VCs Give Novirio $44M Mezz Injection

Burning the midnight oil has certainly paid dividends for Cambridge, Mass.-based Novirio Pharmaceuticals Ltd., which recently received a $44 million capital injection in an oversubscribed mezzanine deal.

The entire Series C transaction took a few months to orchestrate, but when it came down to settling the last-minute details, the final term sheets were signed and sealed by the end of one late-night meeting between the company and its VCs.

“We worked on it until midnight, and the next morning, [we got] the official wire transfer,” explained David Franklin, executive director of marketing and communications with Novirio.

A rare phenomenon at a time when most VC firms are tightening their purse strings against many new investments, Novirio managed to draw quite a bit more capital than it was looking for in its initial private placement memorandum, which called for just $30 million.

“We were shocked,” Franklin said. “The way the market has developed, it?s such a dismal time for financing. We were hoping we would [hit our] $30 million [target].”

What the three-year-old biopharmaceutical firm originally did not count on, however, was reaching some significant milestones ? including ushering several drug discovery programs to the clinical phase ? that would ultimately bolster its valuation and overall appeal to investors.

Franklin declined to comment on Novirio?s post-money worth, but he did reveal that this was an up-round for the company.

CSFB Private Equity led the deal, and was joined by TVM Techno Venture Management, MPM Capital, Nomura International PLC, Novartis BioVentures Ltd., Hanseatic Americas LDC, Biomedical Sciences Investment Fund PTE Ltd., Swiss Life Private Equity Partners Ltd., Banc of America Securities LLC and Swan Private Equity.

CSFB?s Michael Schmertzler also received a Novirio board seat as part of the deal.

Although the financing is officially closed, one offshore straggler is expected to wire $5 million to the company within the next few weeks. The transaction won?t change the round?s final total, however, as the $44 million figure was based on both written and oral commitments, Franklin said.

Virus Buster

Along with competitors like pharmaceutical giant GlaxoSmithKline and biomedical firm Gilead Sciences Inc., Novirio is attempting to tackle and eradicate the more than 520 strains of chronic hepatitis B and C world-wide. In fact, hepatitis B is currently ranked the world?s ninth leading cause of death because it leads to other complications such as cirrhosis, cancer and liver failure, Franklin said. In addition, there is presently no foolproof vaccine for hepatitis C, he added.

“There is a huge unmet medical need, especially in countries like China, where there are over 100 million cases of hepatitis B,” Franklin said. “These are diseases you don?t hear as much about as HIV, but they affect huge populations.”

The drugs Novirio is developing, however, are expected to greatly impact the reduction of hepatitis B and C infections on a global scale if they pass muster with the Food and Drug Administration. Right now, the biopharma company is in various stages of clinical trials with both its hepatitis B and C products, and hopes to gain FDA approval on the hepatitis B drug sometime in 2002.

To that end, the company intends to use some of the cash from its latest, and likely last, private equity infusion to accelerate the clinical development of its products, as well as forge partnerships with large pharmaceutical companies that will likely bring Novirio additional strategic monetary support down the road. The company expects to announce such a partnership with a dominant pharmaceutical player in Asia shortly to augment its product commercialization efforts there, Franklin said.

In addition to Asia, Novirio will likely focus on commercializing its Hepatitis B and C drugs in Western Europe and the U.S., he added.

Besides Hepatitis, Novirio is also involved in drug discovery and development programs for the HIV and AIDS viruses.

With its clinical trials moving full steam ahead and its coffers full of fresh venture capital, Novirio?s next round of financing will most likely come from the public markets, perhaps as early as next year, Franklin said.

Contact Robyn Kurdek: Robyn Kurdek