12:00 AM
Jul 25, 2005
 |  BioCentury  |  Finance

Ebb & Flow

The venture community last week provided multiple examples of its low tolerance for risk. The three companies that all closed significant rounds last week - Xanodyne with a $170 million series A1, Affymax with a $60 million series D and Ilypsa with a $36 million series B - each have a version of risk reduction. Xanodyne already has approved products and is bulking up its sales, while Affymax and Ilypsa are developing products with known mechanisms that address large markets. In addition, the three financings all are geared toward getting the companies to an exit event.

Go with the (cash) flow

Xanodyne's financing was led by MPM Capital, which put in $50 million - the firm's largest single investment ever. Other investors included Apax; Perseus-Soros BioPharmaceutical Fund; AIG; Healthcare Ventures; Essex Woodlands; Blue Chip Venture; and Coleman Swenson Hoffman Booth.

The deal was the first of what MPM calls "growth equity" financings, in which cash flow from approved products will be used to develop a pipeline (see BioCentury, July 11).

Xanodyne, which also raised $60 million in debt from Silverpoint, will use the proceeds from both financings to acquire the pharmaceutical assets of aaiPharma(AAIIQ) for $209.3 million in cash. AAIIQ has filed for chapter 11 bankruptcy. Sales of the acquired products, mostly pain compounds, were $77.9 million last year.

Those sales are expected to decline annually by something less than 10% because of generic competition for some of the drugs. But Xanodyne also markets pain products, and those drugs are showing growth. The company expects pro forma sales of $100 million in 2005. "About 75-80% of the combined revenues will come from aaiPharma's products," said MPM General Partner Steven St. Peter, who joined Xanodyne's board.

According to St. Peter, MPM wants to build Xanodyne into "a $1 billion company in the pain space." The key, he said, will be the trio of late-stage pipeline compounds that Xanodyne received in the AAIIQ deal. "Each of those could exceed $100 million in revenue," he said. "When Xanodyne launches those products in 2007 and 2008, the company will be able to reach $250 million in revenue, and that could get you to $1 billion" in valuation.

Xanodyne CEO William Nuerge said the company's goal is to "stabilize the current sales and in late 2007 start launching the new products. We want to grow earnings from 2007 onward."

Building the IPO story

Affymax expects that its $60 million series D round will be the last private money it raises. President and CEO Arlene Morris told Ebb & Flow the company now has "considerably more than two years of cash." To become an IPO candidate, she said Affymax's profile should include Phase II data for its Hematide for anemia and a partnership for its peptide-based erythropoiesis-stimulating agent.

The company is hoping that JAFCO and Diamond Capital, investors in the D round, will help with Affymax's partnering efforts in Japan. Morris said the company could announce a Japanese deal as early as the fourth quarter. In the rest of the world, she said, the goal is to have a partner before starting Phase III trials of Hematide.

Affymax expects to have Phase IIa data on Hematide in chronic kidney disease (CKD) by year end. The compound also is in Phase IIb testing to treat dialysis patients and Affymax expects to begin Phase IIb trials in pre-dialysis patients in the summer and in cancer patients this fall. The company hopes to have data from the Phase IIb trials by the end of the third quarter of 2006.

Preclinical derisking

Ilypsa is clearly the earliest of the three companies - its ILY-101 polymeric phosphate binder...

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