Biotech pilgrims are gathering today for the biggest industry frenzy of the year, the JP Morgan Healthcare Conference. This confab in San Francisco’s Union Square is the singular place each year where essentially all industry mover/shakers—and many wannabes—gather for a marathon week of investment scouting, dealmaking, publicity seeking, job-hunting, and schmoozing.

I’ve been going to this conference for at least seven or eight years (but who’s counting?) and look forward to meeting lots of interesting people and digging up all kinds of news every year. It’s the best time to meet industry players face-to-face, and hear about the latest trends at work, in an action-packed few days. Most everybody here is brimming with optimism—or least putting on their best game face—about how they’re going to make new drugs, devices, or diagnostics that will leap tall buildings with a single bound in the coming 12 months.

Some of these dreams will be fulfilled, but the odds aren’t good. Hope and hype are a couple essential ingredients in this business, and every year both are on display at this conference. Sometimes the wishful thinking can congeal into conventional wisdom. So with that, I thought I’d try to anticipate a few popular myths you can expect to hear circulated, in order to debunk them. Here goes:

1. “The biotech IPO market will pick up.” Every year this line gets repeated, and every year it’s nothing more than wishful thinking. All you need to know about IPOs is that Groupon raised more money in its initial offering last year than the entire class of 2011 biotech industry IPOs. Facebook is on the docket this year, and it will dominate the news. Many biotechs that went public last year were weak, and didn’t perform well for investors, which only serves to dampen enthusiasm. And most importantly, it’s always good to remember who will be spreading the positive word about the IPO market, and consider the sources. It’s the investment bankers, lawyers, and consultants who stand to put a lot of money in their pockets from fees every time one of these transactions occurs. Just because they want it to happen, doesn’t mean it will.

2. “Amgen will make a mondo acquisition.” The biotech industry’s biggest company was sitting on a massive stockpile of $17.6 billion in cash and investments at the end of September. Common sense says that Amgen has got to do something with the cash other than collect interest. Shareholders might like getting dividends or seeing share buybacks to lift the stock price, but this won’t excite anybody for long. The company is getting a new CEO, Robert Bradway, who might be interested in putting his own stamp on the company once he takes over in May from Kevin Sharer, who had a lackluster record in the acquisition department. And Amgen might be feeling the need to compete in the acquisition arms race, especially since Gilead Sciences (NASDAQ: GILD) scooped up Pharmasset for $11 billion.

It may sound logical, but this all feels like wishful thinking to me on the part of bankers with vested interests. Amgen will think long and hard before it attempts to do any monster acquisition, especially after seeing the organizational indigestion mega-mergers have caused in Big Pharmaland (see Pfizer/Wyeth, Merck/Schering-Plough, and Roche/Genentech). My hunch is that Amgen may buy a company in the $1 billion ballpark, but it will not pull the trigger on a really audacious mega-merger in 2012.

3. “The FDA is going to be more supportive of innovation.” I’m not sure how many people are really going to go out on a limb and take the FDA at its word that it wants to be more supportive of medical innovation. But a small group of high-powered VCs and industry advocates have pushed for this for a long time, and commissioner Margaret Hamburg has been making more noises about how the agency’s mission is to ensure the safety and efficacy of new drugs, while also helping stimulate biomedical innovation. Just like anything in politics, though, talk is cheap and the record is … Next Page »

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[Updated 2:20 pm PT] Pacific Biosciences (NASDAQ: PACB), the Menlo Park, CA-based maker of a super-fast, super-cheap DNA sequencing instrument for medical, agricultural, and biofuels researchers, disclosed today that it’s laying off 130 employees, or 28 percent of its total workforce. The announcement came today in an 8-K report to the Securities and Exchange Commission.

The company explained that a slower-than-expected adoption rate for its sequencing machine, which it introduced to the market this April, has left it with more employees than it wants or needs. The workforce reduction “will allow the Company to continue support of its growing customer base with improved service and continued product enhancements, while at the same time conserving cash,” PacBio said in the disclosure.

The company says it’s cutting workers across the organization, but that its operations and R&D wings will be most affected. PacBio expects to incur $5.2 million in restructuring charges as a result of the layoffs—mainly compensation and benefits to terminated employees. Hugh Martin, PacBio’s CEO, said in a statement circulated by e-mail today that it has been “an extraordinarily difficult day” for the company given its tight-knit corporate culture. But he said the cuts were necessary to lower the company’s burn rate. Under its new structure, PacBio will have approximately $190 million in cash and investments by the end of the September (down from $217 million at the beginning of the third quarter).

