Aerovance Inc. closed the first tranche of an expected $60 million Series C round to fund ongoing clinical work of its lead drug candidates aimed at severe respiratory and inflammatory diseases.

The Berkeley, Calif.-based company has received $28 million to advance its two lead molecules in four indications. The remaining funds will become available at a later date.

"At this point, we don't need all of the $60 million," said Bill Newell, president of Aerovance, "and investors want to make certain that they put the money into the company on a timely basis from an investment standpoint, so as we progress our lead molecules through Phase II and achieve certain manufacturing objectives, we can draw down the second tranche."

The Series C was led by Clarus Ventures, of Cambridge, Mass., which selected Aerovance as its first investment from an inaugural $500 million fund closed in December. Clarus was joined by new investor San Francisco-based Alta Partners and existing investors London-based Apax Partners, New York-based Lehman Brothers, New York-based NGN Capital and San Francisco-based Burrill & Co.

"We felt like we had a very strong existing investor base, and we made it even stronger by adding Clarus and Alta," Newell said.

Nick Galakatos, of Clarus Ventures, and Farah Champsi, of Alta Partners, joined Aerovance's board. John Walker, who serves as chairman for South San Francisco-based firms Renovis Inc. and KAI Pharmaceuticals Inc., and Saegis Pharmaceuticals Inc., of Half Moon Bay, Calif., also joined the board.

To date, Aerovance has secured $92 million in private financing. It raised $32 million when it was founded in August 2004 as a spinout of Bayer Pharmaceutical Corp., a division of Leverkusen, Germany-based Bayer AG, to focus on two respiratory disease candidates that fell outside of the pharma company's core therapeutic area. (See BioWorld Today, Aug. 23, 2004.)

The first candidate is AER 001, a recombinant human interleukin-4 variant that has been shown to inhibit both the IL-4 and IL-13 receptors. It is being tested in two forms in two indications: As Aerovant, an inhaled dry powder formulation, it's being put in asthma patients, and as Aeroderm, a subcutaneous injection formulation, it's being evaluated in acute severe eczema.

AER 001 is designed to work by "attaching to IL-4 and IL-13 at one of the receptor sites, and then blocking the second receptor site," Newell told BioWorld Today, so that the signal "that triggers the inflammatory cascade in asthma or eczema cannot be sent."

Aerovance's second molecule, AER 002, a serine protease inhibitor, is being developed to treat cystic fibrosis and chronic obstructive pulmonary disease, both of which involve a buildup of mucus in the lungs. In preclinical studies, that molecule demonstrated an ability to "facilitate mucociliary clearance in animals, and we're hoping in Phase II to demonstrate mucociliary clearance and, therefore, improved lung function," Newell said.

AER 002 has been designated as Aerolytic in the cystic fibrosis indication and as Pulmolytic in COPD. Both are inhaled dry powder formulations.

All four of the company's clinical programs are in Phase II studies, expected to conclude this year.

Proceeds from the Series C should sustain Aerovance and its staff of 25 employees "for several years," Newell said, "but the most important factor for investors is providing us sufficient funds to get through definitive proof of concept in our clinical studies."

Once the products have completed proof-of-concept studies, the company likely will begin exploring partnering opportunities, at least in the "opportunities in asthma and COPD," Newell said.

But for the cystic fibrosis compound, "we think that's something that a small company potentially could develop and commercialize on its own," he said. "So our strategy is really to keep that one close to home."

Behind its clinical work, Aerovance also has a preclinical program evaluating PEGylated formulations of Aerovant and Aeroderm in inflammatory indications.

In other financings news:

• Medicure Inc., of Winnipeg, Manitoba, entered securities purchase agreements with U.S. and European investors to raise gross proceeds of about $25 million. Under the terms, Medicure intends to issue about 16 million common shares, priced at $1.60 each, together with warrants to purchase about 4 million additional shares. The warrants have a five-year term and an exercise price of $2.10. The private placement is expected to close within the next several days, with proceeds going to fund ongoing development of the company's lead cardiovascular products, MC-1 and MC-4232, as well as for general corporate purposes. Deutsche Bank Securities Inc. acted as the lead placement agent, and Needham & Co. LLC, GMP Securities LP and Versant Partners Inc. served as co-placement agents.

• Sonus Pharmaceuticals Inc., of Bothell, Wash., closed its previously announced sale of about 6.1 million shares priced at $5 each for proceeds of about $30.6 million. Shares were sold in a registered direct offering to new and existing institutional investors. Proceeds are expected to help fund the company's share of the remaining Phase III development costs of Tocosol Paclitaxel, and to expand efforts into additional products. Needham & Co. LLC acted as the lead placement agent, and Punk, Ziegel & Co. and ThinkEquity Partners LLC acted as co-placement agents.