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OXFORD Q U L YE NPE A WR S T L ENT ET R E R B I O S ACRI TEENR C S Q4 2006 n ISSUE 3 W H AT ’ S I N S I D E DEVICES Revolutionary Ways to Treat Back Pain Company Sales, Financings Close Out Another Strong Year for Oxford page 2 Cohesive, a leader in creating new tools for high-throughput bioanalysis, entered into an agreement to be acquired by a large instrumentation company. Cohesive has developed technologies that eliminate the need for costly, time-consuming sample preparation for liquid chromatography assays. These technologies are widely used in drug discovery and clinical diagnostic testing. THERAPEUTICS New Drug Opportunities Gain Public Market Support page 3 TOOLS & INSTRUMENTS High-Speed Bioanalysis Tools To Overcome Drug Development Bottleneck page 4 BREAKTHROUGH TECHNOLOGIES Cyberkinetics Succeeds by Turning Thought into Action page 5 VENTURE AHEAD Company Sales, Financings Close Out Another Strong Year for Oxford OXFORD TEAM page 6 Throughout its history Oxford Bioscience Partners [OBP] has succeeded by investing in entrepreneurs and companies with innovative technologies and products able to transform markets. This year continued to show the benefits of that approach. Highlights of the year included numerous high value acquisitions of portfolio companies, successful initial public offerings (IPO), equity financings at premium valuations, and growth-oriented strategic alliances. Mergers & Acquisitions; Sales of Securities page 7 W W W. OX B I O . C O M NEWSLETTER Solexa, which develops next-generation, whole genome-scale instruments, reagents and services for high-speed, low-cost genotyping, gene expression and sequencing, announced in November that Illumina would acquire the company in a stock and investment transaction valued at $600 million. OBP enabled Solexa to advance its technology to its present commercial-product stage by engineering the merger in 2005 of the privately-held UK company with the publicly-held Lynx. The October 30 announcement that Merck will acquire Sirna Therapeutics in a transaction valued at approximately $1.1 billion underlined the importance of Sirna’s revolutionary drug discovery platform. Sirna is a leader in the chemical synthesis of short interfering RNA (siRNA), an entirely new class of highly targeted and effective gene-based medicines for a wide range of diseases. That sale followed shortly after the announcement of Pfizer’s purchase of PowderMed. The company is developing vaccines using a proprietary needlefree technology to deliver targeted DNA to activate immune cells against specific viruses. The DNA technology greatly improves production and storage of vaccines compared to current methods and expands their therapeutic possibilities. Together with company founder and CEO Ron Zwanziger and Goldman Sachs, OBP participated in a Private Investment in Public Equity (PIPE) in Inverness Medical Innovations. Inverness is developing the first daily self-testing kit for heart disease patients at risk for additional heart attacks. OBP has a longstanding relationship with Zwanziger, a very successful entrepreneur and business leader, which led to the investment opportunity. Sale of the stock on the open market brought substantial returns on OBP’s investment in the PIPE. . . . continued on page 6 OXFORD Q U L YE NPE A WR ST L E E R B I O S ACRI TEENR C NTET R S Revolutionary Ways to Treat Back Pain Back pain is the single largest cause of doctor office visits in the U.S. Many chronic back pain sufferers gain relief only through surgery. But current surgical procedures are expensive, dangerous and can eventually worsen damage to the spinal column. Two OBP device companies, Applied Spine Technologies (AST) and HydroCision, hope to reduce the pain and improve long-term outcomes from back surgery. DEVICES To date, only one surgical solution exists for treatment of degenerative disc disease, the most frequent cause of chronic lower back pain: spinal fusion. For this procedure, the surgeon implants and secures metal rods to fuse together the two vertebrae around the diseased disc. This prevents motion between these two vertebrae, thus eliminating pain. Some 200,000 fusion surgeries are performed each year in the U.S. alone, where spinal implant revenues are growing 20 percent annually and are projected to reach $10 billion by 2010. AST was cofounded by OBP, still the company’s largest shareholder, to develop the Stabilimax NZ™ System, a dramatically new minimally invasive and dynamic spine implant for treatment of chronic low back