Despite the successful introduction of its “RS” sequencer this spring, PacBio has taken a hammering in the public markets this year, especially after early a disappointing earnings report in early August, which sparked a rout that halved the stock’s value. The company has a backlog of orders for the sequencers, which cost $700,000 each, but there are concerns that dwindling government research budgets will cut into demand for next-generation sequencing devices.

PacBio cited “uncertainties associated with the economic environment” in its 8-K announcement, but said the cuts should “position the company for long-term success.” Martin said in the e-mail statement that “by taking action now, we have given ourselves both the time and flexibility to drive adoption of our product.”

Here’s the full statement from Martin:

Today, we reduced our workforce by approximately 130 employees, or 28%.  Although the cuts were across the company, the groups most affected were Operations and R&D.

Given the uncertainties associated with the economic environment and our desire to position ourselves for long-term success, we have chosen to reorganize the company. Our current infrastructure was staffed to support a faster adoption rate for our products. These changes will allow us to continue to support our growing customer base with improved service and continued product enhancements, while at the same time conserving cash.

For all of us here at PacBio, this is an extraordinarily difficult day.  We have always taken great pride in the talent we have been able to attract, and we value each and every one of our employees. We are known for our emphasis on tight-knit corporate culture, so it is particularly difficult to have to let any employees go.

PacBio is in the process of introducing a game changing, new generation of sequencing technology.  Even in stable, high growth markets, adoption rates of such a disruptive platform can be difficult to predict.  In today’s turbulent economy, it is even more difficult.  We see many of the signs that customers are recognizing the value of our third generation paradigm.  However, we had higher expectations as to the rate with which adoption would occur.  Our internal infrastructure was therefore built to handle a faster generational transition.  Consequently, our burn rate was not in line with the speed with which the business was evolving.  In addition, we are refocusing our resources as we transition from developing and launching a product to establishing the technology in the market and supporting customers as they develop applications and make novel discoveries with the PacBio RS.

We have worked hard to size the company appropriately, while preserving our ability to expand globally and to support current and future customers. Customer satisfaction is our top priority. In addition, we will continue an aggressive program of both increasing the performance of our SMRT technology as well as bringing out new applications that are uniquely enabled by our third generation sequencing platform.

Our cash balance currently is approximately $190 million, and by taking action now, we have given ourselves both the time and flexibility to drive adoption of our product. Given the promise SMRT technology has to greatly impact the future of biology, it is incumbent on us to align and scale the business to enable our platform to have the time to realize its full potential

And here’s the full text of PacBio’s 8-K statement, minus the boilerplate about forward-looking statements.

On September 20, 2011, Pacific Biosciences of California, Inc. (the “Company”) implemented a reduction in its workforce of approximately 130 employees, or approximately 28% of its total workforce. The actions taken were in consideration of uncertainties associated with the economic environment and to position the Company for long-term success. The Company’s current infrastructure was staffed to support a faster adoption rate for its products. The reduction implemented will allow the Company to continue support of its growing customer base with improved service and continued product enhancements, while at the same time conserving cash.

The reduction in workforce was authorized by the Company’s Board of Directors on September 16, 2011 and the employees being terminated received notification on September 20, 2011. Although the cuts were across the organization, the Company’s operations and research and development functions were most effected. In lieu of notice required under the California Worker Adjustment and Retraining Notification Act (the “WARN Act”) and other federal and state law equivalents, as applicable, departing employees will receive salary and benefits for a period of 60 days. In addition, the Company has implemented a severance benefit program that will provide for benefits which are greater than the minimum requirements of the WARN Act, such as additional cash payments determined on the basis of the affected employee’s base salary and tenure with the Company, as well as outplacement services and Company-paid continuation of medical, dental and vision benefits under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”). Payment of the termination benefits in excess of those provided for under the WARN Act is contingent on the departing employee entering into a separation agreement with the Company containing a general release of claims against the Company. As a result of the reductions, the Company expects to record a restructuring charge, comprised mainly of compensation and benefits afforded to terminated employees, of approximately $5.2 million during the third quarter of fiscal 2011. The Company anticipates that the actions associated with the reductions will be substantially completed during September 2011. All cash expenditures for restructuring related charges are expected to be substantially completed during 2011.

