With an infusion of about $2.65 million, CyThera Inc. is moving forward in its efforts to develop cell replacement therapies for diabetes and other degenerative diseases.

The San Diego-based business gained $2 million in venture capital financing from a pair of prior investors, and also received a grant worth about $665,000 from the National Institute of Diabetes and Digestive and Kidney Diseases, a unit of the National Institutes of Health in Bethesda, Md.

In total, the funding is earmarked for research and development to establish in vivo proof of concept for its cell differentiation technology. Of that, the grant money will be spread over two years for the development, expansion and distribution of embryonic stem cell lines from CyThera's nine stem cell derivations for research use at the privately held company and elsewhere.

"The principal purpose of our research and development is to develop derivations of cells and cells that can be used for transplantation, initially in treating diabetes," Fred Middleton, CyThera's newly named CEO, told BioWorld Today. "We are looking at the steps involved in the differentiation of stem cells, be they embryonic stem cells or adult stem cells, into insulin-producing beta cells - islet clusters."

CyThera gained access to its cell lines through a merger last spring with San Mateo, Calif.-based Arcos BioScience Inc., with which it collaborated on research that led to the creation of the human embryonic stem cell derivations. (See BioWorld Today, April 11, 2002.)

Middleton, already CyThera's chairman, replaced Lutz Giebel, who remains a board member but moved into a full-time position with a venture capital firm. Middleton also is a managing director at San Mateo-based Sanderling BioMedical Venture Capital, one of the two firms that made a further equity investment in CyThera, along with San Francisco-based Alta Partners. All told, CyThera has raised about $6 million in outside financing.

Middleton said his role would center on searching for additional funding and research partnerships.

One such relationship remains in place as the company advances its islet transplantation technology in partnership with the University of Alberta in Edmonton, which has developed an effective transplantation method. CyThera is working to use its embryonic stem cell technology to generate a steady stream of transplantable insulin-producing cells for insulin-dependent diabetics.

"The Edmonton Protocol involves the direct injection of purified islets into the portal vein of the liver, and these cells have been shown to travel into the vasculature of the liver, attach, grow and function as an artificial pancreas," Middleton said.

Two of CyThera's scientific advisory board members have strong ties to the university - James Shapiro, the director of the school's clinical islet transplant program, and Jonathan Lakey, an associate professor of surgery at the institution. Their research has led to efficacious transplants in about 200 diabetic patients over the last three years who have achieved long-term glycemic control without the need for insulin injections.

Data has shown that a year after transplantation, 84 percent remained insulin free, and after three years, 89 percent continued to produce insulin. But Middleton noted that while the clinical replacement technique has been honed over that period, a source of cells remains elusive, as donor tissue available for islet transplantation is very limited.

Thus the school entered its relationship with CyThera, which has research that could prove vital in the use of human stem cells that can differentiate into islets and become a source of unlimited insulin-producing cells for transplantation.

"We have developed a series of differentiation protocols that allows us to look at expression levels that are present as these cells differentiate from pluripotent stem cells into islets," he explained. "We've mapped out a series of steps and are in the process of gene mapping, so we're looking at how changing the levels of gene expression impacts differentiation and ultimately insulin production."

Down the road, CyThera expects its technology could be applied beyond diabetes. Middleton said the company could expand into regeneration of liver cells to replace parts of the organ, neural cells for neurodegenerative diseases that affect motor function and the spinal cord, and muscle cells to repair damaged heart tissue.

"We're optimistic about the future of cell therapy," Middleton said. "With stem cell lines and embryonic stem cells, you can produce an unlimited number of starter cells. But differentiating the cells is an area that has been right at the frontier of research as a result of the Human Genome Project and other things that have created new tools for understanding gene expression in differentiating cells. That's the hot area of research, and when that step is accomplished, I think that the therapy will be successful."