pain. Instead of permanently fusing vertebrae, the dynamic spine system utilizes a dualspring mechanism that provides maximum stabilization to the spine, decreasing the motion that causes pain while preserving normal movement. Importantly, the Stabilimax NZ™ requires a less invasive surgery than fusion or disc replacement. Minimizing surgical trauma can reduce complications and recovery time, providing a more rapid return to the activities of 2 daily life. A key advantage to treating back pain with minimal disruption, and still allowing motion, is the decreased potential for over-stressing the adjacent vertebrae and associated healthy discs. This condition is referred to as Adjacent Level Syndrome and often treated with additional fusion procedures. Human clinical trials for the Stabilimax NZ™ device, developed in the Yale University laboratory of Manohar Panjabi, began in November. HydroCision’s SpineJet®, a spinal surgery application of the company’s revolutionary fluidjet cutting-with-water device, also seeks to minimize back surgery complications. The fluidjet technology has already been used in more than 10,000 spine, arthroscopic and wound-cleaning and -resurfacing procedures, ushering in a new era of knife-less “hydrosurgery.” Using the instrument’s hair-thin, 600-mileper-hour saline stream, back surgery to remove damaged soft and hard tissue can be performed through a straw-size opening—compared to the one-to-two-inch incision with a scalpel needed for standard open surgery. Engineered for precise spinal-target applications, the device prevents damage to adjacent tissue and vulnerable nerve fibers, a frequent complication with other surgical modalities. Adapting the longstanding industrial use of fluidjet for cutting to the needs of surgical procedures required major engineering advances. The multiyear development of HydroCision’s innovations was supported in part by OBP, the company’s largest shareholder. Orthopedic applications of the HydroCision technology were licensed to the Mitek division of Johnson & Johnson. Smith & Nephew acquired rights for wound debridement applications. HydroCision is commercializing the SpineJet itself, and currently sells the devices through dealers and direct sales representatives. OXFORD QE U ACR LEYEWNP WE ST L E E R Q U ABRI T LI T YEENRNC SE A L T O SR R NTE ETR R S New Therapeutic Opportunities Gain Public Market Support OBP portfolio therapeutics companies succeed by developing first- or best-in-class drugs and powerful drug discovery and development platforms. Both Trubion Pharmaceuticals and Santhera Pharmaceuticals made successful initial public offerings in 2006 through their rapid development of products and proprietary technologies. In January, Wyeth Pharmaceuticals and Trubion formed a strategic alliance for the discovery, development and commercialization of novel biopharmaceutical products utilizing Trubion’s proprietary technology. As part of the alliance, Wyeth and Trubion will collaborate on the development and commercialization of TRU-015, a novel compound currently in human testing for the treatment of rheumatoid arthritis. The drug may also hold the potential for development as a novel therapy for certain malignant B-cell As part of the transaction, Trubion received an initial $40 million payment. If all milestones in the alliance are achieved, the total payments to Trubion could exceed $800 million, excluding royalties and co-promotion fees. The deal provided the impetus for Trubion’s IPO in June. In 2004, OBP led the financing for the merger of its original portfolio company Graffinity Pharmaceuticals into MyoContract to create Santhera, a company well-positioned to develop product candidates for life-threatening orphan, neuromuscular diseases. In November, Santhera raised $80 million on the Swiss Stock Exchange (SWX), the first OBP company to go public on the SWX. Investors were attracted by Santhera’s pipeline of drugs promising significant reimbursement by payors for fatal neuromuscular diseases for which no current therapies exist. Santhera’s lead compound, SNT-MC17, is being tested in Phase III clinical trials for Friedreich’s Ataxia, which today results in death due to cardiomyopathy, on account of thickening of the heart muscle. The Japanese pharmaceutical company Takeda is Santhera’s marketing partner for SNT-MC17 outside the U.S.; Santhera will distribute the product in the U.S. through its own sales force. SNT-MC17 is currently also in Phase II clinical testing for Duchenne Muscular Dystrophy and Leber’s Hereditary Optic Neuropathy. The company is