The Company’s cash and investments at June 30, 2011 totaled $217 million and the Company expects to end the third quarter with approximately $190 million.

The Company’s estimated restructuring charge is based on a number of assumptions. Actual results may differ materially and additional charges not currently expected may be incurred in connection with or as a result of the reductions.

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Vivus (NASDAQ: VVUS), the Mountain View, CA-based developer of drugs for obesity and erectile dysfunction, said today it has raised $45.8 million in a stock offering. The company agreed to sell about 6.9 million shares of stock at $6.65 apiece. Funds managed by QVT Financial were the lead investors in the deal, while two other existing investors participated, Vivus said. The stock offering was priced at about a 6.5 percent discount to yesterday’s closing stock price of $7.10.

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[Update:8:25 am PT] Pathway Medical Technologies, the Kirkland, WA-based maker of a device that clears out blood vessel blockages in the legs, has agreed to be acquired for $125 million by Medrad, a Warrendale, PA-based medical device unit of Bayer Healthcare, Xconomy has learned.

The acquisition hasn’t yet been announced by either company, and the deal is still pending, awaiting final regulatory and shareholder approval, sources say. The deal also includes a bonus pool of $6.3 million to retain certain members of Pathway’s senior management team after the deal closes, according to a merger document reviewed by Xconomy.

Pathway CEO Paul Buckman declined to comment about the deal, as did chairman Tom Clement and director David Auth, when reached by e-mail. [Updated comment from Medrad.] Medrad spokeswoman Alicia Cafardi said “this transaction is pending and we cannot provide detail or comment at this time.”

The deal appears to offer up a mixed bag of returns, depending on your point of view. All of the buyout returns will go to the Series D-2 preferred stockholders, while the holders of other classes of stock will not get any returns, according to the merger document. Pathway raised its Series D financing, worth $42.5 million in May 2009, from Forbion Capital Partners, Giza Venture Capital, HLM Venture Partners, Latterell Venture Partners, Oxford Bioscience Partners, WRF Capital, and individual investors. The company, according to the most recent tally Buckman offered in a June interview, had raised a total of about $130 million since its founding in 1998—meaning that a $125 million purchase price by definition doesn’t offer much of a return for the total investment.

Tom Clement, Pathway Medical founder and chairman

Still, Pathway has been one of the bigger success stories of the Seattle medical device cluster of the past decade. The company, founded by Clement, originally intended to drill out plaque and clot buildups in vessels around the heart. But as the cardiology market showed a clear preference for stents, the tiny mesh devices that prop open clogged arteries, Pathway briefly shut down in late 2004 and early 2005. Clement went back to the drawing board to reinvent the device, and raise more money, to go after a more promising market niche of blockages in leg vessels—what’s known medically as peripheral artery disease. That new opportunity was attractive for a couple reasons. About 2 million Americans are estimated to seek treatment every year for this condition, which causes leg pain when people walk. And stents don’t work well in the legs, because they have a tendency to twist and break.

Pathway’s current device, marketed under the trade name Jetstream, uses a tiny stainless-steel drill mounted on a catheter that slides inside clogged leg arteries, where it cuts through and vacuums out hard plaque blockages and squishier clot-like substances.

Pathway persevered through its lean times, and got its first device cleared for sale by the FDA in the summer of 2008. It showed some promising early signs in the market, signing up more than 100 physician customers in the first few months, and getting them to use it … Next Page »

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If you dared to flip the channel to CNBC any time during the past week, it would have been hard to stay calm. The market was whipsawing all over the place, up one minute, down the next. Fear of government defaults and the potential for another recession were topics of endless debate. Fund managers were said to be antsy to unload any security riskier than a T-bill or gold—which means biotech was fast becoming especially unfashionable.

All the fearful talk may have been good for TV ratings and Internet page views. The wave of selling is definitely worrisome for any company that dares to do something risky like create innovative new life science products, such as cancer drugs. But all this talk is hardly a sign of any long-term catastrophe.

The last time I can remember this much fear coursing through the markets was September 2008, when the Lehman Brothers bankruptcy triggered government bailouts to stave off a global run on the bank. Most comments I heard and read last week said what’s happening today isn’t as frightening as that scenario. There are undoubtedly major problems today, like the rising cost of healthcare and the long-term threat that poses to governments around the world. Healthcare investors with any vision at all have to be worried about what might be done to clamp down on costs (and future profit margins) of pharmaceutical, medical device, and diagnostics companies.

