Year-end retrospectives aside, taking the figurative pulse of an industry as large and varied as biotechnology is anything but easy. But during what everybody acknowledges were tight economic times, a notable trend was the continued interest by venture capital, especially in the field of anti-infectives.

A case in point is Advancis Pharmaceutical Corp., which - speaking of pulses - managed to haul down a total of $28.5 million thus far for its Pulsys technology from a number of VC funds, and expects to close another round in the first quarter of 2003.

Gaithersburg, Md.-based Advancis, founded in 1999, is focused on antibacterial and antiviral agents formulated with a delivery technology that causes the drug in tablet form to be absorbed in repetitive short bursts, or pulses, to boost efficacy. Four antibiotics are in Phase I/II trials and six more are in the preclinical stage.

VC funds have long been regarded as the "braver" ones, taking chances on start-up firms with promising technology.

"It's still true, but it's less true than it was a couple of years ago, as you can imagine," said Nelson Campbell, senior vice president of biotechnology for Friedman, Billings, Ramsey Group Inc.

"We're an investment bank with an asset management arm" that oversees about $5 billion in funds, he said, including health care. There's also a $60 million genomics fund.

"They've done as many therapeutics deals as they have genomics [deals]," Campbell said. "It's called a genomics deal because that was the hot thing to call it three years ago."

Noting the old saw that the market is ruled by greed and fear, Campbell said, "We're clearly in the fear' phase. It's all about risk attenuation. It can't just be cool new science" that grabs and holds investor attention, he told BioWorld Financial Watch.

"What these guys are terrified of is that what they're doing to current investors - diluting the hell out of them - will happen to them," he added. This is why, although early stage companies can be appealing, the investors want to make sure the cash they put in will get the job done.

"They're saying, If you have to go for another round [of financing] after this, and the market still stinks, we're going to get killed no matter how great you are, and we're not up for that," Campbell said.

Finding new ways to formulate and/or deliver existing antibiotics is particularly appealing.

"[Antibiotics] are by nature easier to develop than, let's say, oncology drugs," he said. "It's where the pharmaceutical industry got started, so there's a deep knowledge base. If you have a molecule that kills the bug and doesn't kill the patient, it works. Other areas are a lot more complicated than that."

He added that "there's all kind of need for delivery formulations and delivery systems, and I think they're going to work out." He pointed to Piscataway, N.J.-based Enzon Inc.'s successful pegylation methodology.

"I'm a big believer in drug delivery," Campbell added, citing Advancis, although his firm has invested no money in the company. Early data are "amazing against resistant bugs that the same molecule does not kill effectively without this delivery system."

Edward Rudnic, founder and CEO of Advancis, said the company deploys several different kinds of polymers in a single tablet.

"They can soften up and become a semi-permeable membrane in certain regions of the intestinal tract, and that allows water to transfer in and out of the polymer," he said, so that anywhere between three and six pulses of drug can be engineered.

"What we've been able to show is that the act of pulsing the antibiotic has an impact on the way the bacteria respond," he said. "We make it much more effective than it normally would be, compared to immediate-release or even sustained-release tablets that are now out there."

Advancis has 28 patents on its self-developed technology, Rudnic said, and expects to have its first product on the market in 2005, with three total on the market in 2006. The company also is experimenting with combined antibiotics.

"We thought for years and years that the anti-infective community wasn't getting very creative because they did not need to," Rudnic told BioWorld Financial Watch. When resistances began to develop and new compounds didn't, Advancis found itself in an even stronger position than expected.

Less Skepticism About Early Stage Research

Privately held Advancis is hardly alone in the anti-infectives market in drawing the interest of VC investors.

In October, Anacor Pharmaceuticals Inc., of Palo Alto, Calif., raised $7 million in VC funding, and has a $21.6 million contract from the Defense Advanced Research Projects Agency and the U.S. Army Medical Research and Materiel Command to speed research and development of therapeutics for use against biowarfare agents such as anthrax.

