by Stephanie Adams
Executive Director, Southeast BIO

Large and impressive displays by Southeastern states at last week’s BIO International Convention in Boston are evidence of the importance of the biotech industry to the economic growth of the individual states and the region as a whole.

Yet, the Southeast is not alone in its biotech ambitions. Indeed, the “quest for biotech” has grown more competitive over the last several years, as newcomers have entered the race and older, more established players have upped the ante to remain competitive. For example, at the BIO meeting, the state of Massachusetts – a well-established center for the industry – announced a $1 billion dollar Massachusetts Life Science Initiative.

Yet, in the quest for biotech, not every state or region will be a winner. So how is the Southeast faring? At least with respect to the growth of the industry from the ground up, the Southeast seems to be making considerable progress.

Historically, the Southeast has been undercapitalized, making it difficult for companies to get off the ground with local capital. That seems to be changing as the Southeast witnesses an influx of out-of-region venture capital.

Venture capital funds based in the Northeast and elsewhere are increasingly involved in the region, such as Domain Associates (Princeton, NJ), Quaker BioVentures (Philadelphia, PA), New Enterprise Associates (Baltimore, MD) and MedImmune Ventures (the corporate venture capital arm of MedImmune, Inc, headquartered in Gaithersburg, MD), to name a few. Often, these groups invest alongside venture funds based in the Southeast, such as H.I.G Ventures, Intersouth Partners and the Aurora Funds, but in other cases, source and fund deals independently.

What makes a venture capitalist willing to fly to the Southeast? In short, the region’s world-renowned research institutions are producing strong deal flow at reasonable valuations in an increasingly competitive investment marketplace.

Quaker BioVentures has invested in four Southeastern life sciences deals, including Regado Biosciences, Biolex Therapeutics, Kolis, Inc. and Tranzyme Pharma, Inc., which are all located in North Carolina. According to Dr. Geeta Vemuri, a Principal with Quaker, the Southeast presents many great investment opportunities that may permit Quaker to continue to expand its Southeastern portfolio.

“Certainly we have been actively looking for deals in the region over the last few months, with a particular emphasis on deals in Georgia, North Carolina and Florida,” notes Vemuri. “Our experience here has been very positive, and we remain optimistic that any number of deals in our new fund will be done in the Southeast.”

Domain Associates is also very active in the Southeast. Regional investments include Altea Therapeutics (GA), Regado Biosciences (NC), Alimera Sciences (GA), and ParinGenix (NC). These investments follow much earlier successes for Domain with companies like Trimeris, Inc. (Nasdaq: TRMS) (NC) and Inspire Pharmaceuticals, Inc. (Nasdaq: ISPH) (NC).

Domain was also an investor in Proxima Therapeutics, Inc. (GA), a radiation delivery system company acquired by Cytyc Corporation (Nasdaq: CYTC) in March 2005. Domain recently invested in former Proxima CEO Tim Patrick’s next company, Carticept Medical, Inc. (GA).

Notes Dr. Todd Brady, a Principal with Domain, “We’ve had a lot of success in the Southeast, both in terms of solid exits and current investments for which we have great expectations. Our investment in Carticept is good evidence that the region is maturing, and we are going to see further attractive investment opportunities from second and third generation efforts from serial entrepreneurs like Tim.”

Venture funds based in the Southeast appear to welcome the influx of capital. “Building biotech companies takes a lot of capital, generally more than what the Southeastern firms alone can syndicate. We often syndicate the deals we lead in the Southeast with funds from outside the region and are encouraged by the trend of more firms willing to invest here,” said Bruce Robertson, Managing Director based in H.I.G. Venture’s Atlanta office. Robertson recently led a round in Atlanta-based Metastatix, Inc. and syndicated with the Aurora Funds and three out-of region groups.

The growth of the Southeastern life sciences economy is dependent upon the efforts of both the Southeastern funds and the out of region funds, notes Rebecca Kaufman, Counsel with King & Spalding and Chairman of Southeast BIO, a non-profit organization devoted to the growth of the industry in the region. Southeast BIO hosts an annual life sciences venture capital forum, now in its 9th year, which attracts venture capital investors from the region and across the country. “Each year,” she observes “we find that a growing percentage of our venture audience is from outside of the region, most notably, from the mid-Atlantic and Boston area. Obviously, something is happening here which has captured the imagination of the larger venture capital community and is drawing them here to learn more.”

To underscore her point, Kaufman cites the involvement of CM Capital Investments, an Australian fund, in the recent Metastatix deal, declaring “now that’s a really long way to fly!”

Stephanie D. Adams, Ph.D., is Executive Director of Southeast BIO. SEBIO’s mission is to foster the growth of the life sciences industry in the Southeastern United States. For more information visit www.sebio.org.

By Rebecca Kaufman, Counsel, King & Spalding LLP, and Chair, Southeast BIO

In 2005, the $540 million purchase of Emory University’s royalty interest in emtricitabine (Emtriva) was big news. The largest ever deal of its kind for a U.S. university, it brought significant recognition and resources to Emory’s research programs.