Setting aside all those concerns for a moment, I thought it would be instructive to check on how biotech investors reacted during that scary time of September 2008, compared with what we’ve seen the last two weeks. So I looked at the two-week period starting with the close on Sept. 12, 2008 (the last day of trading before the Lehman bankruptcy), and the two-week period starting with the close on Aug. 1, 2011 (the last full day before President Obama signed the bill to raise the debt ceiling, averting what could have been a U.S. government default).

Here’s what I found:

Indexes                                       Sept 12-26, 2008                           August 1-12, 2011

Nasdaq Biotech Index (NBI)               -0.2%                                               -8.6%

Amex Biotech Index (BTK)                 -0.6%                                              -15.1%

Nasdaq Composite Index                   -3.5%                                                -8.6%

Surprisingly, even though most analysts agree the global financial system isn’t in as much trouble now as it was in 2008, biotech indexes, and the broader Nasdaq Composite Index, are getting hit even harder now.

Sure, lots of things have changed … Next Page »

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Bothell, WA-based OncoGenex Pharmaceuticals (NASDAQ: OGXI) saw its stock tumble $3.25, or more than 26 percent, to $8.90 in mid-day trading today after issuing its quarterly financial update. The company reported yesterday that a pivotal clinical trial of its lead prostate cancer drug candidate, custirsen, has been dogged by slow patient enrollment. OncoGenex said it is awaiting word from the FDA on an amendment to the study protocol, which it hopes will speed up enrollment, by allowing patients to get either docetaxel or a new drug from Sanofi called cabazitaxel (Jevtana) in their second round of therapy. The enrollment delay means OncoGenex now expects study results in the fourth quarter of 2013, instead of by the second quarter of 2013.

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[Updated: 8:15 am PT] Pacific Biosciences’ investors could have been excused for chewing on their pencils, waiting for more bad news at the end of a horrible day for stocks. But that would have been overdoing it, as the Menlo Park, CA-based company met expectations in its maiden quarter with its new DNA sequencing instrument.

PacBio (NASDAQ: PACB) said today that it generated $10.6 million in the quarter that ended June 30, by commercializing 16 of its new gene sequencing machines since they were first officially introduced to the market on April 27. The company added seven new orders, bringing its backlog to 35 machines, which retail for about $700,000 apiece. PacBio’s debut has gone so “smoothly” in the words of CEO Hugh Martin, that the company says it expects to deliver those 35 machines by year end, and that its net loss will be about $2.25 a share this year, down from its previous forecast of $2.50.

[Updated share movement] Still, shares of PacBio took a beating, falling $2.29, or 23 percent, to $7.61 at 11:15 am Eastern time this morning. The sell-off came as investor nerves were frayed, following a day when major stock indexes fell the most in any day since 2008. One DNA sequencing competitor, Mountain View, CA-based Complete Genomics (NASDAQ: GNOM), lost more than 30 percent of its value yesterday on a modestly negative—but not disastrous—earnings report.

“Thanks for providing a bit of a reprieve here from the tape,” said William Quirk, an analyst with Piper Jaffray, before asking Martin a question on today’s earnings conference call.

There is still plenty of uncertainty around PacBio, like when any new product gets introduced. Government budgets everywhere are under pressure, meaning that scientists are going to find it hard to get grant requests funded to help them buy fancy new scientific tools. PacBio, noting that this “headwind” is affecting all companies in the sequencing business, declined to offer a financial forecast beyond the one that extends through this calendar year. Still, Martin was quite bullish in his prepared remarks, noting that all 11 beta testers of the PacBio machine are now full-fledged commercial customers, and many of them—like the Sanger Institute in the U.K and the Broad Institute in Cambridge, MA—are running them around the clock to see what they can do.

Hugh Martin

“We are operating as a rapidly growing commercial business,” Martin said.

PacBio’s commercial rollout is attracting special attention because PacBio is seeking to become a disruptive player by introducing a completely different method for super-fast, super-cheap DNA sequencing than what exists in the market today. PacBio has raised more than $580 million for this undertaking, made a big splash with a $200 million IPO last October, and had a lot of people holding their breath over the past year as it ironed out bugs in beta versions of its machines. “Our reliability and performance variability were significantly improved with final release software,” Martin said.

Now that the company has 16 of its machines installed, Martin said, it can expect to make more money from consumable products, such as the chemicals needed to operate the instruments (known as reagents).

