Private equity firms make big bet on small drug companies Silicon Valley/San Jose Business Journal - December 15, 2006by Lynn Graebner
Thomas King, president and CEO of Alexza, shows off a single step inhalation delivery system. Alexza has signed a deal to fund development of two of its drugs. View Larger Small- to medium-size pharmaceutical and biotechnology companies usually have to make the tough choice between struggling to pay for clinical drug development themselves or partnering with a larger company to pay those huge costs and surrender the rights to their drugs.
But Alexza Pharmaceuticals Inc. of Palo Alto thinks it has found a third option. It is the latest of three Bay Area companies to sign an agreement with New York private equity firm Symphony Capital Partners LP. Alexza's deal with Symphony funds development of two of Alexza's drugs with the option to buy back all the rights to those drugs over the next four years.
Alexza will get $50 million to fund development of one drug for treating panic attacks and another for treating schizophrenic agitation.
Four-year-old Symphony has raised $315 million in two biopharmaceutical funds from large endowments, foundations, pension funds and other institutional investors in the U.S. and Europe. It has five companies in its portfolio so far, three of which are in the Bay Area -- Alexza; Exelixis Inc. of South San Francisco, which in 2005 signed with Symphony for up to $80 million in funding; and Dynavax Technologies Corp. of Berkeley, which in April signed an agreement for $50 million.
"Unequivocally, we're very pleased," says Deborah Smeltzer, vice president of operations and chief financial officer at Dynavax. "We thought this was a good and cost effective way to finance our early stage programs... The risk is completely on Symphony. If [our drug] programs don't work, we owe them nothing," Ms. Smeltzer says.
With each of the companies, Symphony forms a separate company devoted to accelerating the development of one or more products. In Alexza's case, that company is Symphony Allegro Inc., which has its own chief executive officer, chief scientific officer and chief technology officer. But Alexza will be responsible for the majority of the clinical work, says Thomas B. King, president and CEO of Alexza. He says this arrangement works well for Alexza because it needed the help of a larger partner to develop the drugs properly but "we wanted to keep these [drugs] for the house account," he adds.
Symphony's deals allow companies access to the cash they need for clinical trials while minimizing the dilution of shareholder value.
But there's also a nice return for Symphony.
Alexza has an option to buy all of Symphony Allegro's equity at a predetermined price which would give Symphony a compounded annual rate of return of about 27 percent during the four-year agreement. And Symphony Allegro's investors get a warrant with a five-year term for purchasing 2 million shares of Alexza common stock for $9.91 per share. The recent 60-day trading average closing price is $7.93 per share.
In addition to the money Symphony provides, it also offers the services of its partner -- RRD International LLC, a Rockville, Md., product development company that can help Symphony's portfolio companies with clinical trials and regulatory matters. That's helpful if a company doesn't have the time to do a toxicology study or something of that nature, Mr. King says.
This deal sounds pretty sweet to RBC Capital Markets, an international corporate and investment bank, whose analysts cover Alexza.
This would be idea to spinoff Orathecin and pipeline drug with funding like this. We are going to get a real good update on this drug and direction. News is going to flow from SUPG accross several different lines. Starting on Wednesday with announced approval of Mayne pharma. Look even the shorts now want to brag they own thousand of shares of SUPG. Justin goes from bashing ,to now owning 30,000 shares....isn't that the same amount of shares Larry states he's short. The bashers are like the apple dumpling gang...absolutely no crediability.