By Randall Osborne

Neocrin Co. raised $16.5 million in private equity, bringing to $52 million the amount raised by the privately held Irvine, Calif., company since it was founded in June 1992.

Greg Dane, Neocrin's president and CEO, said the new money will extend for at least another year development of minimally invasive encapsulated cell therapy for the treatment of diabetes. "We're in primate studies, and we expect those to continue through the rest of this year and into next year," he added.

Warburg, Pincus Ventures, of New York, led the latest round of funding, with Hambrecht and Quist L.L.C., also of New York, serving as the placement agent.

Neocrin's technology injects porcine cell islets into the peritoneal cavity. The islets, protected from the immune system by virtue of the encapsulation, sense glucose and secrete insulin on demand. Dane said the treatment could allow Type I diabetics to maintain near-normal glucose levels without injecting insulin. The company's earlier references to a "bioartificial pancreas" being developed as a transplantable device were not entirely accurate, since Neocrin's development is focused only on beta cells and diabetes, and not on the pancreas' exocrine function.

"It was always an attempt to enclose only those islets," Dane said. "Various ways are being attempted, and the tendency was to call it a bioartificial pancreas."

The technology may have applications to other diseases where control and regulation are issues, he added. "There are certainly central nervous system (CNS) disorders that are candidates," although the company has targeted none specifically, Dane said, noting "it's a pretty wide-open field" when cells are successfully encapsulated and made to function properly.

Neocrin was formed in 1992 as a partnership between Baxter Healthcare Corp., of Deerfield, Ill., and TranCel Corp. In late 1995, when Neocrin changed its technology from the transplanted device to injection of encapsulated cells by catheter, the partnership was dissolved, Dane said. Baxter is now a minor shareholder.

In 1993, Neocrin entered into an agreement with CytoTherapeutics Inc. (CTI), of Providence, R.I., under which all of CTI's assets related to the company's diabetes project were transferred to Neocrin, in exchange for equity interest. CTI since has become a very minor investor, Dane said.

CTI develops implantable delivery systems containing biologically active cell and gene therapy products for application in CNS diseases and others.

Dane said the next step in seeking funding for Neocrin has not been decided. "We were careful not to call this a mezzanine round," he said, adding that Neocrin may do a private offering or enter into another partnership. "It's too close to call," he said.

The new consortium of venture capital investors led by Warburg, Pincus includes: Pacific Horizon Partners, of Seattle; The Vertical Fund Association, of Cupertino, Calif.; Oakwood Investors, of St. Louis; Community Investment Partners, of St. Louis; Domain Partners, of Princeton; Biotechnology Investments Ltd., of London; Asset Management of San Francisco; Alliance Technology Ventures, of Atlanta; Forrest, Binkley & Brown, of Newport Beach, Calif.; New Enterprise Associates, of San Francisco; Hancock Venture Partners, of Boston; Sofinnova Venture Partners, of San Francisco; and GIMV, of Antwerp, Belgium. *