The inconsistency of semiconductor components, and software, has been largely resolved, and the beta testers are starting to learn what the machine is best for, Martin said. Scientists are learning that the machine can be used to identify certain new pathogens in the midst of an outbreak (like with last year’s cholera outbreak in Haiti, and in the German E.coli scare earlier this year.) The company is also going after various applications in agricultural markets, and in cancer research, Martin said.

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[Updated: 2:24 pm PT] Complete Genomics picked a bad day to have a bad day. The Mountain View, CA-based company that sequences entire human genomes lost more than one-fourth of its value today after it reported a decline in second-quarter revenue, partly driven by price decreases in its service, and a delay in getting enough all the DNA samples it needs from the Seattle-based Institute for Systems Biology.

The sell-off in Complete Genomics (NASDAQ: GNOM) happened during a down day for biotech stocks and the market in general. Complete Genomics stock fell $3.11 a share, or 27 percent, to $8.14 at 2 pm Eastern Time, while the broader market indexes were down about 3 percent.

A few key disclosures from Complete Genomics in today’s report rattled investors. Revenues in the quarter ended June 30 were $5.9 million. That figure was down from $6.8 million in the immediate prior quarter, and less than the roughly $7.2 million to $7.7 million that Wall Street was expecting, according to Quintin Lai, an analyst with Robert W. Baird. Part of the problem, Complete Genomics said, is that it didn’t receive as many biological samples as it expected from one of its biggest customers, the Institute for Systems Biology, which ordered 615 complete genome sequences in January. And while Complete Genomics scored a couple of big new contracts to deliver 2,700 new genomes over the next year, those new contracts are less lucrative than they would have been months ago, as the price of sequencing each genome continues to drop below $5,000.

“We were disappointed that lumpy DNA shipments to Complete Genomics caused a revenue shortfall in Q2 and an expected shortfall in Q3,” Lai wrote in a note to clients today. “However, we are encouraged that GNOM signed more orders in July than it received in all of [the first half of 2011]. We think the services-based whole human genome sequencing market is still in its infancy, and these large orders reaffirm our belief that GNOM is retaining its leadership position.”

Complete Genomics said revenues declined in the quarter, even though it was able to recognize revenue from sequencing 950 genomes in the quarter, up from 690 in the prior three-month period. The company said it still expects to reach its goal of shipping 4,000 completed human genomes back to customers this calendar year, although the delays from the ISB mean it will need to deliver a majority (2,400 genomes) in the second half to reach that goal.

CEO Cliff Reid said the company can still do that, because … Next Page »

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San Diego-based Illumina (NASDAQ: ILMN), the market-leading maker of gene sequencing instruments, said today that its sales climbed 36 percent, to $287.5 million, in the quarter that ended June 30. The company turned a profit of $30.6 million in the quarter, a 2.7 percent increase compared with the $29.8 million profit in the same period a year earlier. Spending on R&D climbed by 16 percent, and sales, general and administrative costs rose by 30 percent to $69.2 million, the company said.

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SonoSite (NASDAQ: SONO), the Bothell, WA-based maker of portable ultrasound machines, said today it had a net loss of about $1.1 million in the quarter that ended June 30, compared with a profit of $1.9 million in the same period a year earlier. The company’s sales climbed 18 percent to $72.7 million in the most recent quarter, but the increased revenue was offset by increasing expenses, particularly on new strategic initiatives the company is advancing in the wake of its 2010 acquisition of VisualSonics.

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Zishen Fan, of Chino Hills, CA, pleaded guilty today in U.S. District Court in Seattle to charges that he traded on insider information on Seattle Genetics (NASDAQ: SGEN) in 2010, according to a statement from the U.S. Attorney’s Office for Western Washington. Fan’s brother, Zizhong “James” Fan, now deceased, was at the time a manager of clinical programming at Seattle Genetics, and was accused by securities regulators of providing tips to Zishen that enabled the brothers to make more than $700,000 on the nonpublic information, officials said. Zishen Fan could face up to 20 years in prison when he faces sentencing on Oct. 7.

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The Fred Hutchinson Cancer Research Center has secured a five-year, $20 million research project from the National Institutes of Health to study a method in which a patient’s T-cells can be modified to prevent HIV infections. The Hutch’s Keith Jerome and Hans-Peter Kiem are the lead investigators on the grant, and they are collaborating with scientists at Richmond, CA-based Sangamo Biosciences (NASDAQ: SGMO), the University of Washington, Beckman Research Institute at City of Hope in Duarte, CA, and Seattle Children’s Hospital. The approach seeks to eliminate a protein on immune cells, called CCR5, which the HIV virus uses as a gateway to infect and damage the immune system.

