Early VC Arch Exits Ikaria with $2.3B Sale to Mallinckrodt

Xconomy New York — 

Ikaria, the private healthcare startup that failed a stab at the public markets in 2010, is being sold by its private equity owner for $2.3 billion to global biopharmaceutical company Mallinckrodt.

The sale provides a pretty exit for more than just Madison Dearborn, the Chicago firm that bought a majority stake in late 2013 (a deal that boosted Ikaria’s valuation above $1.6 billion). Ikaria’s early VC investors and management, including Arch Venture Partners, apparently have made an exit on the 48 percent stake they continued to hold.

“IkarIa sells for 2.3 B, completing ARCH exit. :),” tweeted cofounder and managing director Bob Nelsen, who told Xconomy in 2008 that Ikaria could be the “biggest biotech IPO ever.”

Arch is gaining close to $45 million from the sale, bringing its total cash proceeds from Ikaria to almost $175 million, Nelsen wrote in an e-mail. That doesn’t include Arch’s stake in Bellerophon Therapeutics, which spun off from Ikaria in 2014 to develop devices to treat health issues including pulmonary hypertension.

It starts 2015 with a bang, and hope to have a few more like this if we are lucky,” Nelsen wrote in the e-mail.

That ambition was never realized. Nor was the company’s early goal to produce a “hibernation on demand” drug that would slow down a patient’s metabolism and, for example, give critical-care doctors extra time to do life-saving surgery. The company studied its hibernation-on-demand drug, IK-1001, through 2011, but those studies were terminated and Ikaria doesn’t list the drug on its website.

The scientist behind the hibernation concept—Mark Roth of the Fred Hutchinson Cancer Research Center in Seattle—is still working on the problem, experimenting with different compounds, as this article describes. Roth is also working with Arch on Faraday Pharmaceuticals, which is focused on treating acute injuries.

Instead, the Hampton, NJ-based Ikaria pivoted toward a different product, Inomax, which it gained through its 2007 merger with INO Therapeutics. When Ikaria cancelled its IPO attempt in late 2010, it was already reaping revenues from Inomax.

The focus of Dublin-based Mallinckrodt’s acquisition, Inomax is an FDA-approved therapy for hypoxic respiratory failure in infants, a potentially deadly condition sometimes called “blue baby” syndrome. Ikaria is looking for additional applications for Inomax and the multiple delivery systems for the drug, the companies said in a statement.

Mallinckrodt expects to add $150 million of net sales from the deal, which is expected to close this year. The company is funding the deal with cash and debt, according to the statement.

Ikaria also has a drug called terlipressin in the pipeline for hepatorenal syndrome type 1, a rapid kidney failure in patients with chronic liver disease such as cirrhosis, the companies said. It has been approved in countries outside the U.S., they said.

Madison Dearborn invested $224 million in the December 2013 buyout of Ikaria, with existing shareholders and management rolling over $188 million of equity, according to Moody’s Investors Service. The company used that and $1.25 billion in debt to pay for the acquisition, repay existing debt and cover fees and expenses, Moody’s said at the time.

That left Madison Dearborn with 52 percent of the company, while management and the existing owners held 48 percent, Moody’s said.