12:00 AM
 | 
Jan 26, 2009
 |  BioCentury  |  Finance

Ebb & Flow

Taiwan's Taigen Biotechnology was able to raise $37 million in a series C round last week, but at a steep discount that helps explain why it's sometimes better to be an early stage investor. The round, led by existing shareholder MPM Capital, represented a 50% step down from the company's $38 million series B round in March 2004, which was a 50% step up in valuation from the 2001 series A round. That first round raised $37 million at a post-money valuation of $49 million.

The good news, according to President & CEO Ming-Chu Hsu, is the company now has runway for the next three years, enough time to bring its first product to market.

When it set out to raise the money last February, Taigen had hoped to attract other U.S. investors in addition to MPM, which has participated in each round. Indeed, in March, the company had a term sheet on the table from a new U.S. investor as a potential lead. Although that proposed deal was already at a much lower valuation than the B round, the market downturn undermined negotiations and the new U.S. player retreated.

Taigen was able to retain the support of its existing Taiwanese investors and MPM, which stepped up to the plate and took the lead.

"Early on we realized that to have the same valuation of the B round would be impossible," Hsu told Ebb & Flow. "With good support from investors in Taiwan, in May 2008 the board decided to move ahead. Given the current market conditions and the high valuation we achieved in the B round, that was the right decision."

Fortunately, according to Hsu, Taiwanese investors have maintained an appetite for biotech. "There has been renewed interest since mid-2008, when the government introduced the Biotech and New Pharmaceutical Development Act, which provides tax incentives for R&D expenditure and investors," she said.

The deal also was predominantly an inside round - there is only one new major investor - and under Taiwanese company law, the existing investors had a pro rata subscription right in any new round. But new investors in the previous B round clearly bore the brunt of the compressed valuation, as the A round participants took only a 25% haircut.

Looking to regain the lost ground, Taigen expects the money will enable it to launch its nemonoxacin oral and IV once-a-day antibiotic to treat MRSA, VRSA and VISA infections on the Chinese market in 2011 while out-licensing the U.S., EU and Japanese rights.

The company also expects to start two Phase II trials of its TG-0054 CXC chemokine receptor 4 (CXCR4) inhibitor for stem cell mobilization in cancer patients this year and next. Moreover, it plans to file a U.S. IND for one of its HCV protease inhibitors within the next 12 months.

Gloomy Britain

Britain's biotech sector, which once held itself the undisputed champion in Europe, is in danger of extinction unless the government introduces a raft of tax incentives and reduces the regulatory burden on companies, according to a warning delivered last week by an industry-government group called the Bioscience Innovation and Growth Team (BIGT).

"It is currently not possible for bioscience companies to raise equity funds via the public markets and venture capitalists have become increasingly skeptical over the rates of return offered by such investments," Sir David Cooksey, BIGT chairman, told Ebb & Flow. Particularly worrying is the performance of publicly quoted British companies, which have performed much worse than their...

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