While Metabolex Inc.'s future appeared bleak at best a year and a half ago, the private company convinced a circle of investors to entrust their funds to support a clinical-stage diabetes compound.

But raising $27 million last year was just the beginning for Hayward, Calif.-based Metabolex. The company raised another $4 million in a second closing in January, and Tuesday it announced a $44 million third closing that will help advance that diabetes compound, MBX-102, through a second Phase II trial and into pivotal studies.

"It is probably the most important financing we've done, for two reasons," said Mark Bagnall, Metabolex's senior vice president and chief business officer. "One is what it allows us to do with the money, and the other in what it represents in terms of the company's turnaround in financial fortunes in the last 18 months.

"We went from being almost broke in the middle of last year to now having more than $60 million in the bank," he told BioWorld Today.

The third closing brings the total raised in the Series B round to $75 million. The first closing for $27 million was conducted in August 2003. (See BioWorld Today, Aug. 28, 2003.)

Metabolex's lead product, MBX-102, is a novel insulin sensitizer designed to treat Type II diabetes. Proceeds from the financing will cover a second Phase II trial for the product, as well as help the company prepare for Phase III trials by conducting manufacturing and formulation work.

"What this allows us to do is really fully invest in the compound to bringing it to Phase III readiness and to initiate Phase III clinical trials as we look for a pharmaceutical partner to commercialize it," Bagnall said.

The company intends to begin looking for a partner once Phase II results are available. The initial $27 million investment helped initiate the first Phase II trial, which should be complete within the next two months. With the $44 million investment, a second Phase II trial is expected to begin in the coming weeks.

"The good news is this amount of money allows us to continue to make a very, very heavy investment in the compound without a partnership," Bagnall said.

The company also plans to use the proceeds from the third closing to initiate a Phase I trial with a second-generation compound for Type II diabetes. That compound has a similar profile to MBX-102 and will be dosed in a small pill.

MBX-102 is a single optical form of halofenate, a product developed and studied in the 1970s by Merck & Co. Inc., of Whitehouse Station, N.J. It lowers blood glucose and lipids without the gastrointestinal side effects of halofenate.

"In the class of compounds called insulin sensitizers, the drugs on the market, which are Actos and Avandia, they do a very good job of lowering glucose in diabetic patients, but they do have side effects of weight gain and incidences of edema," Bagnall said. "Edema has really been implicated in higher incidences of heart failure."

Actos is co-promoted in the U.S. by Takeda Pharmaceuticals North America Inc., a subsidiary of Osaka, Japan-based Takeda Chemical Industries Ltd. and Indianapolis-based Eli Lilly and Co. Avandia is marketed by London-based GlaxoSmithKline plc. Both Lilly and GSK reported sales in the third quarter of more than half a billion dollars for their respective diabetes products, which include Actos and Avandia.

However, Bagnall said Metabolex's product might offer a safety advantage. Interim results of the current Phase II trial showed that weight gain and edema were not seen with MBX-102.

"We believe that we have, really, a superior drug, a much, much cleaner side effect profile, and that is hugely valuable," Bagnall said.

Aside from its lead drug and second-generation product, Metabolex has various programs optimizing lead drug candidates. It also has two target discovery programs, one in insulin secretion partnered with New York-based Pfizer Inc. and the other in insulin resistance partnered with Tokyo-based Yamanouchi Pharmaceuticals Co. Ltd., that have produced one of the largest databases available of diabetes-expressed genes.

With this latest Series B closing, the company, which recapitalized last year, has raised about $150 million since its 1991 inception. It now has enough cash to take it through the middle of 2007 and into one of the Phase III trials for MBX-102. The money could be further stretched if the company forms a partnership.

"We don't currently anticipate raising further private money," Bagnall said. "We anticipate future funding to come from corporate partnerships and, the market willing, potentially public financings."

The third closing was led by Alta Partners, of San Francisco. New investors included Venrock Associates, of Menlo Park, Calif.; Versant Ventures, also of Menlo Park; and Novo A/S, of Bagsvaerd, Denmark. Existing investors that participated were Bay City Capital, of San Francisco; KBC Bank & Insurance Group, of Brussels, Belgium; Birchmere Ventures, of Pittsburgh; and VantagePoint Venture Partners, of San Bruno, Calif.

"Last year we were able to persuade a group of investors to come in at a time when the company was fragile, [and they] believed in our story," Bagnall said. "And they were able to give us the money to really prove what we could do. This year it was a matter of execution."

As part of the financing agreement, Edward Penhoet was elected chairman of Metabolex's board. Penhoet is the co-founder of Chiron Corp., of Emeryville, Calif., and a director at Alta Partners, as well as the dean emeritus of the school of public health at the University of California at Berkeley. He also is president of the Gordon and Betty Moore Foundation.

In addition, Metabolex will gain several new board members as part of the financing. The new members are Alix Marduel, of Alta Partners; Bradley Bolzon, of Versant Ventures; Tony Evnin, of Venrock Associates, and Stephan Dolezalek, of VantagePoint Ventures. Barr Dolan and Jan Drayer will depart the board.

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