By Mary Welch

German company Morphochem AG raised DM28 million (US$15.2 million) in a private financing round aimed at helping the company expand its operations and in-house projects.

"We could have raised more but we didn't want a bigger dilution of the company," said Thomas Loeser, chief financial officer of the Munich-based company. "We found the financial market to be decent, and we are particularly pleased to have a new California-based investor."

The financing was heavily oversubscribed with strong support from existing investors, including TVM Techno Venture Management of Munich and Alta Berkeley Associates of London, he said. The new San Francisco-based investor is Alta California Partners.

Other investors included IKB Deutsche Industriebank AG, of Duesseldorf; tbg Technologiebeteiligungs Gesellschaft der deutschen Ausgleichsbank GmbH, of Bonn; Sued Venture Capital GmbH, of Stuttgart; Kredietbank Luxembourg; and some private investors.

The company, established as a spin-off from the Department of Organic Chemistry and Biochemistry at the Technical University of Munich, will increase its laboratory space from 3,500 square feet to about 20,000 square feet and hire more employees, upping its staff from 22 to at least 35 by the end of the year. Plans call for the staff to reach 65 to 70 by the end of next year.

The company focuses on the discovery and engineering of small-molecule drugs by integrating novel chemistry methods, screening technology, evolutionary selection and proprietary computer software as well as specially configured hardware. Its aim is to perform the synthesis of almost any pharmaceutically useful family of compounds by use of its MOREsystem (Molecule Research) and then screen these compounds against multiple targets in its parallel drug discovery process.

MOREsystem can analyze novel compounds as they are produced and feed back information about the structure and biological activity to create up to 10,000 novel compounds per day with the desired pharmaceutical properties.

"We call it evolutionary chemistry," Loeser said.

The company's in-house program focuses on research-driven projects dedicated to the discovery of new classes of MultiComponent Reactions (MCRs) for new chemical entities generation. "This is a high-risk high-reward profile and is directed toward the creation of proprietary novel small molecules, which are potential drug candidates," Loeser said.

Currently Morphochem has several projects under way in the area of serine proteases, G-coupled receptors and kinases.

MCR chemistry has three advantages over conventional medicinal or combinatorial chemistry for the generation of compounds, he said. The first is that it achieves greater diversity in the chemical backbones used to create the compounds, thus overcoming the backbone limitations that hinder some combinatorial chemistry companies.

In addition, MCR lends itself more easily to process integration and feedback-driven manipulation at high speed. The third benefit is that compound synthesis is performed in a small number of steps, allowing for easy scale-up without leaving the MCR technology route.

"What makes MCR a particularly powerful component of our approach is its ability to be miniaturized and then adapted in a manner that mimics evolution," Loeser said. "We keep costs low and throughput high by using only small amounts of reactants."

The current financing round is the company's second. It received its first cash infusion in January 1998, raising DM11 million, largely from TVM and Alta Berkeley Associates.

The company has one collaboration with a European biopharma company and is negotiating with several others. However, the Bavarian firm has its eyes firmly planted on the United States. "We would like to start a collaboration with a U.S. firm to establish a base and a U.S. relationship. Then we would like to have an entity of our own there," Loeser said.