Raising $8.7 million in a private placement, CytRx Corp. said it's using most of the money to form a subsidiary that will develop orally active small-molecule RNA interference drugs for obesity and Type II diabetes.
Steven Kriegsman, CEO of Los Angeles-based CytRx, vowed that the new company, named Araios Inc., will have drugs approved for the two large-market indications "before anybody else" in the burgeoning RNAi field.
"We've been fortunate enough to attract a dream team," he said. "We have the foremost doctors and scientists in the world."
In the private placement, the company sold about 4.1 million shares of common stock to selected institutional investors, including current shareholders, and issued warrants for about another 1 million shares at an exercise price of $3.05 per share.
About $7 million of the proceeds will be used to establish Araios, made up of scientists from the University of Massachusetts Medical School and Harvard Medical School, among others.
"Basically, we're hiring a whole new team of scientists and executives," Kriegsman said. "That's pretty much done. We're setting up a lab off premises from UMMS" in Worcester, Mass., he said, and the total staff will consist of about 10 people.
Heading up the wholly owned subsidiary is Mark Tepper, formerly CEO of Arradial Inc., of Bedford, Mass., a venture-backed, microfluids-based drug discovery company. Tepper also has been the vice president of research and operations at Serono Pharmaceutical Research Institute and at the Bristol-Myers Squibb Pharmaceutical Research Institute.
The scientific side includes Michael Czech, who is a professor and chair of molecular medicine at UMMS, as well as a professor of biochemistry and molecular pharmacology.
Czech has pioneered work using RNAi to selectively inhibit gene expression in metabolic tissues and has developed model systems for studying insulin actions in tissues relevant to diabetes and obesity.
"If you don't have the medical Merlins,' you're not going to get a product to market," Kriegsman said. Czech will serve as chairman of the new company's scientific advisory board and as chief scientific advisor.
This spring, CytRx allied with UMMS to work with RNAi in obesity and diabetes. A month later, the company also licensed from UMMS the exclusive worldwide rights to a DNA-based HIV vaccine technology, which Kriegsman said is "going into the clinic shortly." (See BioWorld Today, April 22, 2003, and May 22, 2003.)
RNAi came to light in 1997 when Andrew Fire at the Carnegie Institution of Washington and Craig Mello of UMMS found that by designing RNA with two strands they could silence targeted genes. Since then, the patented method has been licensed in the U.S., Europe and Japan.
"Araios" means "lean" or "slim" (i.e., not obese) in Greek. The company will first focus on deploying genomics and proteomics in coordination with RNAi to screen and identify targets and pathways. The company is taking "two bites of the apple," Kriegsman said.
"We're working with RNAi as a therapeutic, which obviously could be very rapid, and we're working with it as a tool to develop small molecules," he told BioWorld Today. "We hope to be in the clinic as quickly as possible, but it's hard to get an exact date."
RNAi also is being explored for Lou Gehrig's disease, or amyotrophic lateral sclerosis, which Kriegsman called "horrendous. The worst of the worst."
Taking aim at four potentially huge markets simultaneously - obesity, Type II diabetes, HIV and Lou Gehrig's disease - CytRx is "in the big markets with the greatest scientists in the world," he noted. "We're very lucky."
CytRx, meanwhile, is shopping for partners to finish development of Flocor, its product for the treatment of sickle-cell disease. Flocor is an intravascular agent designed to improve blood flow by lowering viscosity and decreasing friction between blood cells and vessel walls, an approach that also might be useful in cancer and other disorders.
The company conducted several clinical trials of the product through 1999, with the most significant results in pediatric sickle-cell patients, and has won orphan drug status from the FDA, which said more trials would be required for approval.
CytRx also has TranzFect, a technology licensed to Merck & Co. Inc., of Whitehouse Station, N.J., for use in the latter's DNA-based vaccines for HIV (now in Phase I) and three other diseases. It is licensed to Vical Inc., of San Diego, for all other indications.
Cappello Capital Corp., of Santa Monica, Calif., served as lead placement agent in the CytRx financing. The company's stock (NASDAQ:CYTR) closed Wednesday at $2.41, down 18 cents.