Zelos Therapeutics Inc. raised $42.5 million in a Series B round to fund clinical trials of its next-generation parathyroid hormone (PTH) analogue in four indications.

Proceeds from the financing are expected to carry the privately held company into the first quarter of 2007 and complete Phase II studies of its PTH-based osteoporosis candidate, Ostabolin-C, and a topical PTH formulation in psoriasis, said Duffy DuFresne, president and CEO, adding that remaining funds will be used to move two additional programs into the clinic, including an inhaled formulation for osteoporosis Zelos is developing with San Carlos, Calif.-based Nektar Therapeutics Inc.

"We were lucky, in a sense, that this financing came together very rapidly," he said, despite a difficult market. "I believe the key is our two osteoporosis programs, plus the advantage of having diversity" with programs in psoriasis and bone marrow transplant.

Because all four programs leverage the same molecule, the company's 11 employees make up a "lean organization" that is "able to drive four programs in clinical development," he told BioWorld Today.

The PTH analogue is part of the only class of drugs shown to stimulate new bone formation. Existing osteoporosis drugs - biosphosphonates and selective estrogen receptor modulators - work by inhibiting bone loss but do not effectively promote bone formation.

In several studies to date, DuFresne said, the drawback to PTH has been the "concurrent cross-stimulation" observed in some studies, meaning that, while the PTH analogue is stimulating bone formation, it often stimulates bone resorption, as well.

"It has an opposite effect," he said, adding that antiresorptive drugs, such as Indianapolis-based Eli Lilly and Co.'s Forteo (teriparatide) or Salt Lake City-based NPS Pharmaceuticals Inc.'s investigational product Preos, might show efficacy in fracture reduction, but they carry the risk of hypercalcemia, the release of calcium into the bloodstream caused by bone resorption.

Based on Zelos' early clinical work, its PTH analogue has shown bone formation ability but no resorption, DuFresne said, adding, "We've actually seen somewhat of a down-regulation of resorption activity."

The product was found to be safe and well tolerated when given to about 100 patients in three Phase I trials. Zelos is in the middle of a 250-patient Phase II study of the once-daily injectable Ostabolin-C vs. placebo. In addition to safety, the trial will evaluate changes in the vertebral bone mineral density and serum markers of bone formation while monitoring bone resorption. Zelos also is planning an extension study to the Phase II trial.

After initiating its studies using PTH analogue in osteoporosis, Zelos began looking at other indications. The company's second product recently entered the clinic in psoriasis.

"Behind that, we have a bone marrow transplant product," DuFresne said, a subcutaneous formulation for patients undergoing transplant procedures that is expected to begin Phase II testing by the end of the year. During the first half of next year, the company plans to enter the clinic with a pulmonary PTH formulation for osteoporosis that it is developing with Nektar.

"The next year and a half is critical," DuFresne said. "By this time next year, we should have extensive Phase II osteoporosis data and psoriasis data."

Since the company was established in 2001, Zelos has raised a total of $58 million. Seed funding and its 2003 Series A financing added up to about $16 million.

In the recent financing, the investment syndicate was led by San Francisco-based Alta Partners and included several new investors: Prospect Venture Partners, of Palo Alto, Calif.; Frazier Healthcare Ventures, of Seattle; SR One, of West Conshohocken, Pa.; and the Ontario Teacher's Pension Plan. The company's existing investors are Toronto-based VenGrowth Private Equity Partners Inc.; Genesys Capital Partners Inc., also of Toronto; Seaflower Ventures, of Boston; and the Business Development Bank of Canada. New York-based Ferghana Securities acted as sole manager and exclusive financial adviser.

Zelos also added four members to its board: Farah Champsi, of Alta Partners; Alex Barkas, of Prospect Venture Partners; Maxine Gowen, of SR One; and James Topper, of Frazier Healthcare Ventures.