also currently preparing a Phase II clinical trial in the U.S. for fipamezole for the treatment of dyskinesia in patients suffering from Parkinson’s disease. THERAPEUTICS OBP was a co-founding investor in Trubion, which is tackling important diseases with large unmet needs by overcoming drawbacks to therapeutic monoclonal antibodies (mAbs). MAbs are engineered proteins designed to trigger natural immune responses to treat diseases. Rituximab (Rituxan), adalimumab (Humira) and other mAbs have brought revolutionary improvements to treatment of many inflammatory and autoimmune disorders and cancers. However, engineering and manufacturing the double-chain polypetides that compose mAbs remain costly challenges, and their large molecular size makes tissue penetration difficult and necessitates frequent dosing. Trubion’s proprietary product engine generates a novel compound class out of singlechain polypeptides that are one-third to one-half the size of conventional therapeutic mAbs. Less complex to design and manufacture, Trubion’s agents also show greater tissue penetration. cancers. Trubion and Wyeth will collaborate on a multi-target discovery program as well. 3 OXFORD Q U L YE NPE A WR ST L E E R B I O S ACRI TEENR C NTET R S High-Speed Bioanalysis Tools To Overcome Drug Development Bottleneck Clinical trial failures plague the pharmaceutical industry. Just 10 percent of drugs that go into human testing ever win FDA approval. The cost of a drug’s failure in advanced clinical trials can run into the hundreds of millions of dollars. This year Decision Biomarkers (DBI) launched its bioanalysis workstation that should help improve the success rate for clinical trials and speed the day when prescribed drugs reach those patients likeliest to benefit from them. TOOLS & INSTRUMENTS Certain molecules, often proteins found in the blood, have been determined to be indicators of disease. Analysis of these biological markers—or biomarkers— in a patient can thus be used to diagnose the presence of a disease such as cancer, cardiovascular ailments, viral or other pathogenic invasion, and many other disorders. In some cases, biomarkers can also be used to track patient response to therapy. Hundreds of these biomarkers and their associated conditions are already known; thousands of others are being studied. Knowing just which biomarkers are present in a patient or group of patients can help drug investigators determine the likely efficacy of a therapeutic agent early in the clinical testing process. The information can also be used as a diagnostic tool to determine whether a patient should or should not receive a drug, and whether the treatment is effective. Little wonder that drug developers increasingly employ protein biomarkers in the drug development process. 4 DBI moved ahead of the curve through its development of the Avantra™ Q400 Biomarker Workstation. After successful field test of a beta system in a clinical diagnostics center this year, five pharmaceutical firms will install systems in the coming quarter. The first fully-automated system for multiplex protein biomarker analysis, the instrument is virtually “hands free.” To use the Avantra™Q400 Biomarker Workstation, a researcher simply inserts a multiplex biochip, injects a sample to be tested, and starts the unit. In a single step, the biochipbased immunoassay technique simultaneously analyzes up to 40 biomarkers, delivering precise data from sample to results automatically in around 30 minutes. The biochips used by the system are available in “off the shelf” biomarker panels. Additionally, DBI offers services to create customized biochips for “userdefined” optimized multiplex assays. Future versions of the Avantra™ Q400 Biomarker Workstation will be installed in hospital and clinic settings where patient samples can be tested while they wait for diagnosis. As more and more drugs targeted to a patient’s individual biomarkers emerge, the DBI systems will help make the goals of personalized medicine a reality. Recognizing the future importance of high-speed, low-cost biomarker analysis, OBP led the first institutional round of investment in DBI and an additional $7.6 million financing in February 2006. OXFORD QE U ACR LEYEWNP WE ST L E E R Q U ABRI T LI T YEENRNC SE A L T O SR R NTE ETR R S Cyberkinetics Succeeds by Turning Thought into Action Cyberkinetics Neurotechnology Systems knows how to turn thought into action, its revolutionary neural-sensing technology potentially enabling paralyzed patients to communicate and move. The firm is now making the transition from a