BioWorld International Correspondent

MUNICH, Germany - Joining the short list of companies that have raised significant funds in a gloomy German venture market, Epigenomics AG found €21 million in investment for its third round of financing.

The Berlin-based company develops products based on DNA methylation, the modification of cytosine bases through attachment of a methyl-group molecule, for early detection and molecular classification of cancer and other diseases. The additional investment will be used to continue developing its diagnostic cancer products and to continue its research in pharmacodiagnostics and other disease indications.

The investment will help fund the company's development of a variety of diagnostic tests, Oliver Schacht, chief financial officer of Epigenomics, told BioWorld International. "We're working on diagnostic products for colon, prostate and breast cancers," he said. "These body fluid-based tests are not predisposition tests but for actual early detection among asymptomatic people."

The tests examine DNA methylation in patients. Whereas tumor-suppressing genes are active in healthy people, methylation induced by environmental or other factors can turn off those genes and eventually lead to cancer. Epigenomics' tests, which examine the DNA, can detect genetic alterations long before any symptoms of the disease would appear, giving early intervention therapies a head start, the company said.

Information derived from methylation analysis includes a gene's current and past activation status, how easily a gene's promoter can be activated, population differences that may be related to disease and treatment and some prediction about tumor cells' malignancy. The technologies Epigenomics is developing attempt to bring those theoretical advantages into practical diagnostic tests.

"The idea is that our tests could, for example, be replacing routine colonoscopies for people over 50 years of age," Schacht said. "That's a very substantial market. Even at reasonable prices, potential markets for these types of products are up to $2 billion annually, within 10 years."

One test for prostate cancer already earns $350 million annually in the United States, Schacht said. "The growth rates in molecular diagnostics are the highest in all of diagnostics," he added.

While the company will concentrate on diagnostic products, about one-third of its development pipeline is comprised of pharmacodiagnostic products and research products. The pharmacodiagnostic tests will aim to check whether individuals are likely to respond to particular drugs. The research products include methylation kits for both university and industrial research.

Schacht said the company has a clear view of its path to profitability. "We have grown revenue year on year by a factor of four, reaching just under $2 million in 2002," he said. Without being more specific, he added, "We will have another multiple this year, and we expect to break even by the end of 2005." One long-term factor he cited was that Epigenomics is retaining "substantial upside" through royalties in its licensing agreements.

In March 2003, Epigenomics signed a collaboration agreement with F. Hoffmann-La Roche Ltd., of Basel, Switzerland, to develop products for early screening, classification and treatment prognosis in the fields of prostate, colon and breast cancer. Milestone payments and funding for research and development could exceed €100 million, excluding royalties. Roche has already made an up-front payment of €4 million.

Schacht said he was optimistic that Epigenomics products would be on the market by 2006.

The Wellcome Trust Ltd., of London, investing for the first time in Epigenomics, co-led the round with 3i Group, also of London. The two leaders joined existing investors such as Abingworth Management, of London; DVC Deutsche Venture Capital, of Munich; MPM Capital, of Boston; and tbg, of Bonn, Germany, all of which added capital in this round. Since its founding in 1998, Epigenomics has raised more than €56 million in investment funds.