Munich, Germany-based drug discovery and development company Morphochem AG raised EUR40.7 million (US$37.5 million) in an oversubscribed third financing round, boosting its market capitalization to EUR105 million.

New investors, led by London-based Merlin Biosciences Ltd., contributed EUR20.7 million of the funding. This group also includes Nomura International and West LB, both of London, Bank Julius Bar AG of Frankfurt, and Viscardi of Munich, along with several private investors. Existing institutional shareholders, based in Germany, the UK and the U.S., contributed the remaining EUR20 million.

"We had a terrific demand for the shares," said Morphochem Chief Financial Officer Thomas Loeser. The company had been seeking EUR30 million in pre-IPO funding, he said, but received pledges in excess of twice that figure. Its board decided to expand the investment round to satisfy demand. It now is considering an IPO within the next 18 months.

The company, which was established in 1996 as a spin-off from the Department of Organic Chemistry and Biochemistry at the Technical University of Munich, has raised total funding of EUR61.7 million (US$57.2 million). It will use the latest cash injection to advance development of preclinical and clinical drug candidates, Loeser said. It also is planning to open a new bioinformatics facility soon in Europe. This will complement its chemistry activities in Munich and its biological assay development work in Princeton, N.J. It gained its U.S. presence through its acquisition earlier this year of Small Molecule Therapeutics Inc., now called Morphochem Inc. (See BioWorld International, March 22, 2000, p. 1.)

The company's primary focus has been on validating its drug discovery engine in several internal projects. Its proprietary multicomponent reaction chemistry platform enables it rapidly to synthesize diverse compound libraries of compounds that are optimized for activity and for easy production. It has combined this with biological screening assays from its American arm for identifying candidates that modulate protein-protein interactions.

Morphochem's drug discovery strategy is based on finding replacements for existing biologics, such as antibodies or fusion proteins, that act via protein-protein interaction. "What we like to do is come up with small molecules that do the same job," said Lutz Weber, whom the company recently promoted to CEO. That offers the advantages of oral delivery and low cost.

Morphochem has entered "milestone-driven" collaborations with two European pharma companies, said Weber. Neither has yet been identified. It is looking to enter further industry collaborations based around its antibiotics and tryptase inhibitor programs. The latter has potential application in asthma or rheumatoid arthritis, Weber said.

The company's drug discovery approach also has yielded cancer leads, including a tumor necrosis factor alpha (TNF-alpha) inhibitor and a ras-ras inhibitor, which acts on an intracellular target, and a factor Xa inhibitor with application in blood coagulation. Factor Xa is, like tryptase, a serine protease, Weber said. "We are not application driven for the moment. We are, rather, technology driven."

The company is looking to enter further industry collaborations on a shared royalty basis, but it also aims to take promising candidates into proof-of-concept studies. However, Weber said he does not expect the company to do so until after an IPO. Moreover, he added, it needs to acquire clinical expertise in the interim.

Weber joined Morphochem in 1998 as chief scientific officer from F. Hoffmann-La Roche AG, of Basel, Switzerland. His predecessor as CEO, Morphochem co-founder Wolfgang Richter, has taken on the role of chief patent officer within the company.

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