technology-development company into a commercial business. Last February, Cyberkinetics acquired Andara Life Sciences and its Andara™ Oscillating Field Stimulator (OFS) technology for treatment of spinal cord damage. Since then, the company has gained a humanitarian exemption for the technology qualifying it for rapid FDA approval. The Andara OFS implant is being developed to restore function, including tactile sensation, sexual function and movement, to spinal cord-injury patients. The implant, placed within 21 days of injury, consists of a battery-powered device about the size of a pacemaker with six leads. Three of the leads are attached above and three below the spinal cord injury site. By applying electrical current, the device promotes nerve fiber regeneration across the injury site. The company hopes to gain final approval for the device and begin its commercialization in the coming year. Cyberkinetics is also developing an Andara OFS technology to treat spinal cord injuries that are months to years old. The technology is being developed to overcome some of the most severe disabilities due to spinal cord injury, stroke, ALS (Lou Gehrig’s disease), as well as other central nervous system injuries. It provides novel communication interfaces, and may enable users to control computer-assisted devices and potentially restore limb movement, simply by thinking. Another proprietary neural-sensing technology, the NeuroPort™ System is being developed as an experimental tool to improve understanding about the brain and enable more accurate diagnosis and treatment of central nervous system injuries and conditions. Recent clinical data showed its effectiveness in monitoring seizure-disorder patients. OBP was Cyberkinetics first institutional investor and helped develop its business strategy, including a reverse merger bringing it to the public equity market and support for the Andara merger. BREAKTHROUGH TECHNOLOGIES The company grabbed worldwide attention in July when an article reporting the success of its technology was featured on the cover of the prestigious scientific journal Nature. That article described the science behind its revolutionary BrainGate™ brain-computer interface technology. In the coming year, the company will likely make more headlines when its first commercial product, the first device for repairing injured spinal cords, goes to market. The BrainGate™ System employs a proprietary neural sensing array implanted into the surface of the brain and interfaced with a computer to turn science fiction into reality. As part of the Nature study, a woman with a brainstem stroke that had left her unable to move or speak communicated through a computer and guided her wheelchair solely by thinking. For paralyzed patients, Cyberkinetics BrainGate™ offers life-renewing hope for the future. 5 OXFORD Q U L YE NPE A WR ST L E E R B I O S ACRI TEENR C NTET R S In often difficult IPO markets, three portfolio firms succeeded in going public: Targacept, Santhera, and Trubion. Drawing on decades of scientific knowledge of tobacco’s effects on the brain, Targacept is developing new treatments for Alzheimer’s disease, cognitive deficits from schizophrenia and other cognitive disorders targeting neuronal nicotinic receptor targets. The firm concluded a deal worth up to $700 million with AstraZeneca in 2005 to develop certain of its drugs, and succeeded in its initial public offering early this year. Both Santhera, a Swiss-based specialty pharmaceutical company focused on treatments for neuromuscular diseases, and Trubion, which has a pipeline of product candidates to treat autoimmune disease and cancer, also raised funds via public offerings of stock this year. The companies are discussed elsewhere in this issue. Financings VENTURE AHEAD . . . CONTINUED FROM PAGE ONE Initial Public Offerings Many OBP portfolio firms concluded major financing rounds. Among them, Solstice Neurosciences raised $85 million in Series B and debt financing to support the growth in sales of its treatment for cervical dystonia using Myobloc® (Botulinum Toxin Type B) Injectable Solution (also sold and distributed as NeuroBloc® in Europe). Another OBP vaccine innovator, VaxInnate, concluded a Series C financing, raising an additional $40 million. The company possesses a powerful technology to direct the body’s innate immune response to activate the adaptive portion of the immune system to recognize mutant viral strains. VaxInnate’s platform has the potential to substantially improve vaccine effectiveness while greatly reducing manufacturing costs. The funds will