BioWorld International Correspondent

MUNICH, Germany - As shareholders approved the merger of DeveloGen AG with Peptor Ltd., DeveloGen closed a third round of venture financing, raising €19 million.

DeveloGen, of Goettingen, Germany, specializes in new therapies for diabetes and obesity. Peptor, of Rehovot, Israel, specialized in diabetes and other autoimmune diseases. The companies initially announced their merger in November, and Peptor's shareholders approved the action in March. Following the merger, the companies will operate as DeveloGen.

"We have already had a period of intense integration," Guenther Karmann, DeveloGen's CEO, told BioWorld International. "We have been talking about what a combined team will look like. Integration has been relatively easy because of the structure of the company.

"Clearly a lot of work has centered on planning for our lead product," he added. "We have been looking at our Phase II data, analyzing it and its various endpoints. We have been planning how we want to proceed."

The company's lead product, DiaPep277, acts to protect the insulin-producing beta cells from autoimmune destruction. It has completed five Phase II trials in adults with newly diagnosed diabetes and children with Type I diabetes. The company reported statistically significant results in the patients' reduced needs for injected insulin.

"We are following a two-prong strategy on partnering DiaPep277," Karmann said. "We are setting ourselves up to be able to advance it on our own, but certainly we recognize that the full potential of this product can only be realized with a large pharmaceutical partner. In a way, we are taking a modular approach: We are designing a Phase III trial and would be able to pay for it ourselves, but we are also working aggressively to partner the compound."

Peptor previously had licensed some rights to Aventis SA, of Strasbourg, France. Karmann said Aventis changed its goals for its portfolio for metabolic diseases and returned the rights to DeveloGen.

In 2001, DeveloGen privately raised €40 million. Although Karmann was not with the company at that time, he acknowledged that the smaller round this year was a sign of a changed market. "Capital is more scarce now, as a general rule," he said. "People look much, much harder before they invest."

Karmann was optimistic about the future of the market and his company's position.

"Clearly, the pipeline we have is very strong," he said. "It's sufficiently broad - all the way from preclinical to Phase II and III. The investors looking at us now feel that they have the chance of a true value-generating exit. We are not fixed on an IPO, there are no dates, but now we are a lot closer to what it takes to enter the public markets."

He anticipates the IPO window staying open.

"If you look at the United States, you see that the companies who have entered the markets have done fairly well in their post-IPO trading, whereas that was not the case in 2003," he said. "Thus, we have seen an increase in lPO-ability.' If the big [biotech] companies continue to deliver, the window could stay open for quite some time."

The company's pipeline also includes Somatoprim, which is expected to begin Phase II trials for the treatment of diabetic nephropathy in early 2005, as well as two programs in preclinical development.

"Somatoprim has been something of a dormant beauty," said Karmann. "Peptor did not really have the resources to develop it, and it is headed to the clinic next year.

He acknowledged that a company jointly based in Germany and Israel will face challenges in day-to-day management, but said, "I think that we will have to define responsibilities very clearly" to make the structure work.

"We will have to make sure that all the capabilities needed for a product are in one place," he said.