Ultragenyx defies series A funding trends

Analysis

As the old expression goes one swallow does not make a summer and this week's announcement by Ultragenyx Pharmaceuticals that it had raised an impressive $45m in a series A financing round cannot be taken as a sign that the early stage funding squeeze on biotechs is about to end.

The deal, however, is one of the largest seen for a private company solely focused on drug discovery, ranking among the top 10 in the last 10 years within this peer group (see table). It also demonstrates that there is money out there for companies that have a convincing and differentiated story to sell. Case in point Ultragenyx is focusing its efforts on treating orphan diseases, an area that is increasingly seen as attractive by big pharma.

Top 10 biotech series A financing rounds in last ten years
Rank Financing Date Company Country Investment ($m) Lead Investor(s) in round
1 2006 CoGenesys USA 55 New Enterprise Associates
2 2002 Archemix USA 52 Atlas Venture; Prospect Venture Partners; Schroders
3 2009 Intellikine USA 51 Novartis Venture Funds
4 2009 Virdante Pharmaceuticals USA 48 Thomas, McNerney & Partners
5 2002 Targacept USA 46 Nomura International
6 2011 Ultragenyx Pharmaceutical USA 45 TPG Biotech; Fidelity Biosciences
7 2005 Alinea Pharmaceuticals USA 45 MPM Capital
8 2008 Proteostasis Therapeutics USA 45 Fidelity Biosciences; Genzyme Ventures; HealthCare Ventures; New Enterprise Associates; Novartis Option Fund
9 2000 Oxagen United Kingdom 44 Abingworth; Schroder Ventures
10 2002 Kalypsys USA 43 Sprout; Tavistock Life Sciences

The company’s success with investors has also most probably been helped by the fact it that is spearheaded by the famous rare diseases activist Emil Kakkis, who has long campaigned to increase the number of drugs to treat rare genetic disorders. Ultragenyx has a phase I drug for hereditary inclusion body myopathies in development and a further three preclinical products focused on lysosomal diseases.

Further demonstrating the power of a well-regarded management team is CoGenesys, which leads the table in terms of the most amount of money raised by a non-specialty pharma group. CoGenesys, a spinout from Human Genome Sciences, raised $55m in 2006 and went on to prove its worth when it was bought by Teva for $400m.

Another sobering fact for European and rest of world start-up companies is that all but one of the top series A financing deals have happened in the US. This is perhaps not surprising given the relative maturity of the biotech industry in the US and that companies tend to approach investors when they are larger, it also reflects the higher number of specialist funds in the US. However, a few European companies such as Abingworth and Advent Venture Partners have been involved in some of the largest series A and both contributed to the $44m raised in 2000 by the only non US company to make it into the rankings, UK company Oxagen.

Recovery, what recovery?

However, a look at the number and scale of all series A financings over the last six years shows that Ultragenyx has done extremely well in managing to secure its $45m in these post credit crunch times.

Total value and number of Series A rounds
Date Investment ($m) Financing Round Count
2011 (YTD) 267 19
2010 796 59
2009 1,189 88
2008 952 66
2007 1,215 76
2006 569 40
Total 4,944 347

Following a ramp up in total series A financing in 2009, the year considered to be the start of the economic recovery when 88 companies managed to get $1.19bn out of investors, the amount and size of investments has dropped dramatically. In the year to date just 19 companies received funding and they have raised a thin-looking $267m. If this trend continues 2011 could be the worse year for first round funding since 2006.

However, the good times in 2009 were most probably helped by large established companies such as Clovis making their debuts. This favouring of specialty pharma companies by investors indicates a desire for less risky investments and a focus on companies who use the cash raised to buy assets and take them further, avoiding the pitfalls inherent in early stage drug development.  

Since 2009, the drop in the number and amount of series A funding rounds could be related to wider fears of a double dip recession. Anecdotally, investors have also made no secret of their reluctance to invest in new companies and many have been happier to pump their cash into existing investments in the hope of getting some sort of return.

Another demonstration of how the financial markets have closed in recent years is Archemix, which managed to attract $52m in funding in 2002, but was forced to reverse into NitroMed to achieve its aim of gaining a public listing (Options aplenty for private companies seeking a public listing, November 20, 2008)

US domination

Looking at financing for innovative companies since the end of the down turn, once again the list is dominated by American companies and having a novel cancer therapy appears to be one of the keys to securing funding since the financial crisis.

While the therapy areas invested in range from inflammatory diseases to using stem cells for drug discovery, three of the top 10 companies are focused on oncology.

Intellikine, a company specialising in cancer using in PI3K inhibitor and TOR kinase inhibitor technology, managed to secure $51m from investors. Investment in the group has been based on these novel oral approaches to cancer that have yet to see a product get beyond phase II in either therapeutic category, although potential is clearly seen.

Calithera Bioscience, secured its $40m on the back of developing activators of caspases, the proteases that promote cell death in cancer cells. VentiRx Pharmaceuticals, which received $30m in funding in 2010, appears to have made good use of its funding, and earlier this month reported positive phase I data for VTX-2337, a toll-like receptor B in solid tumours.

So while there is money and substantial amounts of it out there, if the current downward trend in the number of series A fundings continues, selling the story to get that money could get harder.

Top 10 biotech series A financing rounds in last 2 years (post financial crisis)
Rank Financing Date Company Country Investment ($m) Lead Investor(s) in round
1 Jul 2009 Intellikine USA 51 Novartis Venture Funds
2 Oct 2009 Virdante Pharmaceuticals USA 48 Thomas, McNerney & Partners
3 Jun 2011 Ultragenyx Pharmaceutical USA 45 TPG Biotech; Fidelity Biosciences
4 Jul 2010 Calithera Biosciences USA 40 Morgenthaler Ventures
5 Apr 2010 Catabasis Pharmaceuticals USA 40 Clarus Ventures; MedImmune Ventures; SV Life Sciences
6 Feb 2010 Eleven Biotherapeutics USA 35 Flagship Ventures; Third Rock Ventures
7 Jul 2009 iPierian USA 32 Highland Capital Partners; Kleiner Perkins Caufield and Byers; MPM Capital
8 Jan 2010 Elevation Pharmaceuticals USA 30 Canaan Partners; Care Capital; Mesa Verde Venture Partners; Texas Pacific Group Ventures
9 Jan 2010 VentiRx Pharmaceuticals USA 25 MedImmune Ventures
10 Nov 2009 Receptos USA 25 ARCH Venture Partners; Flagship Ventures; Lilly Ventures; Venrock Associates

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