrip, 8 Sep, 2017.)

The company will focus on moving Innovate's Phase IIb celiac disease candidate larazotide (INN202) into Phase III development, expected later this year. Innovate licensed the compound from Alba Therapeutics Corp. in February 2016. [See Deal] In early 2015, Innovate purchased from Repligen Corp. RG1068 (renamed INN329), a synthetic human secretin used in magnetic resonance cholangiopancreatography procedures to improve visualization of the pancreatic bile ducts and diagnose pancreatic abnormalities. [See Deal] Innovate's third program is Phase I INN108 for ulcerative colitis. Monster sells and distributes products for use in high-performance consumer electronics, mobile products, and computing.

In another all-stock transaction, Acer Therapeutics Inc. merged with Opexa Therapeutics Inc. [See Deal] Opexa began seeking a potential partner after its multiple sclerosis candidate failed to meet its primary endpoint in a Phase IIb trial. (Also see "Opexa Slims Down Ahead Of Key MS Data" - Scrip, 3 Mar, 2016.) Post-merger, Acer's shareholders will hold 88.8% of the combined entity, with Opexa stockholders retaining the other 11.2%. The new entity will retain the Acer Therapeutics name and focus on developing pre-NDA-stage therapeutics for rare diseases.

Finally, struggling Israel-based firm Alcobra Ltd. agreed to merge with private US RNA-focused start-up Arcturus Therapeutics Inc. in a reverse stock swap. [See Deal] Following the deal, the firm was renamed Arcturus Therapeutics Ltd. and Arcturus holds a 60% stake and Alcobra the remaining 40%. Alcobra had been working on two ADHD programs – Phase III extended-release metadoxine (MDX) and preclinical abuse-deterrent, amphetamine immediate-release (ADAIR). After MDX failed to meet a primary endpoint, the company discontinued work in the ADHD indication and decided to study it for Fragile X syndrome. The future is unclear for Alcobra's two candidates since Arcturus plans to focus on its own programs, including candidates for non-alcoholic steatohepatitis and cystic fibrosis. (Also see "Arcturus Enters Reverse-Merger With Alcobra To Push Differentiated RNA Approach" - Scrip, 28 Sep, 2017.)