be used for the continued development of the company’s vaccines for human and avian flu, malaria, dengue, and other diseases. Rib-X Pharmaceuticals, focused on the structurebased design of novel classes of anti-infective agents with broad-spectrum activity against antibiotic-resistant microorganisms, raised $50 million in a Series C financing. OBP is a founding investor in the firm. The funds will be used to advance the company’s program for hospitalbased infections, including infections caused by Methicillin-Resistant Staphyloccus Aureus (MRSA) microbes, into Phase II, as well as its programs for surgical prophylaxis and community-based MRSA. 6 Pathway Medical Technologies is developing a minimally invasive catheter device to restore healthy circulation in clogged leg arteries, referred to as peripheral artery disease (PAD), which affects 14 million people in the U.S. alone. In November, the company raised $25 million in a Series B round, sufficient funds to bring its first product, the Pathway Atherectomy System, to market in 2008. The company’s catheter technology employs tiny rotating scrapers and an aspiration system to remove plaque from even very small lower-leg arteries through a small puncture site. In other financings, BioProcessors raised $18 million in a Series C round to advance commercialization of its SimCell system, the first fully-integrated cell culture experimentmanagement system capable of generating data scalable to large-scale bioreactors. IntraPace concluded a $30 million Series D financing to move its minimally invasive implantable gastric stimulator for the treatment of obesity forward into clinical trials expected to begin in 2007. Alliances In addition to Targacept’s alliance with AstraZeneca, many OBP portfolio companies inked valuable corporate partnering deals with other firms. For example, Alantos Pharmaceuticals’ licensed European development and marketing rights to French pharmaceutical firm Servier to commercialize its lead compound for the treatment of Type II, or adult-onset, diabetes outside the U.S. market. Alantos will receive upfront and milestone payments totaling $75 million plus double-digit royalties on any product. Servier will also pay for all development costs for the drug, now in Phase I testing, through Phase II and all further costs for development of the drug for markets outside the U.S. UK-based Astex Therapeutics, focused on discovery and development of anti-cancer drugs, has multiple alliances based on its drug-discovery engine, Pyramid™, with major pharmaceutical companies including AstraZeneca, Sanofi-Aventis, Boehringer Ingelheim, Astellas Pharma, Mitsubishi Pharma and Schering AG. Pyramid employs high-throughput X-ray crystallography and other biophysical techniques to identify drug fragments bound to target proteins and to transform the fragments, using medicinal chemistry, into potent, selective drug candidates across a wide variety of therapeutic targets. A recent anti-cancer drug discovery alliance among GlaxoSmithKline, the Wellcome Trust and The Institute of Cancer Research, focused on B-RAF inhibitors, builds on the existing partnership of Astex, the Wellcome Trust, The Institute of Cancer Research and Cancer Research Technology. Successful development of novel drugs through this alliance will bring significant royalty payments to Astex. OXFORD QE U ACR LEYEWNP WE ST L E E R Q U ABRI T LI T YEENRNC SE A L T O SR R NTE ETR R S Oxford Team Alan G. Walton, Ph.D., D.Sc. Senior General Partner Westport, CT Jeffrey T. Barnes General Partner Boston, MA Mark P. Carthy General Partner Boston, MA Matthew A. Gibbs General Partner Boston, MA Michael Lytton, J.D., M.Sc. General Partner Boston, MA Ellen S. Baron, Ph.D. Partner Boston, MA Douglas M. Fambrough, Ph.D. Partner Boston, MA Oxford Bioscience Partners (OBP) is a life science venture capital firm that provides equity financing and management assistance to advanced-stage start-ups and later-stage commercially oriented organizations. The General Partners of OBP currently manage Edmund M. Olivier Founding General Partner Costa Mesa, CA Cornelius T. Ryan Founding General Partner Westport, CT venture funds with combined committed capital of more than $950 million. OXFORD TEAM Jonathan J. Fleming Managing General Partner Boston, MA 7 222 Berkeley Street, Suite 1650 Boston, MA 02116 Tel: (617) 357-7474 Fax: (617) 357-7476 315 Post Road West Westport, CT 06880 Tel: (203) 341-3300 Fax: (203) 341-3309 650 Town Center Drive, Suite 880 Costa Mesa, CA 92626 Tel: (714) 754-5719 Fax: (714) 754-6802 w w w . o x b i o . c o m