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Sep 17, 2007
 |  BioCentury  |  Finance

Ebb & Flow

Investors who have followed Mark Levin's lead have rarely been disappointed. Thus it's no surprise that his new venture fund, Third Rock Ventures, raised $378 million in only 10 weeks on the road.

Founded by former executives from Millennium (MLNM), Third Rock's selling point is hands-on company management, founding partner Kevin Starr told Ebb & Flow. What resonated with investors is "how we think about building great companies from an operating perspective."

Levin goes way back in the industry, starting at Eli Lilly (LLY) and Genentech (DNA), after which he became co-founder of Mayfield Life Sciences Fund, one of the industry's early VCs. From there, he founded MLNM, where he served as CEO for 12 years.

Starr was formerly COO and CFO at MLNM and Robert Tepper was head of R&D and CSO. Other partners are Lou Tartaglia, former VP of metabolic diseases at MLNM; Nick Leschly, previously the Velcade project leader; and Anne-Mari Paster, formerly CFO at MPM Capital.

Third Rock's partners plan to serve as executives in portfolio companies until they can find more permanent teams. "We're going to focus disproportionately on personal involvement and with active recruiting, really making sure we have the right team in place over the first year and a half," Starr said.

To maintain that hands-on approach, the firm plans to invest in only two or three companies a year. Thus the fund will finance 12-15 companies, exclusively in therapeutics and medical devices.

Starr estimates three-quarters of the investments will be in "product engine" companies with a platform capable of delivering innovative candidates in multiple indications. The remainder will be split evenly between companies with individual therapeutic products and device plays, he said. The firm is also intrigued by the convergence of drugs with devices as delivery mechanisms.

Starr said that Third Rock considers metabolic syndrome and obesity as well as oncology, inflammation and CNS disorders to be particularly attractive opportunities.

Although not ruling out IPOs, Starr observed that "70% of the exits right now are trending toward M&A rather than an IPO." Thus, he expects Third Rock will be "working very closely with pharma on alliances, and that may lead to acquisitions."

Last book of GenIsis

For the first time, private equity firmSymphony Capital saw one of its development companies make it all the way through to an exit. The firm licenses specific candidates from biotech companies and then funds them under a separate development company, which the originator company has the exclusive option to acquire.

Last week, Isis (ISIS) exercised its option to acquire Symphony GenIsis, which was spun out in April 2006 with $75 million from Symphony Capital, a Phase II candidate to lower cholesterol and two preclinical Type II diabetes candidates.

The diabetes candidates are ISIS 325568, a second-generation compound targeting glucagon receptor now in Phase I testing; and ISIS 377131, a glucocorticoid receptor (GCCR) inhibitor that is still in preclinical development.

ISIS paid Symphony Capital $80 million in cash and $40 million in stock for Symphony GenIsis. The shares do not have a lock-up period, but "we're not investors that flip stock," Symphony Capital Managing Director Mark Kessel told Ebb & Flow.

Symphony Capital also has a five-year warrant under the original deal to purchase 4.3 million ISIS shares at $8.93. The shares closed Friday at $14.13, up $1.39 (11%) on the week.

The transaction came as ISIS partnered the two Type II diabetes candidates with Johnson & Johnson (JNJ). ISIS will receive $45 million up front and is eligible for up to $230 million in milestones, plus royalties (see B5).

The $45 million from JNJ and the cash remaining from Symphony GenIsis - about half of the $75 million - will more than cover the $80 million ISIS paid to Symphony.

In last week's deal, ISIS granted JNJ an exclusive worldwide license to develop and commercialize ISIS 325568 and ISIS 377131.

ISIS also reacquired ISIS 301012, a second-generation antisense inhibitor of apolipoprotein B-100 (Apo B-100) mRNA in Phase II testing to treat hypercholesterolemia and familial hypercholesterolemia. But it was not part of the JNJ deal, and ISIS is looking for a partner.

"We thought these early-stage compounds were very interesting," Kessel noted, "but we initially expected that 301012 would be the driver."

IMCL's weekend

ImClone (IMCL) was up $6.97 (18%) to $44.90 on Tuesday on good clinical trial news for Erbitux from partner Merck KGaA (FSE:MRK). But the stock pulled back $1.42 to $43.48 on Thursday's news that CEO John Johnson had purchased $500,000 of the shares on the Friday prior to the data announcement.

On Friday, IMCL fell another $4.46, as Jim Reddoch at Friedman, Billings, Ramsey countered other sellside analysts by issuing a dramatically...

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