Privately held antibody firm KaloBios Pharmaceuticals Inc. raised $20 million in Series C financing to advance its clinical-stage candidates in rheumatoid arthritis and Pseudomonas aeruginosa lung infections.

New York-based Lehman Brothers led the financing, announced today, with a $10 million investment. Since its founding in 2001, KaloBios has raised about $48 million. The Series C funds, along with money from an April collaboration with Novartis AG, should carry the firm into 2009, said David Pritchard, CEO.

"When we started the Series C in January, we were actually looking for much more money," he said. "But we significantly cut that down after the Novartis deal."

Specific terms of that agreement were not disclosed, though Pritchard said that "substantial money will be received this year," from Switzerland-based Novartis in exchange for a nonexclusive license to KaloBios' Humaneering platform technology. KaloBios, which had worked with the pharma firm under a pilot research and development deal, will "Humaneer" three antibodies for Novartis.

The Humaneering system is designed to use bacterial expression systems to produce antibodies that are closer to human germline sequences than the products of fully human antibody techniques.

The advantages of "Humaneered" antibodies include a potential for greater potency with low immunogenicity, which could allow for long-term administration in chronic disorders, such as rheumatoid arthritis. KaloBios also holds rights to the intellectual property and, therefore, is unlikely to get entangled in stacked royalty deals. The company might seek out a few other deals similar to the one with Novartis, though Pritchard said those would be "very selective" to keep the firm's options open with regard to future growth.

The company's Series C round, which included participation from several existing investors - Boston-based MPM Capital, San Francisco-based Sofinnova Ventures, Palo Alto, Calif.-based Ally Ventures, Menlo Park, Calif.-based 5AM Ventures, Singapore-based Singapore Bioinnovations Pte. and Hong Kong-based Lotus BioScience Ventures - was extremely competitive, said Pritchard, most likely spurred by the industry's growing affinity for antibody firms. Investors "really like the combination of monoclonal antibody platforms and high-quality clinical candidates," he said, as evidenced by a number of high-dollar acquisitions over the past couple of years, such as London-based AstraZeneca plc's $1.1 billion buyout of Cambridge Antibody Technology Group plc last year and Tokyo-based Eisai Co. Ltd.'s acquisition of Exton, Pa.-based Morphotek Inc. for $325 million earlier this year.

Pritchard said the recent venture round ideally would be the last private financing before an initial public offering, though the company is not averse to a buy-out if the right deal comes along.

Meanwhile, it will continue using the platform technology to develop its internal drug pipeline. Its lead candidate, KB002, targets granulocyte macrophage colony-stimulating factor (GM-CSF), and is in Phase II testing in rheumatoid arthritis patients, with future studies expanding into asthma. That compound, which was licensed in 2004 from the Ludwig Institute for Cancer Research in Melbourne, Australia, is an engineered human monoclonal antibody, through KaloBios expects to replace it with KB003, a "Humaneered" antibody targeting GM-CSF.

GM-CSF is the "prime activator of neutrophils and macrophages in white blood cells," Pritchard said, and already is targeted by treatments for neutropenia, such as Leukine (sargramostim, Berlex Inc.) But, instead of activating GM-CSF, KaloBios' drug aims at neutralizing the pro-inflammatory cytokine/growth factor that's overactivated in patients with rheumatoid arthritis and other inflammatory diseases.

KB002 is the first GM-CSF neutralizing drug in the clinic, though Carlsbad, Calif.-based Micromet Inc.'s MT203, a similar antibody product, is expected to begin human testing next year.

"It's a very exciting target," Pritchard said, "and hopefully, we'll have some positive data soon."

Beyond the KB002/KB003 program, KaloBios has a "Humaneered" PEGylated monoclonal antibody fragment aimed at treating Pseudomonas aeruginosa infections, a common hospital-related infection that is especially difficult to treat. It's prevalent among patients who are on ventilation, and the mortality rate among ventilated patients infected with P. aeruginosa is estimated to be between 25 percent and 50 percent, Pritchard said.

KB001 is designed to target and neutralize the PcrV protein of the Type III secretion system of the bacterium to inhibit its toxic effects. The company began dosing healthy volunteers last month in a Phase I trial expected to involve about 20 patients with endpoints of safety and pharmacokinetics.

"We plan to start studies [of KB001] next year in cystic fibrosis patients and in VAP, or ventilator-associated pneumonia," Pritchard told BioWorld Today.

The company holds rights to both of its clinical programs, but it expects to start looking for potential partners at the conclusion of Phase II proof-of-concept studies.

Some funds from the recent financing also will be used to advance the firm's preclinical pipeline, starting with oncology candidate KB004. KaloBios anticipates filing an investigational new drug application for that program around the end of next year. "Our goal is to file one IND a year," Pritchard said.

KaloBios, which is based in Palo Alto, Calif., has 30 employees.