Two years later, the impact of the Emory deal continues to be felt now on the emergence of a new generation of life sciences companies in the Southeast. Between them, and in significant part the result of the Emtriva monetization, the three emtricitabine co-inventors have founded (or provided crucial support) for five of the most promising early stage life sciences companies in the Southeast, including Metastatix, Inc., RFS Pharma, LLC, Curry Pharmaceuticals, Inc., NeurOp Inc. and FOB Synthesis, Inc.

Dr. Dennis Liotta, an Emory faculty member for 30 years, is no stranger to the commercial world. In 1996, Dr. Liotta was an important early contributor to Triangle Pharmaceuticals in North Carolina, which went public one year after its founding in 1995 and was purchased in 2001 by Gilead Sciences for $482 million. Dr. Liotta was also a co-founder of Pharmasset Inc., a pharmaceutical company among the most successful privately held companies founded in the Southeast. In January 2007, Pharmasset filed for an IPO.

In the years since the Emory deal, Dr. Liotta has been involved in founding and supporting new companies in the region through his own venture capital fund, Centrosome Ventures. Centrosome now counts Metastatix, Inc., Curry Pharmaceuticals, Inc. and NeurOp, Inc. among its growing portfolio.

The interface of science and business

Metastatix, a pre-clinical drug company focused on novel therapeutics for cancer and HIV, attracted considerable attention in 2006 by completing an A round with a syndicate including two of the Southeast’s largest venture capital funds: HIG Ventures and the Aurora Funds. They were joined by two of the most prestigious national corporate venture groups, MedImmune Ventures and SROne (GlaxoSmithKline’s venture capital arm).

The Metastatix deal also had an international component with the participation of CM Capital, a leading Australian-based venture capital fund. NeurOp, a pre-clinical pharmaceutical company focused on the development of drugs for the treatment of neurological indications associated with ischemia, including Parkinson’s disease and neuropathic pain, was recognized by SEBIO in 2005 as the most promising early stage life science company in the region. It continues to make significant headway supported by grant and foundation money.

A third Centrosome investment, Curry Pharmaceuticals, is pursuing an innovative, virtual model for the development of therapeutics that are analogs of the natural product curcumin.

“The chance to couple the insights I’ve gained from my career in drug discovery with the investment capital available from Centrosome is a unique opportunity to add tremendous value to the formation of new life sciences companies,” says Dennis Liotta.

Dr. Raymond Schinazi is also no stranger to the interface of science and business, as the principal founder of Triangle Pharmaceuticals, Pharmasset Inc., and Idenix Pharmaceuticals (NASD: IDIX). Dr. Schinazi has also been at Emory for 30 years where he set up the first academic laboratory in the mid-1980s to discover and evaluate drugs for HIV and hepatitis.

An incubator of sorts

He is Professor of Pediatrics at Emory, but in the years since the Emtriva deal, has gone on to found RFS Pharma, a clinical stage biopharmaceutical company focused on the development of new drugs for the treatment of HIV and hepatitis infections as well as emerging viruses. The company is currently conducting a phase 2 clinical trial in Argentina for the use of Amdoxovir for the treatment of HIV and a large phase 2b study is planned for the second quarter, 2007.

Located in suburban Atlanta, the RFS facility has become an Emory incubator of sorts, serving as home to several early stage life sciences companies, including Metastatix, Inc., and Expression Therapeutics, LLC. The founder of the latter company is Emory Pediatrics Professor Dr. Pete Lollar, an expert on blood’s factor 8.

“When you mix excellent research facilities with quality entrepreneurial scientists it makes a formidable combination and creates huge efficiencies that reduce uncertainty and risk,” comments Dr. Schinazi. “It’s not all about money, although money will eventually come when you have good science. It is about medical triumph over killer diseases.”

The third Emtriva co-inventor, Dr. Choi, has since left Emory. He worked at Merck and then Pharmasset, but now serves as CEO of FOB Synthesis, Inc., a drug discovery and custom synthesis company located in Kennesaw, Georgia.

Within two short years, the Emory royalty realization has made a significant impact on the emerging life sciences community in the Southeast, thanks largely to the significant contributions, both financial and personal, of three of the original inventors. Perhaps no one is more aware of the importance of their contribution than Emory University itself, as a source of technology for the start-ups involved and if the trend continues, those to follow.

“There has been a huge ripple effect flowing from the achievements of these serial inventors,” observes Todd Sherer, Director of Emory’s Office of Technology Transfer.

“The revenue and experience that results from this kind of ‘mega-success’ has catalyzed a culture of entrepreneurism and innovation at Emory.”

Southeastern Life Sciences Companies Fill 2007 IPO Pipeline

By Rebecca Kaufman

PUBLISHED IN FIRST QUARTER 2007 Life sciences companies constitute a record 12 percent of all IPOs this year. The current IPO pipeline includes several Southeastern companies: Biolex (RTP, NC), Bioheart (Fort Lauderale, FL) and Mako Surgical (Fort Lauderdale, FL).