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We Seattleites have to savor the incredible weather we’ve been having, so I’m keeping this week’s roundup short and sweet so as not to interfere with your outdoor time.

—Seattle Genetics (NASDAQ: SGEN) is one company that can’t really soak up too many rays right now, because it’s getting ready to transform from an R&D-only operation into one with a commercial product. The deal isn’t done yet—the company still needs FDA clearance later this summer—but CEO Clay Siegall talked in detail about what it’s like to prepare for this commercial push, and how he wants to retain the company’s science-first culture.

—Seattle-based Dendreon (NASDAQ: DNDN) took an important (although entirely expected) step forward by persuading the national Medicare agency to reimburse doctors who prescribe the company’s immune-boosting drug for prostate cancer. This marked the end of a yearlong inquiry, which rattled the nerves of some Dendreon investors at various times.

—NanoString Technologies, the Seattle-based maker of genetic analysis instruments, collected $2.5 million out of a new financing round that could be worth as much as $14 million over time. The financing came in the form of debt that can be converted into equity, and warrants to buy more shares.

—Lastly, we had an op-ed from Stewart Lyman, provocatively titled “This drug didn’t work for me. May I have my $88,000 Back, Please?” This post, in which Lyman wonders whether the U.S. could adopt a U.K-style rebate system for cancer drugs that don’t work for certain individuals, was inspired partly by a recent dispute between Genentech and the FDA over the effectiveness of a high-priced treatment for breast cancer.

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Seattle-based Impel Neurpharma, the developer of technology to deliver drugs to the brain, said today it has secured a two-year, $750,000 grant from the U.S. Department of Defense. The company, a University of Washington spinout, previously got a $500,000 grant from the National Institutes of Health to support its method for delivering drugs through the upper nasal cavity, bypassing the blood-brain barrier, which limits the effectiveness of many neurological drugs. For more on Impel and its technology, check this profile from August 2008, when the company was getting going.

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Sometimes biotech startups can find a backdoor route to going public without going to all the trouble of doing an IPO, and that’s what Seattle-based Allozyne just did today.

Allozyne, the developer of a long-lasting protein drug for multiple sclerosis, said today it has agreed to a merger with San Francisco-based Poniard Pharmaceuticals (NASDAQ: PARD) in which the little private company is essentially acquiring Poniard. Allozyne CEO Meenu Chhabra will lead the newly combined company, Allozyne shareholders will own 65 percent of the new entity, and Allozyne will control four of the seven board seats.

The combined company, to be headquartered in Seattle, plans to develop Allozyne’s experimental drugs and technology, and find a partner to carry on with Poniard’s lead asset, a cancer drug called picoplatin.

Poniard, the company known years ago as Seattle-based NeoRx, has retained its listing as a public company, but has essentially turned into a shell of its former self since picoplatin failed in the third and final phase of clinical trials in November 2009. The company lost about 80 percent of its stock value that day, and the stock was valued at just 19 cents a share today before the Allozyne deal was announced—meaning Poniard was only worth about $11 million heading into today.

So this is a deal that enables Poniard shareholders to get some new drugs that might be worth something, while it provides Allozyne with a way to connect with a new class of public investors, and potentially provide liquid returns for the venture capitalists who have put $43 million into the company since its founding in 2005.

“I’m extremely proud that an Accelerator company, if this merger closes, will be publicly traded. It will be a first for us,” says Carl Weissman, the founder and CEO of Accelerator, the Seattle-based biotech incubator that started Allozyne. “It’s a real testament to how great the company has done.”

Chhabra, a former dealmaker with Novartis, summed up what it means to Allozyne in a short conference call with investors. “We can now access the public markets to accelerate our strategic plan.”

Meenu Chhabra

There are a number of moving parts to the actual deal that were outlined in a statement. Under the deal, Poniard shareholders will issue shares to Allozyne shareholders based on an exchange ratio to be determined when the transaction closes. Allozyne shareholders are expected to own 65 percent of the company, while Poniard shareholders will get 35 percent. Bay City Capital, one of Poniard’s largest shareholders, has agreed to loan the company about $2.4 million at an 18 percent annual interest rate. The board will be composed of four Allozyne directors—Chhabra, Steve Gillis of Arch Venture Partners, Michael Steinmetz of Clarus Ventures, and Carl Weissman of Accelerator/OVP Venture Partners. The board will also include Poniard’s current CEO, Ron Martell, one other director selected by the Poniard board, and one more independent director selected by a majority of the board.

