Just about every biotech investor out there has been looking for just the right recipe of money, time and multiples to justify the high risk involved in betting on drug development. The decade-long cycle in search of a 10x or better return is in distinct disfavor now, with investors looking for tighter timelines and better odds in exchange for smaller but more predictable payoffs. And a tightly knit team of developers in North Carolina has been putting their own twist on the game, with some solid returns from a series of new, if somewhat low-profile, biotechs.
Today one of those companies--Morrisville, NC-based Aerial BioPharma--nailed a $5 million tranche in their Series A to back a Phase IIb study of ADX-N05, an experimental narcolepsy drug. Aerial has now raised $9.5 million from a group of angel backers who have already enjoyed a couple of successes from the Aerial team, which is led by Moise Khayrallah, Steve Butts and Gary Bream.
The three have divvied up the clinical trial work, business development and scientific skills needed to take two upstarts to the bargaining table. They launched Addrenex Pharmaceuticals in 2006 and sold it in 2009 to Shionogi. Then Acorda Therapeutics ($ACOR) closed in on Neuronex last year, bagging a nasal spray formulation of diazepam for epilepsy. Acorda initially paid $2 million to buy into the program, offered another $1.5 million in R&D support, and then closed the deal with an additional $6.8 million payment in December. Another $134 million in milestones is promised for the successful completion of the program.
"We just do drug development more efficiently than most," Butts tells FierceBiotech, adding that they had invested $3 million in Neuronex before doing the Acorda deal. "We take a project, put it into a company, raise financing, and identify where the valuation-inflection point is." Reaching an exit in three to four years is critical for a team that consists of 8 to 10 players who have moved with Butts from company to company. And it's important for the angels who have been backing their companies.
"We tend to stay in CNS," Butts says. "We're comfortable operating there. It's our sweet spot." And typically they'll look for Phase I drugs nearing a Phase II proof-of-concept test to find a short path to the bargaining table.
Aerial is somewhat different from its standard company mold, he adds. The group formed the company as an LLC instead of a C corporation so they could be flexible in bringing different assets in and then doing deals around them, rather than just sell the company. Once the IIb study is complete later this year, says Butts, the team will look to bring in a partner for Phase III while they turn to a preclinical pain program for Aerial's second act.
The angel backers have already committed $2.5 million for the third tranche of the Series A to get that drug into the clinic--and hopefully on the path for another deal for the North Carolina development team.
- here's the press release