Paratek Pharmaceuticals Inc., of Boston, garnered $30.4 million in May for its two projects, referred to as TET and MAR. The first is a "tetracycline resistance project," based on medicinal chemistry with the plan of overcoming resistance in microbes. The second is the "multiple antibiotic resistance" project, based on pathogen genomics. It aims to exploit the multiple antibiotic resistance operon that controls sets of genes in several disease-causing Gram-negative bacteria.

Paratek has an early-stage Gram-positive antibiotic called PTK0796 and another product for respiratory tract infection in the works. In July 1999, the company entered a potential $95 million deal with London-based GlaxoSmithKline plc to develop an improved version of tetracycline.

In April, Louisville, Colo.-based Replidyne Inc. raised $13 million to pursue its bacteria-attacking approach, which inhibits DNA replication. Replidyne's technology includes the DNA replication process as a target, along with multiplicative target screening, parallel target screening and deconvolution and secondary screens. Its DNA replication machinery is integrated with high-throughput screening, and the firm hopes to have animal data on compounds in 2003.

Microbia Inc., of Cambridge, Mass., pulled down $26 million, also in April, bringing to $59 million the amount raised since its inception in 1998. The company hopes to generate more near-term cash with its Precision Engineering program, used in pharmaceuticals and fine chemicals production. The company said it has figured out how to make those processes more efficient using genetic and genomics tools, along with an understanding of regulatory circuitry that governs microbial physiology and metabolism.

Two other programs target therapeutics for biofilm bacteria, the form in which they adhere to a surface (such as respiratory and bone infections, and tooth plaque), and antifungals. Everything is in the preclinical stages.

Enanta Pharmaceuticals Inc., of Watertown, Mass., in June raised $18 million to develop macrolide antibiotics and immunosuppressants. The company is developing improved versions of existing drugs through its Drug Morphing and Peptide Morphing chemistry technology.

Starting with the core structure of the macrolide erythromycin, Enanta said it expects to take the improved version of the drug into clinical trials in early 2003 and find a partner in Phase II. Enanta is doing the same with cyclosporine A analogues, which have an anti-inflammatory effect and can be delivered topically to the target organ, such as the lungs, skin or colon.

Steady Market - And Looming Crisis' Predicted

Carlsbad, Calif.-based Quorex Pharmaceuticals Inc. in August completed an additional $10.6 million in an extension to its round that raised about $20 million in early 2001. The company said it had enough cash through the two financings to operate into 2004, pursuing drug targets in Gram-positive and Gram-negative bacteria.

Preclinical studies are expected in 2003. Quorex's biology platform validates and prioritizes targets for discovery of first-in-class bactericidal drugs and those active against biofilm bacteria. It also has what it calls Protein Vision technology, a computational biology platform that involves algorithms for genomic database mining, among other things, to identify targets. The platform known as ADDS (Accelerated Drug Discovery System) includes an in silico approach known as RaLead, assay development, medicinal chemistry and X-ray crystallography, which Quorex said can speed up drug discovery.

Peninsula Pharmaceuticals Inc., of Fremont, Calif., added $22.1 million to its coffers through VC financing in October, with a plan to develop and license antibacterial and antiviral products.

The company was started in February, and said it intends to use the funds to advance its first product, licensed from an unnamed Japanese pharmaceutical firm. Details weren't disclosed, although Peninsula said the product had undergone testing through Phase III outside the U.S.

Campbell said there's a perennial need for antivirals and antibacterials, hence a perennial opportunity for investors.

"There's always going to be an arms race between virus and bacteria and ourselves," he said. "[Tuberculosis] is coming back and you have to take four different antibiotics for at least six months" to recover, he noted, also citing HIV as a wily infection that requires a steady supply of new antivirals.

"There will always be a market for these," Campbell said.

Rudnic went further. In the next five to 10 years, he predicted, "there will be a major crisis" because new antibiotics have not been developed - and big pharmaceutical companies, continuing to merge with each other, have discontinued their discovery programs.

"There are good reasons for it," he acknowledged. "The FDA has made it incredibly difficult for new classes of antibiotics and new classes of drugs in general. And this is not the kind of discovery capability we can put back together quickly. You can't just start up these programs again overnight."