Innovation Gap Got You Down? Domain has $500M for NewCos

BioWorld Today Staff Writer

It's not easy being a biotech start-up these days.

In the first half of the year, 57 percent of venture funding went to Series C or later rounds. And the early stage funding wasn't particularly early stage under the surface: 91 percent of the Series B companies had products in the clinic, and the Series A list included plenty of specialty pharmas like Clovis Oncology Inc. and older companies like Genyous Biomed International Inc. (See BioWorld Today, March 12, 2009, and July 27, 2009).

"Early stage, high-risk, high-innovation companies have found it very hard to get financed over the past few years," said Srinivas Akkaraju, managing director with New Leaf Venture Partners. He added that the current financial crisis has made the situation even worse, creating an "innovation gap."

There's been some chatter lately that the pendulum might be swinging back toward innovation. Akkaraju said New Leaf is actively investing from the $450 million fund it closed in late 2007 – it has backed four companies in the last four months – and is interested in cutting-edge, early stage opportunities.

The firm has one such deal in the works, but Akkaraju said it has been "a long road" getting the syndicate pulled together.

People "give a lot of lip service" to innovation, but "when it comes to putting your money where your mouth is, it's a lot harder," he said.

Another firm with some money available for true start-ups is Domain Associates LLC, which recently closed its $500 million eighth fund. Brian Halak, a partner with Domain, said the firm's seventh fund is "well-reserved" to cover existing portfolio companies and the eighth fund will be dedicated to new investments.

The fund is exclusively devoted to life sciences and will invest about 65 percent in therapeutics, 25 percent in devices and 10 percent in diagnostics and instrumentation. Approximately 30 percent of the money will go toward midstage private or public companies, but the remaining 70 percent will be invested in seed or Series A financings.

Halak said Domain will continue its history of creating spinouts, noting that the firm is "already seeing opportunities" to pick up some of the products that haven fallen out of the recent big pharma mega-mergers. Additionally, Domain will continue to build companies around assets licensed out of Asia and other geographies.

That strategy has served the firm well in the past, as evidenced by Peninsula Pharmaceuticals Inc., which licensed an antibiotic from Osaka, Japan-based Shionogi & Co. Ltd. and was later acquired by Johnson & Johnson; Cerexa Inc., which licensed an antibiotic from Osaka-based Takeda Pharmaceutical Co. Ltd. and was later acquired by Forest Laboratories Inc.; and NovaCardia Inc., which licensed a cardiovascular drug from Tokyo-based Kyowa Hakko Kogyo Co. Ltd. and was later acquired by Merck & Co. Inc.

But Halak maintained that Domain also is interested in early stage assets with novel mechanisms of action. As evidence, he pointed to the firm's investments in Toll-like receptor company VentiRx Pharmaceuticals Inc., complement factor-focused Optherion Inc. and platform player FivePrime Therapeutics Inc.

Pappas Ventures, too, has money for early stage biotechs. Pappas closed a $102 million life science fund in March and has a history of investing about half of its money into preclinical companies.

A quick scan of recent Series A financings reveals a few other venture firms playing in the early stage space. Atlas Ventures and Boulder Ventures Ltd. led a Series A round for microRNA company Miragen Therapeutics Inc., while the Column Group and OrbiMed Advisors led a Series A for oncology start-up Aragon Pharmaceuticals Inc. Lycera Corp., which is hunting novel autoimmune disease targets, got Series A funding from Clarus Ventures, ARCH Venture Partners, InterWest Partners and EDF Ventures.

Meanwhile, some start-ups are turning to nonventure sources.

Acetylon Pharmaceuticals Inc.'s Series A came mostly from private individuals and from the Kraft Group. Pique Therapeutics Inc. got its funding from angel networks. Treventis Corp. got seed funding from Southeastern Pennsylvania's BioAdvance greenhouse fund, and Cognition Therapeutics Inc. tapped Pittsburgh Life Sciences Greenhouse funding.

Published: August 24, 2009