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Feb 10, 2014
 |  BioCentury  |  Finance

Case Study: Algeta's lessons

How HealthCap, Abingworth apply lessons from successful Algeta investment

When the $2.9 billion acquisition of Algeta ASA by Bayer AG closes in two weeks, an investor who got in early and one who got in late both stand to reap gigantic multiples. Both HealthCap and Abingworth say they are applying lessons they learned while helping to build Algeta in hopes of replicating that success in other investments.

Algeta raised a total of $275 million in a series A round, an IPO, two private placements and a bond offering.

From the 2005 series A round to the takeout, the investment proposition centered on Xofigo radium-223 dichloride, Algeta's only product to make it into the clinic. The alpha particle emitter was approved in May 2013 in the U.S. and last November in the EU to treat adults with castration-resistant prostate cancer (CRPC) who have symptomatic bone metastases.

For 2013, Xofigo had net U.S. sales of NOK332 million ($55 million).

Early data provided a clear mechanistic rationale for the drug, and biomarker data gave an early indicator of efficacy in bone metastases. Still, it took a few years of discussions to craft what HealthCap considered to be an investable clinical strategy, after which the VC co-led the series A round.

HealthCap guided Algeta toward an indication it thought had higher value potential, albeit more risk.

Abingworth passed on the A round and IPO, getting in by leading a private placement in 2009 after Algeta had produced Phase II survival data.

For Abingworth, the key lesson was ensuring that Algeta had enough cash to take the product to market if necessary, giving the biotech a stronger negotiating position with potential partners.

A deal came in September 2009, when Bayer paid €42.5 million ($60.4 million) up front for rights to Xofigo. Algeta retained an option to co-promote Xofigo in the U.S., which the biotech exercised in 2012.

Finally, last December, Bayer said it would acquire Algeta for NOK362 per share, or about NOK17.6 billion ($2.9 billion). The deal is expected to close Feb. 24.

HealthCap, the largest shareholder, stands to receive about NOK2.5 billion ($400 million) for its 14% stake. The payout is about a 20x multiple, according to the firm's Bjorn Odlander.

The...

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