Working as Bayer Pharmaceutical Corp.'s head of preclinical development and later as a senior vice president of biotechnology, gave Wolf-Dieter Busse an inside look at the promise of two respiratory disease candidates.

But Bayer's decision to focus on core areas left those candidates on the shelf, so Busse proposed an idea to senior management: Why not spin out a new company for the products, rather than license them to an outside entity?

His idea finally is coming to fruition. Busse will serve as CEO of a company called Aerovance Inc., to be based in Berkeley, Calif. It will focus on an IL4/13 receptor antagonist (AER-001) for severe asthma, and the recombinant therapeutic protein Bikunin (AER-002) for cystic fibrosis (CF) and chronic obstructive pulmonary disease (COPD).

"That's one reason I'm very excited," Busse told BioWorld Today. "I know both products very well and I think we have an extreme chance of being very successful."

Bayer Pharmaceuticals, which is a subgroup of Leverkusen, Germany-based Bayer AG, "practically donated the assets," Busse said, and the pharmaceutical company will keep a minority equity stake in Aerovance. In addition, a $32 million financing led by London-based Apax Partners will jump-start the company. Lehman Brothers Inc. and the new firm NGN Capital, both of New York, and San Francisco-based Burrill & Co. also invested in the round.

"The $32 million, of course, is a major step in our start-up and will lead us through the first two years of our operations," Busse said. "And it will make it possible that we get the proof of concept in the clinic with the two lead products."

AER-001 was in Phase II studies at Bayer when they were discontinued about a year and a half ago. Aerovance now will continue those trials. As for AER-002, the company intends to apply for an investigational new drug application to treat CF and COPD and move the compound into the clinic early next year. Busse said AER-002 reduces the amount of mucus in the lungs of CF patients, but also has anti-inflammatory properties that will help in treating COPD.

Busse estimates it will take 18 months to find proof of concept. Once that occurs, Aerovance will move into Phase II/III trials and perhaps bring something to the market a few years later.

Aerovance also has gained other research-stage and preclinical programs in respiratory disease, including technologies and specific cell lines and delivery systems formulations. The company will stand out among other biotech firms, Busse said, b5ecause of its narrowed focus.

"Overall, we are very unique in that we are focusing only on respiratory and only with biologics," he said. "We may be the only company that has this focus."

Busse will lead a team of former Bayer Pharmaceuticals' scientific and business professionals. Starting out, there will be 20 employees. Founding board members include Busse and Lori Rafield, who heads Apax Partners' U.S. health care investment team in Menlo Park, Calif.

South San Francisco-based Genentech Inc. also works in the area of respiratory diseases. The company's Pulmozyme product for cystic fibrosis, which first was approved in 1993, brought in $167.2 million in sales in 2003. Another Genentech product, Xolair for asthma, was launched in July last year, and brought in $25.3 million in 2003 and about $74 million in the first half of this year.

The Centers for Disease Control and Prevention estimates that about 16 million Americans suffer from some form of asthma. The U.S. market is estimated at $9 billion. Cystic fibrosis, a life-threatening, inherited disease, affects about 70,000 people worldwide. The average life expectancy is 31 years, and the current market is about $800 million.

In addition to Busse and Rafield, Eliot Charles of Apax and Hingge Hsu of Lehman Brothers will join the Aerovance board, which will seek to add three additional members. The senior management team will include Robert Kuhn as senior vice president and chief technical officer, and Rick Fuller as senior vice president and chief medical officer.

Fuller, Busse said, developed a number of respiratory products during the several years he worked at GlaxoSmithKline plc, which is headquartered in London. About 85 percent of Aerovance's activities will be outsourced to contract research organizations and other entities, Busse said.

The new company's name is formed from the words "aero," suggesting a focus on airway diseases, and "advance," as it works toward advancements in the clinic and in science.

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