West Coast Editor
Although going about the typical process for a biotechnology firm backward, Avera Pharmaceuticals Inc. proved it can make the model work, raising $48 million in a Series C round of venture capital funding.
"The money's out there," said Jeffrey McKelvy, president and CEO of San Diego-based Avera. "In aggregate, there's a lot of private equity, but it's a very selective process."
Avera's game plan involves licensing early stage neurological compounds from big pharmaceutical companies and pushing them further.
"In all these things, we're totally opportunistic," McKelvy said. "If we can find [an out-licensing partner] at any stage, we'll do it."
That approach must have pleased the highly regarded Perseus-Soros BioPharmaceutical Fund in New York, which led the round that included what Avera called "significant participation" by Schroder Ventures Life Sciences, of Boston.
The money will be used to move three of Avera's lead products along. One is a neuromuscular blocking agent tagged GW280430A, licensed from London-based GSK. Referred to as "430A" for short, the compound is one in a set of drugs from GSK that are used as muscle relaxants to aid surgical or anesthesia procedures. Avera intends to start Phase II trials after the first of next year.
A second drug - a serotonin receptor antagonist for Alzheimer's disease and other cognitive disorders - was licensed from Eli Lilly and Co., of Indianapolis, and is expected to enter Phase I trials by the end of the year.
The third product, licensed from Basel, Switzerland-based Novartis AG, is a neurokinin-1 antagonist in Phase I trials by Avera, though the overseas firm had advanced it to Phase II studies.
"We're working on the formulation," which will be directed at depression and anxiety, as well as peripheral indications such as urinary incontinence, McKelvy said.
"The GSK anesthesia compound has the smallest market potential, but the fastest time to market," he said, since clinical trials can proceed more quickly. "Strategically, that was useful to Avera, because we could show we could execute development, and, despite the smaller market size, it definitely has a niche," McKelvy told BioWorld Today.
The other two compounds "both have very large market potential," he added.
"Based on our experience and know-how, we can develop anywhere along the road to [filing a new drug application] - including the NDA itself for some indications - and, at the very least, up to a stage of value creation by demonstrating efficacy at the Phase II level," McKelvy said.
With a background that includes work at several large pharmaceutical firms, McKelvy has hired others with similar experience deliberately, so Avera can continue shopping intelligently for new compounds.
"The fact is, big companies are often a source of develop-able compounds," he said. "Strategic considerations behind moving a big company's pipeline along are many," and with increased earnings pressure, many have neither the time nor the resources to pursue worthwhile drugs.
Is Avera's model viable for the long haul?
"I think it is; the marketplace is telling us that the needs of big pharma for products is still great," McKelvy said. If a smaller firm such as Avera can take a pharma drug and push it into at least Phase II trials, the interest is that much stronger.
"The evidence is the kind of [deal] terms we've seen over the past year," he said, pointing to San Diego neighbor Neurocrine Biosciences Inc., which earlier this year agreed to buy all of Madison, N.J.-based Wyeth Inc.'s interest in the Phase III insomnia drug indiplon for $50 million in cash and $45 million in stock. Neurocrine has a $400 million marketing deal with Pfizer Inc., of New York. (See BioWorld Today, March 1, 2004.)
Last month, Neurocrine said a review of more than 70 indiplon studies involving more than 7,000 patients was complete, with 14 Phase III studies finished. Neurocrine said it plans to submit new drug applications to the FDA early next quarter for immediate-release and modified-release formulations of the drug for adult and elderly patients.
McKelvy also mentioned New York-based Eyetech Pharmaceuticals Inc., which licensed the aptamer Macugen (pegaptanib sodium) in 2000 from the Selex technology portfolio developed by Gilead Sciences Inc., of Foster City, Calif., and turned the drug into a would-be blockbuster for age-related macular degeneration. This spring, Eyetech signed a deal with Cambridge, Mass.-based Archemix Corp. based on the rest of Selex, which Archemix had licensed from Gilead. Eyetech already had a potential $750 million marketing deal with Pfizer for Macugen, and the companies filed a rolling NDA for the drug in June. (See BioWorld Today, April 15, 2004.)
Additional new investors in the Series C round included Aberdare Ventures, of San Francisco; BioAsia Investments, of Palo Alto, Calif.; H.I.G. Ventures, of Atlanta; and Montreux Equity Partners, of Menlo Park, Calif.
Previous investors also participating include Bay City Capital, of San Francisco; BTG plc, of London; Frazier Healthcare Ventures, of Seattle; InterWest Partners, of Menlo Park, Calif.; St. Paul Venture Capital, of Boston; and Windamere Venture Partners, of San Diego.
Joining Avera's board are Steven Elms, managing director at Perseus-Soros, and Lutz Giebel, a venture partner at Schroder.
"We've had to satisfy a rigorous due diligence process" to get the financing done, McKelvy said. "Now we have to execute. That's the fun part."