12:00 AM
 | 
Feb 26, 2007
 |  BioCentury  |  Finance

Ebb & Flow

A profitable, private biotech company seems almost an oxymoron, but that’s what Ikaria and its investors are creating with last week’s acquisition ofINO Therapeutics for $500 million to be paid in cash to INO’s parent company, The Linde Group (FSE:LIN).

A therapeutic gas company, INO isn’t core to LIN’s industrial gas and engineering business. "It’s the only pharmaceutical product within a whole empire that’s worth $15 billion in sales," noted David Shaw, chairman and CEO-designate of the combined Ikaria entity. "That suggested they might be willing to let go of it."

INO has a revenue stream of $160 million and is sufficiently profitable to sustain the newco’s R&D and still remain in the black, according to Alok Singh, managing director of New Mountain Capital, a private equity firm that is the lead investor on the deal.

INO’s INOmax nitric oxide treatment for inhalation is marketed for the non-invasive treatment of hypoxemic respiratory failure associated with persistent pulmonary hypertension in infants. INOmax is also in Phase III testing to treat or prevent chronic lung disease and stroke in premature infants.

The deal transforms Ikaria into a commercial story. Its IK-1001 is in preclinical development for ischemic perfusion injury and hemorrhagic shock. The compound uses the company’s hydrogen sulfide technology for inducing reversible metabolic hibernation. By temporarily slowing metabolism, the technology may be able to lengthen the treatment window for trauma, stroke, cardiac arrest, organ transplant or surgery (see BioCentury, May 2, 2005).

The combination is attractive for investors, said Brian Roberts of Venrock Associates. The newco will be "fully integrated with stable cash flows and novel, interesting science," he said. "It’s neither the research-based biotech nor the specialty pharma business model."

To pay LIN, New Mountain is contributing $200 million to a $300 million A round that will include ARCH; Venrock Associates; 5AM; Altitude Life Science Ventures; Washington Research Foundation; and Alexandria Equities. Debt finance will be used to cover the rest of the purchase price and about $10 million in deal costs, Singh said.

LIN will retain a 17% stake, as will the original Ikaria investors, many of which are in the new syndicate.

Cash out, cash in

SV Life Sciences had a good year in 2006 and its investors have come back for more. Last week, the VC announced that it had closed SV Life Sciences Fund IV at $572 million, bringing the total funds under management to $1.6 billion.

Like a number of other VCs, SV rode the back of the merger wave, as three biotechs in its portfolio were acquired: protein optimization company Glycofi by Merck (MRK) for $400 million; vaccine company PowderMed by Pfizer for an undisclosed amount; and neuroscience company Rinat by PFE for about $500 million.

Each provided more than a 5X return, according to the firm. And each of the exits came within two to four years of an initial B round investment by SV Life Sciences from its third fund.

All told, including medical device exits, SV Life Sciences got a taste of about $2 billion in M&A last year.

In mid-2006, SVLS IV...

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