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2 October 2017

Big deal: Nucana and Nightstar race to public markets

Nucana, a Scottish Investment Bank-backed cancer treatment developer, and Nightstar Therapeutics, an Oxford spinout focused on retinal gene therapies, have entered the public market.

Author: Thierry Heles, editor

It seems like a long time ago that biotech companies dominated headlines with jaw-dropping funding rounds and initial public offerings.

Case in point – immunotherapy firm Immunocore, whose roots can be traced back to University of Oxford, smashed European records with a $320m funding round in July 2015.

As for flotations, Cellectis, a gene-editing company backed by French state-owned public investment bank BPIfrance, raised almost double its initial target in a $228m IPO in March 2015, becoming just one of countless biotechnology developers to enter the public stock market during a craze that was arguably always doomed to end.

Since then, not much has happened in the sector as investors and startups have become more cautious. With good reason, perhaps, as illustrated by the fall of former biotech poster child Juno Therapeutics – an immunotherapy developer backed by Alaska Permanent Fund, owned by the US state’s government, that amassed $176m in a series A round closed in 2014 before doubling the value of its shares in an IPO in January 2015.

But in March this year, Juno had to end development of its candidate for acute lymphoblastic leukaemia after five patients died from brain swelling in a phase 2 clinical trial. Juno had spent more than $46m on the development of the treatment, and not only was there no return, its shares dropped to $20.22, a far cry from its peak of $68.36 in early June 2015. Admittedly, they have since rallied to $44.86 as of last Friday, but that remains below the IPO’s close.

Not much happened in the sector until last week. Among the new batch of public biotech businesses is Deciphera Pharmaceuticals, a US-based cancer treatment producer, which raised $128m in its flotation near the top end of its range.

More interesting, for their respective shareholders, however, are Nucana, a UK-based company working on chemotherapies for resistant tumours that is backed by Scottish Investment Bank, the investment arm of government-owned economic development agency Scottish Enterprise, and Nightstar Therapeutics, a UK-based spinout from University of Oxford that is developing retinal gene therapies.

Nucana secured nearly $100m in its flotation on Nasdaq on Thursday, slightly below its target of $115m, though its shares had climbed from an opening price of $15 to $18.37 by the end of the week.

Founded in 2008, Nucana has developed a platform, ProTide, which generates drugs that can either avoid or overcome cancer resistance. The company has several chemotherapy candidates in clinical trials, targeting conditions such as ovarian, biliary and pancreatic cancer.

Scottish Investment Bank backed the company’s $10.4m series A round in 2011 through its Scottish Venture Fund. The round was led by Sofinnova Partners and included Morningside Ventures and Alida Capital International.

In 2014, Scottish Investment Bank returned to invest in a $57m series B round, led by Sofinnova Ventures. The series B also featured Sofinnova Partners, Morningside and Alida.

Scottish Enterprise held a 9.28% stake in Nucana ahead of the initial public offering, which has been reduced to 7.27%. Sofinnova Partners had its stake reduced from 32.35% to 25.37%, while Sofinnova Ventures’ shareholding was diluted from 16.52% to 12.95% and Morningside retained 9.43%, down from 12.02%.

The money is going towards development of the company’s drug candidates, R&D activities to boost its pipeline and working capital.

Completing the triptych is Nightstar Therapeutics, which secured slightly more than $75m in its offering on Thursday – below its initial target of $86m set a month ago.

The spinout, which was originally known as Nightstarx but rebranded ahead of the IPO, is developing treatments for rare inherited retinal conditions. Its lead candidate, NSR-REP1, targets choroideremia, a retinal dystrophy that slowly impairs vision up to blindness, and for which there are no efficient treatments currently on the market.

The therapy uses a modified virus – AAV.REP1 – to correct genetic information in cells. It is injected into the retina under local anaesthesia. A phase 1 and 2 clinical trial carried out by University of Oxford has already confirmed the long-term benefits of NSR-REP1, including improvement in vision.

Oxford University Innovation, the institution’s tech transfer office, began working with Robert MacLaren, professor at the Nuffield Laboratory of Ophthalmology, in 2009 to protect the technology, before the spinout was formally incorporated in January 2014 with a £12m ($15.5m) commitment from Syncona, a subsidiary of charity Wellcome Trust. Chris Hollowood, chief investment officer at Syncona, joined Nightstar as chairman at the same time.

Syncona’s investment at the time actually constituted one of the largest initial investments in a spinout in Europe.

Syncona returned in November 2015 to support a $35m series B round, led by New Enterprise Associates. That capital took Nightstar all the way through to this past June, when the spinout raised $45m from Syncona, New Enterprise Associates, Wellington Management and Redmile Group.

The IPO proceeds will go towards the completion of a phase 3 trial of the treatment for choroideremia. The money will also allow Nightstar to advance additional drug candidates through early-stage clinical trials.

Syncona is the spinout’s largest external shareholder – it owned 49.3% ahead of the offering, dropping to 39.9%. New Enterprise Associates held 24%, which has been reduced to 19.4%, and Wellington Management Company owned 6.9%, which has been diluted to 5.6%. Oxford University Innovation does not feature among the principal shareholders.

Do the three flotations hail the beginning of another biotech craze? There are undoubtedly many startups and spinouts biding their time to file, but it remains to be seen whether last week’s developments will lead to more eventful third and fourth quarters. As Juno’s story has shown, a flotation is not necessarily a road to success.

One thing that is notable, however, is that both Nucana and Nightstar decided to float in the US rather than in their home country. With the UK government’s patient capital review desperate to figure out how to generate more unicorns and long-lived large enterprises, the news that the two companies chose the US over the UK for their IPO probably did not lead to much champagne cork popping in Westminster.

They are not the first companies to do this, of course, but the timing could not be more awkward for the UK government, particularly when the chancellor has admitted publicly that there is no consensus over the kind of relationship the government wants to pursue with the EU – hardly the stabilising message businesses and stock markets like to hear.

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