Leerink Swann advised Poniard on the financial aspects of the deal.

For those new to the Allozyne story, the company’s lead drug, AZ-01, is designed to be a long-lasting form of interferon beta, which has the potential to reduce the number of injections that multiple sclerosis patients need to control their disease. The company, based on technology licensed from Caltech, is also working on ways of engineering different properties into protein drugs, like attaching toxins to make them more potent, or devising ways to make them specifically hit two biological targets instead of just one. The company revealed some early-stage clinical trial results for its multiple sclerosis drug in an Xconomy exclusive earlier this year at the JP Morgan Healthcare Conference.

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Alder Biopharmaceuticals, the Bothell, WA-based developer of antibody drugs, said today it will receive a $15 million milestone payment from its partner, Bristol-Myers Squibb. Alder got the milestone for initiating a Phase 2b clinical trial of its rheumatoid arthritis drug, ALD518, in a trial that compares it against a blockbuster drug in the category—Abbott Laboratories’ adalimumab (Humira). Alder struck its partnership with Bristol-Myers to develop ALD518 (aka BMS-945429) back in November 2009.

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Cambridge, MA-based Aveo Pharmaceuticals (NASDAQ: AVEO) said today it has raised another $100 million. The company sold 5.75 million shares at $17.50 apiece in an underwritten offering managed by JP Morgan Securities, Jefferies & Co., and Canaccord Genuity. Aveo, the developer of cancer drugs, said in its most recent quarterly report that it had about $233 million in cash and investments as of March 31, and enough money to operate through 2012. Aveo sold the new shares at about an 8.3 percent discount to yesterday’s closing stock price of $19.09.

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San Diego-based Ambit Biosciences wasn’t able to raise the kind of money it wanted from public market investors, so it has gone back to the VC world for another $30 million.

Ambit said today it has put together a Series D-2 venture round (is that supposed to sound cooler than Series E?). The financing was led by Apposite Capital, and included Perseus-Soros Biopharmaceutical Fund, OrbiMed Advisors, Forward Ventures, Roche Venture Fund, MedImmune Ventures, GIMV, GrowthWorks, Genechem, Radius Ventures, NovaQuest and Horizon Technology Finance.

The company pulled in the new money to help pay for a mid-stage trial of its lead drug candidate for acute myeloid leukemia. Ambit had hoped to raise a lot more, around $86 million, through an IPO, but pulled the plug earlier this week when it found there wasn’t enough demand from investors to get its desired terms. Even though Ambit has a partner in Japan-based Astellas Pharma, the company clearly needed to find cash from some other source than the IPO market. Ambit, in its most recent regulatory filings, said it had a net loss of about $26 million in the nine-month period ending on Sept. 30, and it had about $37 million of cash in the bank at that point.

The latest venture round brings Ambit’s fundraising tally to at least $135 million over the past 11 years. The new money will be used to help advance not only Ambit’s lead drug, but also two others in the early stages of clinical trials, CEO Alan Lewis said in a statement.

“We are very pleased that our existing investors have reaffirmed their confidence in the company, providing us with sufficient funding to pursue our strategy and enabling us to withdraw our plans for an initial public offering,” Lewis said.

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Seattle-based Adaptive TCR, a startup that grew out of immune-system profiling work at the Fred Hutchinson Cancer Research Center, has raised $5.8 million in an equity investment round that could be worth as much as $7.5 million over time.

Adaptive TCR, profiled in these pages back in December, has secured the new financing from a group of wealthy individuals, according to CEO Chad Robins. He’s not naming names, although a filing with securities regulators says that 63 accredited investors participated in the round, and Robins said none are venture capital firms. This is the second notable cash infusion for the company, got up and running with its first $4.5 million in March 2010.

The investors are betting here on a big new idea that uses fast/cheap DNA sequencers, cloud computing infrastructure, and proprietary software. Those tools, taken together, are used to analyze a bewilderingly complex set of data on how a patient’s immune system has gone awry, or how it’s effectively responding to viral or bacterial invaders. So far, Adaptive TCR has found a market for this kind of tool, assembling a roster of more than 50 customers from academic research centers in its first year.

