BioWorld International Correspondent

LONDON - Celtic Pharmaceutical Holdings raised $156 million in loans secured against the seven drug development programs in its portfolio, and two or three others it is looking to acquire. The move brings the Bermuda-based company's total capital to more than $400 million.

The principal and interest due on the loans will not be paid until there are proceeds from selling products onto pharmaceutical companies. At the time it set out to borrow the money, there were eight products, but when it announced the successful fund raising, the company also said it was axing its most advanced program, TransMID for treating inoperable brain tumors, following an interim analysis of the ongoing Phase III trial.

John Mayo, managing partner, told BioWorld International this had not impacted sentiment around the fund raising. "The news on TransMID came in during the process [of raising the loan]. But we are not like a biotech with a lead product and others following based on the same technology. We have a bunch of other products based on different technologies."

The firms taking up the private placing of notes are, "typical debt investors. They evaluate the portfolio and they assess the risk," Mayo said.

Each product in the portfolio separately is valued by a third party as part of the due-diligence process. TransMID "was one technology and a smallish product, and investors like ours want to see you terminating [doubtful] programs rapidly to conserve cash," he added.

Celtic Pharma established its model of acquiring late- stage products for onward development and sale as a route to reducing the risk in drug development.

Mayo said the initial investment premise has been employed since the company was formed in 2004. Pharmaceutical companies are even more desperate to fill their pipelines, and there are still "hundreds and hundreds" of biotech companies struggling to raise capital.

While he acknowledged there is more competition for later-stage products, Mayo said an operation like Celtic Pharma is more agile and can move faster than others in the market. "We don't have the burden of a huge portfolio and a huge number of people to consult, so we have an edge when it comes to acquiring."

Celtic said the manner of the decision to scrap TransMID was a further vindication of its model. As a private equity firm it is not subject to external pressures to continue with programs whose risk/reward profiles are shifting in the wrong direction. "It is an integral part of our investment philosophy to act on failing products early in order to shift resources to more promising programs in our portfolio," said Celtic's co-founder, Stephen Evans-Freke, in a company statement.

With TransMID scrapped, Celtic's most advanced product is Xerecept, a synthetic corticotrophin-releasing factor for the treatment of cerebral edema, which is in Phase III.

Following behind are TA-CD and TA-NIC, vaccines against cocaine and nicotine addiction, respectively. These came into the portfolio with TransMID when Celtic acquired Xenova Group plc in 2005. Mayo said at present work on the two Phase II vaccines is concentrating on manufacturing issues ahead of Phase III development.

The remaining four products are based on using a novel, topical delivery system in combination with marketed drugs. The lead of those will use the system to deliver an antifungal for treating toenail and fingernail infections, avoiding the risk of side effects seen with systemic delivery, and perhaps providing superior efficacy to current topical formulations. Another program aims to develop a spray-on formulation of an anaesthetic that must be injected currently.