Ebb & Flow

VCs continue to put their money to work in public companies with venture valuations. But Seattle Genetics'definitive agreement to sell $40 million of preferred stock to a VC group had an interesting twist: If for some reason shareholders don't approve the deal, the two lead VCs - JPMorgan Partners, Baker Brothers - still can purchase 19.9% of SGEN.

The backstop was put in place because the lead investors wanted to ensure a payoff for all of their due diligence. "We wanted to make sure that if for some reason the shareholders don't sign off on the deal - and there's no reason we think they won't - that we would come away with an investment," said Rod Ferguson, general manager at JPMorgan Partners.

Other VCs polled by Ebb & Flow anticipate that the $40 million version would go through because the company has strong support from big shareholders. Mike Powell of Sofinnova Ventures noted that large blocks of stock are held by institutions that support the deal. Sofinnova now owns about 9% of SGEN and will support the transaction.

Other investors in the new financing include Delphi Ventures and existing investor BA Venture Partners. BA Ventures currently owns 6.6% of SGEN.

The preferred would convert into 16 million common shares at $2.50. If fully converted, the investors would own 34% of the company. The stake would increase to 37% if investors fully exercise 2 million warrants, which are exercisable at $6.25 each through Dec. 31, 2011.

There was some concern on SGEN's conference call over the dilution, but the company said it wanted to raise enough money to hit key clinical milestones. "Given the uncertainty in the financing environment, we weren't looking for a Band-Aid solution," said Clay Siegall, president and CEO. "We were looking for enough money to fuel our future growth."

SGEN will use the proceeds to fund its ongoing clinical trials and to move its SGN-40 humanized MAb into the clinic early next year for multiple myeloma, CLL and non-Hodgkin's lymphoma. Two antibodies in the clinic are SGN-30, in Phase I/II for hematologic malignancies, and SGN-15, in three Phase II studies to treat

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