Lately, the business has been adding new customers at the rate of almost one per day, Robins says. That kind of momentum enabled the company to raise the new capital, which it plans to use for developing the technology into a new kind of diagnostic test for various forms of cancer or autoimmune disease.

“What we have is like the MRI for the immune system,” Robins says. The financing, he says, “will allow us to aggressively grow our brand and platform and emerge as a dominant player in the next-gen sequencing immune profiling space.”

Adaptive TCR isn’t disclosing how well it’s doing in terms of sales just yet. It has grown to 14 employees, and, while it isn’t yet profitable, it could get to that point by late 2011 or early 2012, depending on how much it chooses to invest in R&D, Robins says.

Chad Robins

The size of the market is really anybody’s guess since this is a new niche, and there are only a few emerging players besides Adaptive TCR, such as San Francisco-based Sequenta. The opportunity will depend on which diseases Adaptive TCR sets out to diagnose. Robins wouldn’t say which forms of cancer or autoimmunity the company has in mind.

Adaptive TCR’s biggest fans are early adopters in the biomedical research community, Robins says. While the company hopes to publish eight to 10 academic research papers of its own this year, to show what its ImmunoSEQ system can do, the technology could get an even bigger boost from what those scientists do with it on their own, he says. About a half dozen influential scientists have submitted papers to top scientific journals on discoveries they have made with the Adaptive TCR system, and the company has increasingly been cited for its work at scientific meetings, Robins says.

What this tool is supposed to do is something that nobody really thought seriously about until DNA sequencing got super-fast and super-cheap, as did cloud computing infrastructure.

A little science is required to get the gist. While the 3 billion letters of DNA that make up a genome are consistent in almost every cell of the body, the immune system’s B cells and T cells are an exception. In these cells, … Next Page »

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Conventional wisdom a couple years ago said that the era of the independent biotech giant was over.

Nobody would ever again build a multi-billion dollar, fully integrated independent biopharma company on the scale of an Amgen (NASDAQ: AMGN), or even a Gilead Sciences (NASDAQ: GILD). Drug development is too risky, time-consuming, and expensive. Investors, tired of execs who overpromise and underdeliver, were thought to no longer have the patience or the stomach for the whole messy ordeal.

Sure, the occasional feisty little biotech could raise money for a promising R&D project, and every once in a while, they might succeed in getting an FDA approved product. But it was only a matter of time before the little biotech would see an opportunity to cash out, and get acquired by a Big Pharma company that needed to feed its beastly appetite for new surefire moneymakers. Jobs would be lost, a company culture would die, and often, a region’s economy would be wounded.

This still occurs, but I’ve started to doubt that this is the grim destiny of all biotechs. There’s no question most biotech startups today have slim hope of ever going public at a decent valuation, and they are being built with an eye toward getting bought by a Big Pharma. But there are also signs that biotech drug developers in 2011 can stand on their own two feet as long as they want, maintain control over their company culture, and continue to grow while discovering, developing, and marketing their own products.

There are a few companies of the past couple years that are in position to blaze this trail once again. Cambridge, MA-based Vertex Pharmaceuticals (NASDAQ: VRTX), Seattle-based Dendreon (NASDAQ: DNDN), Cheshire, CT-based Alexion Pharmaceuticals (NASDAQ: ALXN), South San Francisco-based Onyx Pharmaceuticals (NASDAQ: ONXX), and Rockville, MD-based Human Genome Sciences (NASDAQ: HGSI) could all be placed in this next category. They all have potential to stay independent, and profitable, for the long haul.

Taken together, these companies are still not quite in the same “Big Biotech” class that is dominated by Amgen, Gilead Sciences, Biogen Idec, and Celgene. Those big four have multiple products on the market, thousands of employees around the world, and a track record of consistently generating big profits.

The next tier of companies down still has a ways to go before they reach that status. If you add up the market capitalization and employee headcounts of all five companies—Vertex, Dendreon, Alexion, Onyx, HGSI—you get $34 billion of market value, and about 5,530 employees. Taken together, those companies add up to about one Gilead—and they aren’t even close to Amgen.

Still, the next group of companies have room to grow. Vertex just won FDA approval of its first homegrown drug last month, and has another one on deck. Dendreon is just now moving into position to start manufacturing enough of its drug to … Next Page »

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