Karolinska Development AB is getting an SEK220 million ($33.7 million) cash injection from Rosetta Capital Ltd. for 13 of the 25 companies in its portfolio.

The new money will go a long way toward helping the firms, which are all early stage, gain enough maturity to find partners or buyers. "It gives us enough cash to reach all the major inflection points in our portfolio," Torbjörn Bjerke, CEO of Solna, Sweden-based Karolinska Development, told BioWorld Today.

The 13 companies span all stages of drug development from preclinical research through to Phase II development, the point at which Karolinska seeks an exit, in the form of a partnership or trade sale. Several med tech firms are also included in the deal.

The new money will be earmarked for those firms that are part of the transaction. They represent about 80 percent of the net asset value of the entire portfolio. A new holding company called KDev Investments AB has been established to take account of the shared ownership structure. The deal implies a combined valuation of SEK1,500 million for the companies included under the KDev banner, which represents a 23 percent premium on their previously reported fair value. The transaction increases Karolinska Development's pro forma net asset value from SEK40.40 to SEK46.30 per share.

The transaction will also free up Karolinska Development to invest its existing cash into the remaining 12 firms. When the transaction closes at the end of January, Karolinska Development will have around SEK500 million on its balance sheet, which represents a minimum of two years of cash.

The Rosetta deal is a structured investment. London-based Rosetta will pay a first tranche of SEK203 million when the transaction closes at the end of January. It will pay the remaining SEK17 million when returns from the KDev Investments portfolio reach SEK17 million.

In return, Rosetta will receive a 13.66 percent stake in KDev Investment, 7.33 percent of which is in the form of common stock. The remainder takes the form of preference shares, the ultimate value of which will vary depending on the performance of the portfolio.

Rosetta, through its preference shares, would receive all of the proceeds should the portfolio fail to deliver a return less than SEK220 million. It would receive 30 percent of returns between SEK220 million and SEK880 million, plus an additional 5.1 percent through its common shares. The return to the preference stock would fall to 18.33 percent should the portfolio deliver returns between SEK880 million and SEK1,320 million. Rosetta's common stock would receive an additional 6 percent. For any returns above that threshold, Rosetta's preference stock would be worthless, and it would receive only 7.33 percent of the total returns.

In tandem with the announcement, one of the firms included in the deal, Pergamum AB, reported that its novel anti-microbial peptide, DPK-060, attained a cure rate ranging from 85 percent to 94 percent (depending on which rating scale was applied) in a placebo-controlled Phase II trial in 69 patients with acute external otitis.

The condition, a fungal or bacterial infection known commonly as swimmer's ear, affects around 10 million people in the world's main drug markets. DPK-060 is a first-in-class molecule, derived from the endogenous human protein kininogen, and is considered to have a low risk of inducing resistance.

Another company in the KDev portfolio that has reached Phase II trials is Axelar AB, which is developing a small-molecule inhibitor of insulin-growth factor receptor, which, unlike many other small-molecule inhibitors, does not act on the related insulin receptor.

A Phase II trial in non-small-cell lung cancer is under way. Two other oncology firms, Aprea AB and KDev Oncology AB, have Phase II trials under way as well.

Karolinska Development was established in 2003 in order to commercialize promising projects from the Karolinska Institute, one of Sweden's leading biomedical research centers. About 40 percent of its projects still come from that organization, but the majority now comes from external sources. The companies in the portfolio are managed virtually, and Karolinska Development has assembled experienced R&D and business development teams that work across the portfolio. "We're not building companies, but we're developing assets," Bjerke said.

Rosetta's team will become part of that effort once the deal is closed.

Karolinska Development's stock has traded publicly since April 2011, when it raised SEK608 million in an IPO. The stock (STOCKHOLM:KDEV) peaked at SEK18 after the deal was announced but closed at SEK14.75 Friday, a gain of 8 percent on its previous close.