Bioheart, which filed for an IPO in July, is focused on the development of cell-based therapies and related devices for cardiac repair. The company’s lead product, MyoCell, uses myoblasts to populate regions of scar tissue in the heart to improve overall cardiac function.

The company has raised over $50 million in private funding to date from investors including Ascent/Meredith Asset Management, Getz Medical, Guidant, Tyco Ventures, Getz Bros., St. Jude Medical, Advent-Morro-Guayacan Private Equity Fund, Astri Group, Dan Marino Investments, Minnesota Bio-Med Partners, New World Angels, Presidential Capital Partners, as well as individuals.

Biolex, which filed for an IPO in August, is a clinical-stage biopharmaceutical company that is developing therapeutic proteins and monoclonal antibodies that have not been possible, or prohibitively expensive, to produce using traditional methodology.

The company is backed by venture investment from groups including Quaker BioVentures, Intersouth Partners Polaris Venture Partners, Johnson & Johnson Development Corporation and Dow Venture Capital, including a $30 million dollar Series C in May 2007. The company has a number of collaborations, including deals with Bayer HealthCare, Centocor, Inc., Debiopharm S.A. and another undisclosed major pharma.

Mako Surgical, founded in 2004, filed in September to raise up to $86 million dollars in a IPO. Mako is a medical device company developing robotic devices and implants for minimally invasive orthopedic knee procedures. The company closed a $30 million dollar series C in February 2007, led by Tudor Investment Corporation with participation from Ziegler Meditech Equity Partners, as well as Mako’s existing stockholders including The Exxel Group, MDS Capital Corp., Aperture Venture Partners, Ivy Healthcare Capital, L.P. and Sycamore Ventures.

“The Southeastern life sciences economy continues to grow and mature, as evidenced by the recent IPO filings,” notes Stephanie Adams, Executive Director of SEBIO, a non-profit organization devoted to the growth of the regional bioeconomy. “SEBIO is now entering its tenth year and many of the companies now filing to go public have presented at our annual Investor Forum. It is encouraging to see the progress of these companies.”

Although the IPO window is open, it’s not wide open. There is little doubt that the typical IPO no longer offers the same exit opportunity for venture capital investors that it did in years past. In fact, the IPO often provides no exit at all, but simply another, much-needed source of financing to further development. Companies are frequently forced to cut their previously announced share prices prior to actually going public.

Bioheart, for example, recently cut the expected price range of its IPO shares while increasing the overall number. The company now expects the offering to total 4.2 million shares and price between $6 and $8 per share. It previously expected the offering to total 3.6 million shares and price between $14 and $16 per share. As a result, the planned IPO should net $23.6 million dollars, down from an initial estimate of almost $47 million dollars.

Some companies, citing market conditions, have simply pulled their filings. CardioMEMS (Atlanta, GA), a medical device company developing wireless sensing and communication technology for use in the human body, filed in January to raise up to $86 million dollars in an IPO but then pulled its filing in May 2007, citing marketing conditions.

The company has raised more than $50 million dollars in venture capital since it was founded in 2001, including a $22.6 million Series D in November 2006, led by Arcapita Ventures with participation from existing investors including Boston Millennia Partners, Foundation Medical Partners, Medtronic, Inc., and Johnson & Johnson Development Corporation, along with a new investment from Easton Capital Partners. Others, having successfully gone public, have underperformed in the post-IPO market.

“While the number of life sciences deals year to date has been impressive relative to 2006, the majority of companies are trading below their IPO price,” notes Jim Bongiorno, a partner with Ernst & Young’s Life Sciences Practice. “Yet, the pipeline of companies in registration is very strong, and may lead to a decent finish to Q4 of 2007, followed by an interesting first half of 2008. As always, the right pricing for an IPO is a key factor in after market reactions.”

“There is a fair amount of uncertainty around the outlook for the capital markets over the near term, which has led to a significant backlog of potential IPO candidates. That being said, the IPO markets are still open,” said Keith M. Townsend, a partner with King & Spalding’s Corporate Finance Practice.

“Market uncertainty has just skewed IPO opportunities to high quality issuers with lower leverage, meaningful growth prospects and, in the case of biotechnology companies, solid late stage clinical assets. I think you can expect more IPO activity between Thanksgiving and the end of the year, but with institutional investors reigning in their risk appetite, they are likely to take a much more defensive view on valuations.”

While the IPO waters can be choppy, the Trans1 (NASDAQ:TSON) initial public offering, completed in October, was a tremendous success by any measure.

The Wilmington, NC-based company is developing devices for use in spinal surgery. Not only did the company go public, the IPO shares sold above its expected price range and the stock price surged almost 60 percent on its first day of trading. The share price has since declined, but as this article goes to print, shares are still trading substantially above their IPO price.

Rebecca Kaufman is the Chair of SEBIO’s Marketing Committee.