Friday, June 27, 2008

With merger dead, Dynogen CEO chases VC funding

By Ryan McBride

After its deal to go public fell through in April, Dynogen Pharmaceuticals Inc. of Waltham has changed its focus to a large private equity round due to close in the coming months, the biotech firm’s CEO said recently.

Dynogen gained the attention of the public markets early this year on the strength of its treatments for irritable bowel syndrome now in mid-stage clinical trials, and it had planned to go public through a merger with California-based Apex Bioventures Acquisition Corp., a special purpose acquisition company (SPAC). But Dynogen and Apex agreed to nix the deal this spring due to market conditions.

Lee Brettman, CEO of Dynogen, said his firm is now in the midst of raising more than $30 million in a private financing. “I expect it will take a few months to get done,” said Brettman, who declined to provide details about the exact amount of private capital the company plans to raise or the investors involved in the round. 

The major round of venture capital, he said, would fund additional clinical trials of the firm’s lead compounds for irritable bowel syndrome, an ailment associated with a variety of gastrointestinal problems such as diarrhea and constipation. The company raised $5 million through a notes and warrants offering this month to fund the company in the meantime, according to a U.S. Securities and Exchange Commission filing.

With its lead drugs projected to enter pivotal clinical trials within two years, Dynogen had risen to the top of a list of 200 private biotechs Apex Bioventures considered for its merger.

Brettman shed some light on the market conditions that led to the end of the deal between Dynogen and Apex. He said the interest from public investors, who buy shares of SPACs to complete mergers between those firms and private companies, was not sufficient enough to complete the deal.

The Apex deal had been structured to provide Dynogen’s shareholders — which include Massachusetts venture capital firms Oxford Bioscience Partners, SV Life Sciences, HealthCare Ventures, Atlas Venture and Abingworth — with $98 million in Apex stock. Dynogen, founded in 2002, has raised $67 million in venture capital.

Jeffrey Quillen, a partner in the life sciences business practice at law firm Foley Hoag LLP in Boston, said the poor market for initial public offerings is forcing VC firms to come up with additional capital to support their portfolio companies and even widen the pool of investors to include hedge funds.