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Caprion’s Decision to Abandon Its IPO Signals Capital Markets Remain Cool to Some Biotechs

Done in, at least for now, by a weak capital market wary of life science companies, Caprion Pharmaceuticals has withdrawn its initial public offering in Canada, the company said last week
The Montreal-based company, which had announced in May its intention to trade on the Toronto Stock Exchange, cited “adverse market conditions” in its one-sentence press release. Messages left for Caprion’s president and CEO Lloyd Segal were not returned.
Once seen as the darlings of the investment community, companies such as Caprion have more recently been shunned by the capital markets. Caprion is an emerging drug maker whose main source of revenue is its CellCarta protein-analysis platform, and its abrupt about-face may be an indication that institutional investors — still smarting from investments gone bad during the past decade — remain leery of biotech and life science firms, analysts said.
“The whole industry is tainted by the spectacular failures of the past,” said Geoff Houlton, life sciences analyst at Octagon Capital in Toronto. The result is that the Wild West investment environment ushered in by the New Economy has given way to a more conventional investment mindset.
The current IPO environment is a reflection of a Bearish stock market in general [see sidebar], and analysts said companies with hard-to-understand offerings and a high risk factor, such as Caprion, will find it especially challenging to raise public capital.
“The companies that will probably withdraw or postpone their offerings would be intellect sciences,” said David Menlow, president of IPO research firm “People don’t like to buy a promise for the longer term, which is what most of these companies are about, and then sit and wait through what might end up being more difficult market conditions.”
So what are investors looking for? According to analysts they want companies with a significant commercial market and products that are economically viable. Furthermore, they want a clearly defined path to the market and a timeline on when revenues will be generated. And of course they want a management team that can implement the business plan.
“For life science companies you have to be able to demonstrate that you’ve got the classic elements,” Houlton said.
Diseases and Dollars
Founded in 1988, Caprion first moved into the proteomics field in 2001 when it created a facility with about 18 mass spectrometers. [See PM 11/22/00]
Caprion’s business model today is built on the potential of its CellCarta proteomic platform and its two clinical-stage pipeline drugs, Shigamabs, a dual antibody therapeutic for Shigatoxin-producing bacterial infections, and CAP-232, an intravenously administered peptide that induces cell death by binding to a novel target known as pyruvate kinase M2 found abundantly in cancerous tissues.
Caprion purchased CAP-232 in April from ExperGen.
For the three months ended March 31, Caprion posted revenues of CA$1.3 million ($1.1 million at the time) and a net loss of CA$7.1 million. It spent CA$3.8 million on R&D and had CA$13.3 million in cash and cash equivalents.
In its proxy statement filed with the Canadian Securities Administrators on May 5, Caprion called CellCarta “one of the leading discovery engines in the area of proteomics.”
The company further said CellCarta “provides us with an effective means to expand our therapeutic pipeline through the discovery of new therapeutic targets, clearer evaluation of potential in-licensing opportunities and earlier determination of a drug’s efficacy and toxicity.”
The scientific and commercial utility of CellCarta had been validated by collaborations the company had forged with 10 drug and biotechnology companies, government agencies, academic institutions, the company said in its filing.
Those collaborations have generated revenues of more than CA$25 million since 2002 and an order book of more than CA$10 million. The collaborations also have the potential to generate future milestone payments of more than CA$70 million during the next seven to 10 years, Caprion said in the proxy.

“The companies that will probably withdraw or postpone their offerings would be intellect sciences. People don’t like to buy a promise for the longer term which is what most of these companies are about and then sit and wait through what might end up being more difficult market conditions.”

Assessing the future of CellCarta, Caprion said, “…we expect that the pharmaceutical industry’s demand for proteomics discovery services will continue to grow due to continued pressure from regulatory authorities, patients and third-party payers for the faster development of safer and more effective therapeutics and the need to reduce the costs of new drug development.”
It further cited a report by Jain PharmaBiotech, an independent consulting firm, forecasting the worldwide annual market for proteomic technologies and applications to grow to US $18 billion by 2015 from $6 billion in 2005 with the proteomics biomarkers market reaching $4.5 billion by 2015 from $1.5 billion in 2005.
As for Shigamabs, the company estimated that the market for just Shigatoxin-producing E. coli — the most common Shigatoxin-producing bacteria — to be between $500 million and $750 million.
CAP-232 is being originally developed for metastatic melanoma, which afflicts 41,000 people worldwide, and pancreatic cancer, which afflicts about 93,000 people just in the US and Europe each year. In its filing, Caprion cited industry estimates that by 2010 the worldwide market for treatments of malignant melanoma will reach $775 million and by 2013 the worldwide market for therapeutics in pancreatic cancer will reach $2.1 billion.
In the months leading up to announcing its plan to go public, Caprion forged ahead with new business partnerships. In January, the company said it had entered into an agreement with Berlex to use the CellCarta platform to identify plasma-based pharmacodynamic biomarkers [See PM 01/26/06]. The same month, it announced a research agreement with ICOS [See PM 01/19/06].
The following month it announced an agreement with ImClone Systems under which ImClone could license certain antigen protein targets to help it develop cancer treatments.
Then in March, Caprion said it had reached a deal with Vertex Pharmaceuticals to use CellCarta for biomarker discovery [See PM 03/30/06].

As of March 31, the company had 65 employees and anticipated adding another 10 to 15 people to strengthen its development capabilities.

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