VentureBeat

TODAY’S HEADLINES:

• Aptamer-drug maker Archemix withdraws its $72.5 million IPO (Edgar)
• OraMetrix raises $20M for robotic orthodontic systems (peHUB)
• Microarray maker TeleChem goes public via reverse merger (release)
• BioVascular pulls in $11M for platelet-disease treatments (release)
• Cequent Pharma adds $4.5M for for RNAi drugs (VentureWire)
• CareSeek, online medical-rating service, gets $575K, looks for $5M (VentureWire)
• Satiogen takes in $700K for obesity treatment (VentureWire)
• Dilon Tech appoints Robert Moussa as CEO (release)

Aptamer-drug maker Archemix withdraws its $72.5 million IPO – I’ve expanded this news into a standalone item on the state of the life-science IPO market here.

OraMetrix raises $20M for robotic orthodontic systems – Richardson, Tex.-based OraMetrix, a maker of 3-D robotic systems for orthodontic use, raised $20 million in a new funding round, peHUB reports. The financing is either a third round (as peHUB puts it) or a sixth (as VentureWire reports based on an interview with the company’s CFO). Existing investors, including Rho Capital Partners, Versant Ventures, Brentwood Venture Capital and Star Ventures, provided the cash.

Founded in 1998, OraMetrix makes and sells what it calls the SureSmile system for orthodontic braces. After taking a 3-D scan of a patient’s mouth, an orthodontist can then use the system’s computer modeling to develop a treatment plan. A robotic system then precisely bends the “archwires” that push teeth around.

OraMetrix claims the system shortens the duration of treatment and reduces office visits. The company has sold the system since 2004 and told VentureWire that it has installed SureSmile for more than 200 doctors, but says it needs to roughly double that figure to reach profitability.

Microarray maker TeleChem goes public via reverse merger – TeleChem International, a Sunnyvale, Calif., maker of gene-chip microarrays that is also known as ArrayIt, went public via a reverse merger with Integrated Media Holdings. The companies don’t quite call it a reverse merger, but given that IMH shares have traded at around two cents since September, the company has a shareholder’s deficit of $1.5 million and noted in its latest quarterly filing that there is “substantial doubt” about its ability to remain a going concern, the dots aren’t all that hard to connect.

Technically, IMH acquired TeleChem’s existing shares in exchange for 35 million shares of the merged company, which will undergo a one for 30 reverse split. At yesterday’s IMH close of, yes, two cents, that values the deal at about $21 million.

BioVascular pulls in $11M for platelet-disease treatments – San Diego’s BioVascular, a specialty pharma focused on drugs for fighting blood clots related to heart surgery, raised $10.9 million in a third funding round. Investors included BB Biotech Ventures, Merck KGaA and Domain Associates.

The funds will allow BioVascular to complete early-stage trials of two drugs, saratin for the prevention of clotting in grafted vessels following heart-bypass operations, and BVI-007, a platelet-production inhibitor it acquired last year when it bought out the biotech Revitus.

Cequent Pharma adds $4.5M for for RNAi drugs – Cequent Pharmaceuticals, a Cambridge, Mass., developer of drugs based on the gene-silencing technique called RNA interference, added $4.5 million to its first funding round, VentureWire reports. The new cash, provided by existing investors Novartis Option Fund, Ampersand Ventures, Nexus Medical Partners and Pappas Ventures, brings Cequent’s total funding in the round to $13.5 million.

RNAi involves the use of short stretches of RNA that engage ancient cellular mechanisms for silencing the output of particular disease-related genes. RNA, however, doesn’t enter cells easily, so Cequent is working on a way to use genetically engineered, non-disease-causing bacteria that will enter human cells and produce the desired RNA molecules locally. We covered Cequent’s previous funding here.

Featured companies: American Aerogel, Clinicient, Frazier Healthcare Ventures, Genome Diagnostics, RadPharm, RainDance Technologies, Vivacta

UPDATED: Expanded items on Vitae, RadPharm, Vivacta and Genome Diagnostics. Intelligent Bio-Systems is now covered in a standalone item here.

Vitae Pharma takes in $15M for blood pressure, diabetes drugs — Vitae Pharmaceuticals, a Fort Washington, Pa., biotech focused on new drugs for hypertension and metabolic disorders, raised $15 million in a fourth funding round, VentureWire reports (subscription required). Boehringer Ingelheim, which struck a major partnership with Vitae in mid-October (PDF link), provided the funding.

