Biotech entrepreneurs grab $49M to bankroll a neuroscience startup

A little more than two years ago, Jazz Pharmaceuticals stepped up with a $397 million deal for an experimental narcolepsy drug from tiny Aerial BioPharma. And now Jazz has reserved a front row seat to review some new drug prospects being assembled by the same team leaders that brought them Aerial.

Jazz ($JAZZ), which markets Xyrem for narcolepsy, will announce later today that it led a $49 million round to launch Arrivo BioVentures. Research Triangle Park-based Arrivo was formed by a management team that includes Stephen Butts and Bill Wofford, who were also partnered on Aerial, Neuronex (developing a diazepam nasal spray formulation, sold to Acorda for $10 million plus $123 million in milestones) and Addrenex (sold to Shionogi), single-asset plays that fetched relatively small upfronts--but solid returns--for the founders. 

Jed Black, who runs the sleep therapeutic area at Jazz, is coming in as a scientific adviser at the startup. Solas BioVentures Fund I, L.P., Rex Health Ventures and private investors, meanwhile, also jumped into the startup round. 

Their money will fund a new company that plans to set up a full pipeline of four to 6 new R&D projects, dispensing with the one-off approach as they see if they can pull off a series of wins based on a simple objective: moving new drugs through the proof-of-concept study phase and on to the threshold of Phase III.

“We've traditionally been a neuroscience-focused company,” Butts tells me. And that will continue.

“We did a lot of project financing,” adds Butts, “where we would find one asset or two, say, ‘we need $10 million,’ raise money and put a company around it and go. That worked well. But the challenge was diversification of risk. What we wanted to do, instead of focusing on project financing and fundraising, was get a pool of capital from people who knew us or knew our work. Give investors more shots on goal.”

Much of the new company’s business plan is going to be structured on past experience. 

“It’s not often you have data on yourself,” is the way Butts puts it.

So, based on his track record, he expects to take 6 to 9 months to bring a project in, set up a three-year clinical effort and then look for a deal at the end. And they do the work themselves, sticking with projects that can be handled in-house. No CROs are involved in the game plan.

What works best? Grabbing a preclinical program that’s ready to jump into the clinic, or snagging a pharma project that was sidelined in Phase III or Phase II and reengineering a better development plan. Either way, they want to get the asset in line for a buyer in the market for a late-stage effort.

Jazz appears happy with their 2014 deal, or they wouldn’t be back. 

“Arrivo’s leadership team, who is well known to us, has the expertise and history in sourcing molecules with a high probability of success and in doing rapid, cost effective, quality development,” noted Jazz CFO Matt Young in an email to me.  “Because Arrivo will source molecules, which are in, or ready for, early stages of human clinical trials, we believe our approach to funding Arrivo is a low risk, cost-effective way for Jazz to identify and progress earlier stage development opportunities and to potentially expand our pipeline.” 

But not everything the team has touched has been successful in the long run. Just days ago Acorda ($ACOR) called it quits on a long-running effort to get the kind of data needed to win over regulators on the Neuronex program. 

The deals for Arrivo should start coming along soon.

“We’ve been doing diligence on projects for quite some time, a couple we’re on deep discussion on,” notes Butts. 

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