West Coast Editor

CHICAGO - For cash-strapped biotech firms, all the awestruck talk about big-cap companies and their march toward further success can be frustrating. At the very least, it's far from helpful, and a panel discussion about alternative ways to raise money provided relief at the BIO 2006 meeting.

"We think there are some pretty interesting [financing] vehicles that have been developing over the course of the past three or four years," said Mark Epstein, managing director of private equity placements for Banc of America Securities LLC in New York, who chaired the panel.

In the news lately has been Paul Royalty Fund II LP, which in March forked over a $40 million milestone payment to Avant Immunotherapeutics Inc., of Needham, Mass., as part of their deal for Rotarix vaccine targeting rotavirus infection in children. Last May, PRF, of New York, bought for $61 million an interest in the net royalty of Rotarix. The infection causes diarrhea and vomiting in babies, killing about 600,000 children worldwide each year. (See BioWorld Today, May 19, 2005, and Feb. 28. 2006.)

Greg Brown, partner with Paul Capital Partners LLC, the manager of the fund, spoke on the BIO panel. PRF's approach is "a form of debt, it's a form of contingent liability, but it's one where we take risk of product sales and product performance," he said.

Also this year, Pharming Group NV, of Leiden, the Netherlands, signed a $30 million partnership with affiliates of PRF, in return for a share of Pharming's lead hereditary angioedema product's sales. The product is recombinant human C1 inhibitor, known as rhC1INH, and Pharming expects to file for U.S. approval in the second half of this year. In Europe, the filing process already has begun through a compassionate-use procedure in certain countries. (See BioWorld Today, Feb. 6, 2006.)

PRF also is involved with Acorda Therapeutics Inc., of Hawthorne, N.Y., which said in January that an affiliate of the fund purchased a portion of the future net revenues of Zanaflex capsules and tablets for $15 million. Under the terms, Acorda also has the option to receive two equal payments of $5 million from the PRF upon the achievement of sales milestones this year and next. Zanaflex (tizanidine) is approved for the management of spasticity related to conditions such as spinal cord injury and multiple sclerosis.

Acorda got the U.S. rights to Zanaflex from Dublin, Ireland-based Elan Corp. plc. Acorda's other drug for MS and SCI - also being developed under a license from Elan - is Fampridine-SR, an oral, sustained-release formulation of fampridine, which blocks exposed potassium channels in damaged nerve fibers that have lost their insulating sheath of myelin, thereby allowing the fibers to transmit impulses again. Enrollment in a Phase III trial with Fampridine-SR completed this spring.

"In this case, we provided [Acorda with] $15 million up front, and $10 million in milestone payments that were used to basically fund sales force expansion and marketing expansion, in return for which we receive a royalty on Zanaflex," Brown said.

PRF funded Acorda in December, he noted - and the company went public in mid-February, raising $33 million by selling 5.5 million common shares at $6 each.

"The extra cash allowed Acorda to enter the IPO market with a full tank, if you will," Brown said. "This is an example of how we put capital to work in a non-dilutive way, isolated our performance to a single product, and left the upside to the equity investors."

Mark Kessel, managing director of Symphony Capital LLC in New York, said his firm works in a different way, shopping for compounds in Phase I or Phase II trials. Symphony made news this week by investing, with a group of co-investors, $75 million in Isis Pharmaceuticals Inc., of Carlsbad, Calif., to fund development of the company's Phase II cholesterol-lowering drug, ISIS 301012, as well as two other compounds from its metabolic disease program. (See BioWorld Today, April 11, 2006.)

The deal lets Isis retain control over the drugs and provides for the opportunity to re-acquire the IP rights without residual royalty obligations. Kessel told listeners at BIO 2006 that a deal such as Symphony's lets biotech firms do their trials quicker.

"It avoids what we call 'premature licensing syndrome,' which [means] doing a corporate deal with big pharma, getting single-digit royalties and maybe some milestone payments with a lot of back-end-loaded royalties," he said.

Last June, Symphony funded San Francisco-based Exelixis Inc. to the tune of $40 million, with the company given an option for $20 million to $40 million more within one year of closing. A year earlier, Guilford Pharmaceuticals Inc., of Baltimore licensed U.S. rights of GPI 1485 in four indications to a new entity called Symphony Neuro Development Co., formed by Symphony for the sole purpose of developing the GPI 1485 programs against Parkinson's disease, post-prostatectomy erectile dysfunction, HIV neuropathy and HIV-dementia. But Guilford - acquired by Minneapolis-based MGI Pharma Inc. in the summer of 2005 - has an exclusive purchase option to acquire all of SNDC's equity between April 2005 and March 2007. (See BioWorld Today, June 21, 2004; June 14, 2005; and July 22, 2005.)

Kessel said the financing models used with Isis, Exelixis and Guilford were "pretty similar."