That partnership calls for the two companies to co-develop Vitae drug candidates that inhibit a protein called 11beta-HSD1, an enzyme that helps regulate the hormone cortisol. The drugs may be useful in treating diabetes, obesity and hypertension. B-I agreed to pay Vitae $36.5 million in cash, research funding and an at-the-time unspecified equity investment, as well as up to $300 million in potential milestone payments.

Vitae’s other major drug program involves compounds that inhibit the protein renin, which regulates blood pressure and vascular function. Renin inhibitors, which could be useful in treating hypertension, have been a white whale of sorts for the drug industry over the past 30 years (see, for instance, this somewhat technical discussion of the history here).

UK’s Vivacta draws in $12M for medical diagnostics — Vivacta, a U.K. medical-diagnostic company formerly known as PanOpSys, raised $12 million in a second funding round. Investors included AGF Private Equity, HBM BioVentures, Spark Ventures and Viking.

Vivacta is developing a fast, “point of care” diagnostic system intended to deliver laboratory-quality test readings from drawn blood in doctors’ offices or at a hospital bedside. The technology is based on a “piezoelectric” film coated with antibodies to particular blood proteins. Piezoelectric devices produce current when compressed, so theoretically this approach should allow a direct measurement of blood proteins by generating current proportional to the density of antibodies that capture any particular blood protein.

RadPharm gets $10M for medical-image reviews — RadPharm, a Princeton, N.J., provider of medical-image review services, raised $10 million in a second funding round. Investors include Siemens Venture Capital, Ampersand Ventures, Adams Street Partners and Tang Capital Management.

RadPharm essentially provides outsourced analysis of medical images ranging from CAT scans to X-rays for clinical trials, whose outcomes can hinge on the way those images are read and analyzed. Trials of cancer drugs, for instance, frequently look at whether tumors shrink, stabilize or grow, and determining that requires someone to look at actual patient X-rays or other images and decide what they actually show. RadPharm’s service provides “centralized, independent, blinded interpretation” of such scans.

Genome Diagnostics, cancer-test maker, aims for $1.6M — Genome Diagnostics, a Pasadena, Calif., developer of cancer diagnostic tests, has raised several hundred thousand dollars toward an anticipated $1.6 million first funding round, VentureWire reports. B.C. Capital of Israel and several individual investors provided the funds.

According to VentureWire, the company aims to produce a diagnostic test for prostate cancer based upon gene variations detected by sequencing a patient’s entire genome. That sounds unlikely on several levels, the first of which is that “whole-genome sequencing” — VentureWire’s description of what the company is doing — is still incredibly expensive, with an estimated cost of $100,000 or more.

It seems far more likely that the company will do a rough-and-ready genome scan that samples only several hundred thousand of the genome’s three billion DNA “letters” that are known to vary between individuals — at least, that is, unless Genome Diagnostics is betting that the cost of whole-genome sequencing will drop to the fabled $1,000 or so by the time it gets its product to market. And maybe that’s exactly what the company is doing, although that would mean that its initial testing costs are going to be extraordinarily high.

It’s also far from clear exactly what sort of prognostic information the company hopes to obtain from a genome scan of either type, since most genetic-association studies can only show increases or decreases in the probability of disease, and with such a margin of error that it’s difficult to see how that information could possibly serve a diagnostic purpose. I’ll try to circle back to the company in order to get a better idea of what they’re up to for a future post.

OTHER HEADLINES OF NOTE:

• Clinicient receives $5M for healthcare revenue-management software (release)
• Genome sequencer Intelligent Bio-Systems raises funding (VW)
• American Aerogel raises $3.2M for biopharma gels (VW)
• Frazier Healthcare Ventures raises $600M life-sciences fund (Seattle P-I)
• RainDance Technologies appoints Christopher McNary as CEO (release)

(UPDATED at 12:30pm PT — see below.)

Featured companies: Capnia, AutekBio, Novacta Biosystems, XLHealth, Leprechaun, Agility Healthcare Solutions, AM Pharma, Milestone Pharmaceuticals, ChanTest

Capnia names former Alza head as CEO – The tiny Palo Alto, Calif., biotech Capnia hired Ernest Mario, a storied figure in the pharma/biotech world, as its CEO. Mario was most recently chairman — and previously CEO — of Reliant Pharmaceuticals, but he’s best known for running drug giant Glaxo (now GlaxoSmithKline) and, immediately thereafter, helming Alza for eight years until Johnson & Johnson acquired it for $10.5 billion in 2001.

Ever since his Alza experience, however, Mario has kind of been hopskotching his way across the industry. He headed Apothogen for four months until it was acquired by IntraBiotics (now Ardea Biosciences), then ran the combined company for a year before skipping to Reliant. Needless to say, the Alza lightning hasn’t yet struck twice.

