West Coast Editor

SAN FRANCISCO - Slung with Navy blue canvas bags, attendees of the Biotechnology Industry Organization's InvestorForum meeting streamed through the halls of the aptly named Palace Hotel, watching company pitches and listening to workshops on subjects ranging across cancer, autoimmune diseases and cardiovascular disorders, as well as financing.

On that last topic: Cambridge, Mass-based CombinatoRx, whose Chief Financial Officer Robert Forrester was slated to present midafternoon Thursday, entered agreements with institutional investors to sell up to 5.6 million shares of its common stock - 5.6 million shares at $6.25 each - $35 million in a registered direct offering.

The price represents a 10 percent discount to the closing price Wednesday, and CombinatoRx expects to net about $33.1 million in the deal for corporate purposes including development of its plentiful Phase II pipeline.

CombinatoRx's business model, which involves pairing existing drugs for better effects, allows the firm to reach the Phase II stage more quickly, and the new money will add to $101 million in cash reported at the end of the second quarter, said Gina Nugent, vice president of investor relations and corporate communications.

"It also puts us in a really strong bargaining decision [with potential partners], as opposed to running on fumes and going in on your knees," Nugent told BioWorld Today. "We're not negotiating yet, but we're having conversations with the right players." The company expects to burn "a little under $50 million this year," she said.

CombinatoRx's shares (NASDAQ:CRXX) closed Thursday at $6.22, down 47 cents.

The pipeline includes CRx-102, an oral combination of prednisolone and dipyridamole, which started a 250-patient Phase IIb trial last month in osteoarthritic knee pain, and the insulin sensitizer CRx-401, which entered an 80-patient Phase IIa proof-of-concept trial in August.

CRx-401 combines a dyslipidemia agent used overseas, bezafibrate (in the pan-PPAR class), with the nonsteroidal anti-inflammatory drug diflunisal, and CombinatoRx is testing it as an add-on therapy, compared to bezafibrate alone.

Bezafibrate would need more trials for clearance in the U.S., but could prove lucrative. The approved PPAR activator Tricor (fenofibrate, Abbott), sold $1 billion last year. After CombinatoRx gets more data with CRx-401, the firm probably will shop for partners to help with the Type II diabetes bid, Nugent said.

"It's extremely hard to move forward in diabetes," she noted, because of costly trials and marketing hurdles.

Analysts expect results from the CRx-102 knee trial in the middle of next year.

"Osteoarthritis is a huge market, and there is a huge gap in the treatment pipeline right now," thanks to safety issues with previously used drug classes, Nugent said. "You go from aspirin to opioids with nothing in between. The big challenge for us there is that steroids are not used at all in osteoarthritis. It would be changing an entire treatment mindset."

Shortly, the firm will start a Phase IIb rheumatoid arthritis trial with the compound, which is dosed twice daily. "That's going to be a very significant trial, with over 600 patients," Nugent said. An improved form of the drug that uses a modified release of dipyridamole (to reduce side-effect headaches) also is in the works.

CombinatoRx is expected to report Phase IIa results with CRx-191 in psoriasis by the fourth quarter of this year or first quarter of next. The compound consists of the steroid mometasone and the antidepressant nortriptyline in a cream formulation, and could take a shot at first-line psoriasis and atopic dermatitis (eczema), where an opportunity opened in the spring of 2005.

That's when the FDA followed a panel's advice and put black box warnings on the eczema drugs Elidel (pimecrolimus, Novartis AG) and Protopic (tacrolimus, Fujisawa Pharmaceutical Co. Ltd.), warning doctors to prescribe the topical drugs "only as directed and only after other eczema treatments have failed to work," because of a potential cancer risk.

CRx-191 is "a cousin to CRx-197 in our topical dermatology program," Nugent said, adding the firm is able to complete skin trials "pretty quickly with a small number of patients."

As with CRx-102, CombinatoRx hopes to broaden steroid use with CRx-191 by adding oomph to the existing drug without upping the dose. The company recently kicked off a toxicology study to assure that nortriptyline doesn't trigger mometasone-induced skin atrophy. "What we're looking for is 'dissociated' steroids, that you can use chronically," Nugent said.

The markets for psoriasis and eczema, where first-line corticosteroids often trail off because of side effects, could be promising. Warner Chilcott, of Rockaway, N.J., launched an alternative, the vitamin D analogue Taclonex (betamethasone and calcipotriene) for psoriasis vulgaris, in March of last year for use in adults for up to four weeks. The drug sold $60 million last year, and could double that number in 2007.

CombinatoRx's Phase IIb trials with CRx-170, which puts prednisolone with nortriptyline for chronic low-back pain, have been delayed until possibly the middle of next year because the FDA wants a preclinical toxicology study. A Phase II trial had started in that indication, but when the company decided to boost enrollment beyond 200 patients, the agency asked for 90-day toxicology data.

"We're going to wait until we have the results from some of these other proof-of-concept trials before we invest [more] in CRx-170," Nugent said. Most analysts had not included the compound in their models, and "some had been afraid of [the chronic-pain indication] anyway, because it has been a bit of a graveyard," due to more subjective, less clear endpoints in trials, which lead to high placebo effects.

The BIO InvestorForum ended Thursday.