About 18 months after establishing a U.S. presence in San Francisco, bone disease company Osteologix Inc. completed a reverse merger and a $10 million financing that will help move its lead product into Phase II trials.

The financing expands Osteologix's investor base beyond its initial supporter, Copenhagen, Denmark-based Nordic Biotech.

"We were looking to finance the company, of course, but it's our feeling that by doing the reverse merger, it takes us public and provides liquidity to the founding venture capital firm," said Charles Casamento, president and CEO of Osteologix. "It really is sort of a back door IPO."

The reverse merger is being done through the exchange of shares with New York-based Castle & Morgan Holdings Inc., a defunct company with no assets or personnel, but with a public listing on the Over-the-Counter Bulletin Board.

Osteologix expects to know its initial ticker symbol within a few days. It plans to apply for a new listing on the American Stock Exchange.

Casamento said becoming a public company will allow Osteologix to fund itself more easily.

"As IPOs get more and more difficult to do, more and more biotech companies are going to be looking at these kinds of financings," he told BioWorld Today.

Another company that has used the method, Hana Biosciences Inc., of South San Francisco, went public in July 2004 when Hudson Health Sciences joined with Email Real Estate.com. (See BioWorld Today, July 26, 2004.)

More recently, Infinity Pharmaceuticals Inc., of Cambridge, Mass., gained a stock listing in April through a reverse merger with publicly traded Discovery Partners International Inc., of San Diego. (See BioWorld Today, April 13, 2006.)

Along with the reverse merger, Osteologix closed a $10 million private placement led by Rodman & Renshaw, of New York, and Roth Capital Partners, of Newport Beach, Calif., as placement agents.

Since Osteologix's 2003 inception, the company has raised $16 million, including the latest financing, and Nordic Biotech has served as its only investor until now. All investors, including those participating in the $10 million private placement, will receive about 87 percent of Castle & Morgan's shares.

Castle & Morgan will change its name to Osteologix Inc., making the San Francisco site the headquarters, and Osteologix A/S, of Copenhagen, a wholly owned subsidiary of the parent company. With the transaction, the two Osteologix entities essentially change places.

Osteologix intends to use proceeds from the financing to advance into a Phase IIa trial its lead osteoporosis product, NB S101 (strontium malonate), within the next four to six weeks.

The funds should last the company about two years, allowing it to complete the Phase IIa trial, and giving it "about six months of runway," Casamento said.

The clinical development risk for NB S101 is lower than for other Phase IIa products, he said, because Paris-based Servier already markets in Europe its product Protelos (strontium ranelate), which uses the same active ingredient and has been tested in more than 7,000 patients.

"I believe that a lot of the mystery and a lot of the lack of knowledge that you normally have with a Phase II or Phase III product, you don't have with our product," Casamento said.

A major difference between NB S101 and Protelos is the dosage form. The former offers a 1-gram tablet, whereas the latter is a 2.5-gram powder. The two were tested against each other in a Phase I study.

"We were able to deliver the same amount of free strontium to the blood in 1 g as they do in 2.5 g," Casamento said.

Protelos has done well its first five quarters on the market, he said, increasing sales in the first quarter of this year by 50 percent over the fourth quarter of 2005. Worldwide, the osteoporosis market is about $13 billion.

"What we find interesting," Casamento said, "is that only 25 percent of women who have osteoporosis are on therapy, and we believe that's because all of the therapies out there are not ideal, and we believe ours has some advantages."

Not only does NB S101 address the reduction of bone formation, but it also might be able to stop the increase in bone resorption.

Osteologix is looking for a development and commercialization partner, and it has a strategy to acquire new products for the pipeline, as well.

With five employees, Osteologix expects to recruit in the near-term a chief financial officer and a vice president of drug regulatory affairs.

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