Capnia’s interesting strategy is to develop drugs that can be delivered as a gas, presumably to be breathed in through the lungs. The company’s lead product, Capella, aims to treat migraines and nasal inflammation such as hay fever, and is currently in mid-stage testing.

Here’s the take on Capella from VentureWire (subscription required):

Capnia uses a gas dispenser to administer carbon dioxide into the nose. The company contends that this may be a safe and effective way to quickly relieve pain caused by migraine attacks and stuffy nose caused by allergies to pollen or environmental things like dust mites or pets. The company has conducted multiple Phase II studies in migraines and rhinitis and is planning additional Phase II trials, said Graham Crooke, managing partner of Asset Management Co.

Biologics manufacturer AutekBio raises $1.1M — AutekBio, a Silicon Valley-Chinese hybrid with its headquarters in Santa Clara, Calif., and operations in Beijing, raised $1.1 million in a first funding round, VentureWire reports. Acorn Campus Ventures and Desert Spring Life Sciences Capital led the round.

The company is a biological contract manufacturer that cultures genetically engineered cell lines for biotech and pharmaceutical concerns. AutekBio plans to raise a larger $10 million round in early 2008, according to VentureWire.

Novacta Bio raises $827K for new antibiotics — U.K.-based Novacta Biosystems, an antibiotic developer in Welwyn Garden City, England, raised $827,000 (€600,000). Investors in the round included Esperante, Westgate Hall, GEIF Ventures and Oxford Technology 4 VCT. Novacta is developing drugs to treat hospital-acquired infections, which are often resistant to standard antibiotics. Its lead candidate, for C. difficile infections, hasn’t yet been tested in humans.

Healthcare specialist XLHealth raises $290M, acquires Leprechaun — XLHealth, a private-equity backed healthcare-services company in Baltimore, raised $290 million in debt and equity and used part of the proceeds to acquire Leprechaun, a provider of healthcare-technology services based in Fort Worth, Texas. Funding was provided by MatlinPatterson Global Advisors, a private-equity firm. XLHealth says it is focused on improving the care of chronically ill seniors.

RFID patient-tracker Agility Healthcare raises $2M in debt — Agility Healthcare Solutions, a Richmond, Va., developer of patient-tracking systems utilizing RFID chips, closed a $2 million “credit facility” that supplements an earlier $6.25 million first funding round it raised in February. Square 1 Bank provided the loan.

Dutch biotech AM Pharma raises $3.4 million against infection and inflammation — AM Pharma, a biotech based in Bunnik, the Netherlands, raised $3.4 million (€2 million) in bridge financing. The company’s two main investors, Forbion Capital Partners and Inventages Venture Capital, provided the funding. AM Pharma is primed to begin raising a third round of funds; its lead drug candidates are respectively in mid- and early-stage human tests against kidney failure, ulcerative colitis and hospital-acquired infections.

Milestone Pharmaceuticals raises $2.6M against inflammation and heart disease — Montreal’s Milestone Pharmaceuticals, a biotech developing drugs against inflammation and heart disease, raised $2.6 million (C$2.75 million) toward its first funding round, VentureWire reports. Investors included MSBI Capital, Fonds Bio-Innovation and an undisclosed individual investor.

Cleveland’s ChanTest draws funds from Ampersand — ChanTest, a Cleveland, Ohio, developer of cell-based tests for drug safety, raised an undisclosed amount of funding from private-equity firm Ampersand Ventures. The company said the funding would support “strategic investments.”

From the company’s press release:

ChanTest’s primary focus is on a family of proteins known as ion channels. There are 400 genes encoding ion channels in the human genome, and countless more can be assembled from this gene collection. These ion channels may either represent targets for new drug development, or unintended targets that can result in unwanted side effects from new drugs. ChanTest pioneered the development of functional, cell-based ion channel testing as a means to predict cardiac side effects produced by non-cardiac drugs. Such testing is now a standard component of regulatory submissions prior to approval of drugs in humans.

UPDATE (11:05am PT): Added items on Novacta, XLHealth/Leprechaun and Agility Healthcare.

UPDATE, TAKE TWO (12:30pm PT): Added items on AM Pharma, Milestone Pharmaceuticals and ChanTest.

(UPDATED: See below.) Is the air starting to hiss out of the private-equity bubbble? Looking at Talecris Biotherapeutics, a stodgy biotech controlled by private-equity firms Cerberus Capital Management and Ampersand Ventures that filed to raise as much as $1 billion in an initial offering last Friday, you’d be perfectly justified in thinking so.

