Verus Pharmaceuticals Inc., a company with no technology platform, no products and no plans for R&D, raised total funding of $98 million in its Series A round.
The company, based in San Diego, claims it is the largest Series A round in that city. It is certainly one of the biggest private financings of 2005 - only Stirling Medical Solutions Ltd., of Stirling, UK, and FibroGen Inc., of South San Francisco, have raised more this year.
Stirling, developing at-home diagnostic kits based on biomarkers, raised £97.5 million (US$186.4 million) in late February in its first round. That same month, privately held FibroGen raised $100 million, but with 120 employees and having been founded in 1994, the company could hardly be called a start-up.
Most of the funding - $78 million - is traditional equity financing, but $20 million was supplied by Paul Royalty Fund, of New York, as a debt financing pegged to future royalty payments. The fund also participated in the equity round, and was the largest participant in the total financing.
Industry observers might find themselves scratching their heads, wondering what Verus has that's so intriguing.
That's not easy to answer. The company says it has a "pediatric-oriented" business strategy, but it is holding its cards close to the vest - even talking to company executives revealed little.
However, Robert Keith, the company's president and chief operating officer, said three things helped bring in the money.
"We started with the team first," he told BioWorld Today. "The core management team is very experienced in specialty pharma and other sectors. Clearly, the board is extremely savvy, as well."
That board now includes VC reps Olav Bergheim, general partner of Domain Associates, of Laguna Niguel, Calif.; Alex Barkas, managing director of Prospect Venture Partners, of Palo Alto, Calif.; Todd Davis, principal of Paul Capital Partners; and Nicholas Simon, general partner at MPM Capital, of San Francisco. It also includes Verus' CEO and chairman, Cam Garner; David Hale, president and CEO of CancerVax Corp.; and Erle Mast, chief financial officer of Pharmion Corp.
The second factor in attracting VC money was "the pediatric strategy," Keith said, "and the ability to go in and build a franchise position in an attractive market segment."
Stop for a second and try to list all the biotech or specialty pharma companies focused on treating children - none come to mind. If Verus hits the ground running, it wins the race. And VC investors win, too.
Under the "umbrella" of pediatrics, Verus will focus on asthma, allergies and related diseases and conditions, Keith said, adding that it's an "under-served" and "attractive, high-growth market."
The third factor in attracting VC money, Keith said, "is that obviously we have opportunities in process and have several transactions we are working on."
Those opportunities include a deal expected to be announced in the next month, as well as two Phase III asthma products, although those wouldn't be until mid-2006.
"By the end of the year, we would be launching our first product," he said.
Doing What You Do Best
Founded in 2002, the company's management core comes from Dura Pharmaceuticals Inc., before it was bought for $1.8 billion by Elan Corp. plc, of Dublin, Ireland, in what was better times for the latter firm. The experience of the management team has proved invaluable.
"We've done a lot of acquisitions and alliances in our careers," Keith said. "We've assessed a lot of opportunities."
Once incorporated, the team sat down and "spent six to nine months taking a hard look at the life science community," Keith said. They mulled over ways a small firm could build strength, but did not want to simply base a company on "a product being available."
"We took a different standpoint - we wanted to do this differently," Keith said. "We were intrigued with the patient focus" and realized that much of what is used in children is done so off-label and is available only in limited formulations.
They struck out in that direction. But there's another aspect to drawing investment - namely risk, or lack thereof - and Verus has cut down its risk by focusing on its strength.
"We clearly realized our expertise was in commercialization and development," Keith said. "We do not have any particular interest in the research or discovery route. Or, quite honestly, the manufacturing aspect, either." For those segments, Verus will seek partners.
The most common chronic disease among kids is asthma, Keith said - anywhere from 15 percent to 20 percent of children have it, as well as often having associated conditions such as allergic rhinitis and atopic dermatitis. Also, there is a "tight set of prescribers" who treat those patients.
Verus now has enough cash to pursue its goals "for the foreseeable future," Keith said. Observers are bound to stare at the $98 million round and wonder how they could close one of equal size.
"That's an interesting question," Keith said. "The one data point I can tell you is, if you start with the team first - the core management and the board - I think you'll go a long way to advancing your business.
"Beyond that, you need some bright ideas and some good opportunities."