Washington Editor

In the process of closing its doors, Triad Therapeutics Inc. entered a deal that could generate up to $66 million for its investors through the sale of a drug discovery program to Novartis Pharma AG.

"This is an interesting model that's being discussed in the venture community," Triad President Stephen Coutts told BioWorld Today. "Our investors looked at what the market was demanding from companies - we had to be in late-stage clinical trials in order to get financing - and of course, we're still preclinical."

So the backers decided against added dilution and instead chose to divest the company's assets. The San Diego firm shed its p38 kinase inhibitor program in exchange for an undisclosed up-front payment and milestone payments that could total $66 million. Triad's investors also stand to receive royalty payments down the road, should any products from the program hit the market.

"We made the difficult decision to liquidate," said Coutts, one of the company's four founders. "And I think it's clear that we have something of value that the market wasn't recognizing. This is a significant deal for a preclinical program."

Novartis, of Basel, Switzerland, will work toward developing one or more compounds for inflammatory diseases. A mitogen-activated protein kinase, p38, regulates the biosynthesis of cytokines that promote inflammation. Additional payments to investors in privately held Triad are possible for each new indication.

Coutts said a couple of molecules could soon become clinical candidates; Novartis next must complete GLP toxicity studies.

"We had gone through the typical in vitro studies," he said, "and had several potent molecules isolated against the cloned and expressed target."

In mouse models, lipo-polysaccharide was injected to activate the p38 target in order to evaluate the rodents' ensuing levels of TNF-alpha. Triad's molecules then were shown to inhibit such activity, and exhibited long half-lives. Later rat studies showed that use of one molecule halted an arthritis reaction "in its tracks," Coutts said.

Pharmaceutical interest began to climb, and Novartis stood out among potential buyers. That company previously researched p38 kinases, Coutts said, and made sense as a partner, given its kinase history in general.

In February, Triad decided to halt operations. Within a month, nearly all its 45-plus employees were let go with severance packages and insurance coverage. Coutts said Triad also was careful to settle all debt and other obligations in order to package and sell its assets more efficiently.

"That's partly why the diligence took so long," Coutts said. "Novartis was exceedingly careful in looking at our books and the fact that we had taken care of all our obligations."

Founded by four former employees of La Jolla Pharmaceutical Co., of San Diego, Triad opened shop five years ago with initial funding of $12.5 million in its first financing round. Less than two years later, the company raised $30 million in its second round of financing. A third round closed late last year, increasing the total private funding in the company to $59.7 million. (See BioWorld Today, July 6, 1999, and Jan. 5, 2001.)

Almost exactly two years ago, Triad partnered with Schering-Plough Corp., of Kenilworth, N.J., to discover antifungal compounds. (See BioWorld Today, Dec. 11, 2002.)

Coutts said he is continuing to try to sell intellectual property related to the use of nuclear magnetic resonance in drug discovery. Of his fellow founders, one has moved into academia, another has become involved with the Chinese pharmaceutical market, and the last is scouting for new work. Coutts himself plans to get into consulting.

"I feel like I've learned a lot through the process," he said, "and have something worthwhile to sell."

Triad's investors include Skyline Ventures, of Palo Alto, Calif.; CSFB Private Equity, of New York; Genechem Technologies Venture Fund, of Montreal; H&Q Venture Partners, of Boston; J&J Development Corp., of New Brunswick, N.J.; International Biomedicine Holdings, of New York; and Invus.

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