By Matthew Willett

MethylGene Inc. will use Canadian and Pacific Rim investments totaling $18.6 million to support its research and development efforts for MG98, an mRNA inhibitor the company licensed from MGI Pharma Inc. in August, and other cancer programs.

The small-molecule company, founded in 1997, began in March a dose-escalating Phase I trial with MG98, a second-generation antisense oligonucleotide that acts through on one of the company's core therapeutic mechanisms, mRNA inhibition - specifically, inhibition of mRNA produced by the DNA methyltransferase gene.

DNA methyltransferase (DNA MeTase), an enzyme that, when overexpressed, modifies tumor suppressor genes, can contribute to rampant tumor growth. MethylGene's antisense compound, a small strand of DNA, is designed to target DNA MeTase overexpression.

Montreal-based MethylGene conducted the trial in collaboration with the Clinical Trials Group of the National Cancer Institute of Canada in Kingston, Ontario.

This financing brings the company's total capitalization, including a Technology Partnerships Canada investment of $4.77 million, to $53 million.

Minneapolis-based MGI agreed to fund MG98 development in addition to making a $10 million equity investment in MethylGene, and paying milestone and royalty payments related to commercialization.

MethylGene CEO Donald Corcoran said the financing will fund research directed toward other avenues of treatment using tumor suppression genes. He said the funding will be sufficient for three to four years of operation.

"This is cash raised for early discovery programs, essentially doubling our infrastructure," Corcoran said. "We're adding a building next door that should be ready in November, and we're adding 16 to 20 fume hoods, with as many chemists, essentially doubling our infrastructure."

Other programs are in the works for MethylGene, including a small-molecule inhibitor program focused on histone deacetylases, a family of enzymes involved in regulating gene expression and cell differentiation, and a program targeting a novel transcription factor involved in signal transduction and tumor cell apoptosis.

Corcoran said preliminary results for MG98 indicate the drug is safe and well tolerated.

"The Phase I study is still open in one arm, but it's at the top dose of a dose-escalating study and data indicate it's safe and well tolerated," he said.

At $18.6 million, the financing came in just short of the company's goal of $20 million, Corcoran said, but only because some investors couldn't meet the financing's deadline. New investors included the Ontario Teachers' Pension Plan, of Montreal, and Pacific Rim Ventures Co. Ltd., of Japan.

Current investors participating in the financing included Fonds de Solidarite FTQ; Sofinov, the venture capital arm of the Bank of Quebec; GeneChem Technologies Venture Fund L.P.; the Canadian Medical Discovery Fund Inc.; Royal Bank Capital Partners; and Investissement BioCapital Inc.

Lead owners of the company remained the same, he said. Hybridon Inc., which spun off MethylGene, remains majority shareholder with a stake of about 20 percent. Fonds de Solidarite FTQ comes in next at 16 percent, followed by Innovatech Fund and Sofinov, both owning about 12 percent of the company.

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