For starters, the IPO is just ridiculously huge. Biotech offerings that raise more than $100 million are fairly rare; this year, for instance, only three out of 17 completed IPOs pulled in sums of that magnitude. The biggest biotech IPO in recent memory was Ribapharm’s $260 million offering in 2002, when the company briefly spun out of ICN. (ICN — now Valeant Pharmaceuticals — reacquired Ribapharm the following year.) Prior to that, you have to go back almost a decade, when Genentech raised $1.94 billion in its second IPO in July 1999.

Talecris, however, is no Genentech. The company, a former Bayer subsidiary, derives most of its income from “immune globulin intravenous” — more commonly known as gamma globulin, an injectable form of antibodies derived from donated blood plasma that helps protect immune-deficient patients from infection. (Talecris also sells other plasma-derived products for conditions such as hemophilia and alpha-1 antitrypsin deficiency.) It’s a solid but unexciting business: Last year, Talecris posted net income of $87.4 million on revenues of $1.1 billion. The company, which is based in Research Triangle Park, N.C., expects demand for its plasma products to grow between six percent and eight percent through 2010 — hardly the sort of dynamic growth investors typically expect from biotechnology companies. What’s more, Talecris’ financials are a mess, since the company reports ostensibly non-comparable figures for its pre-buyout and post-buyout existences, making it particularly to decipher the company’s business history.

It’s tempting to think that Talecris came up with the $1 billion IPO figure simply because that’s almost exactly what the company is carrying in long-term debt, a burden that stood at $1.1 billion as of the end of March. The company, however, says it will remain “highly leveraged” following the offering, although it will pay down some debt. The remainder of the proceeds are slated for paying a termination fee to cancel a management contract with Cerberus and Ampersand affiliates and for shareholder dividends — i.e., cash back to Cerberus and Ampersand.

There’s one particularly interesting sentence in the company’s S-1 filing about how the proceeds will be spent: “[T]he balance, if any, [will go] to fund working capital, capital expenditures and other general corporate purposes, which may include the acquisition or licensing of complementary technologies, products or businesses.” Or, as Morningnotes.com chief Ben Holmes told the Raleigh News and Observer, “That little phrase, ‘if any,’ tips us off that they’re going to drain this stuff right into their pockets.”

Talecris’ top executives are already making out like bandits. Executive chairman and CEO Lawrence Stern, for instance, pocketed nearly $20 million in cash and stock awards last year, while Alberto Martinez, the company’s president and chief operating officer, pulled down $12.8 million. Tellingly, very little of the compensation is in the form of stock options; Stern’s option grant last year was valued at only $169,547, and Martinez’s at $211,934. Instead, the two men have received piles of cash through the company’s “non-equity incentive plan” — $15 million for Stern, and $11.9 million for Martinez.

So what we have is a profitable but relatively slow-growing biotech with huge debts, run by executives who are themselves bleeding substantial amounts of cash out of the business, which is likely to remain heavily indebted after its owners siphon off most of the proceeds from an offering roughly four times the size of any other biotech IPO in almost a decade. Oh, and all this comes at a time when investors have been decidedly cool to biotech IPOs, especially after so many of these stocks tanked following their offerings. Remind me again why investors should be excited to pony up $1 billion for Talecris’ potential house of cards?

To be fair, the terms of the IPO haven’t been established, so no one knows how much Cerberus and Ampersand think Talecris is actually worth. On the other hand, given that tightening credit and recent market turmoil could signal the end of the the private-equity boom — today’s version of the leveraged-buyout mania of the 1980s — there’s also just a whiff of desperation about this particular IPO. Between the gigantic offering size and the poor track record of biotech IPOs over the past few years, it’s hard to escape the impression that the owners of Talecris are simply shooting for the moon in hopes of walking away with something — anything — to justify their investment.

UPDATED: Rewritten and expanded substantially to lay out the argument in more detail.

UPDATE REDUX: There’s an interesting NYT piece predicting an IPO glut as private-equity types try to unload their companies here.

Cequent Pharmaceuticals, a Cambridge, Mass., developer of drugs based on a new gene-silencing technology, raised $9 million in a first-round funding. The round was led by the Novartis Option Fund, joined by Ampersand Ventures, Nexus Medical Partners, and Pappas Ventures.

Cequent is developing new treatments based on RNA interference, a Nobel Prize-winning technology that “silences” gene outputs using short stretches of RNA. Its first candidates, none of which have been tested in humans, are aimed at colon-cancer prevention and inflammatory bowel disease.