Protagonist Therapeutics lands $40M round for an oral peptide IBD drug

Protagonist CEO Dinesh Patel

It's not easy creating an oral peptide drug aimed at irritable bowel disease (IBD). Nature has created a series of very effective methods for chomping up peptides. There's an acidic environment, digestive enzymes, the gut microbiome and more to smash up the chain of amino acids. But overcoming those challenges is the business model behind Protagonist Therapeutics, a Milpitas, CA-based biotech that is celebrating a new $40 million round designed to pay for the early-stage clinical work needed to prove its drug candidate can work in humans.

The two big targets in IBD are ulcerative colitis and Crohn's disease, a field that just sparked Celgene's ($CELG) big $7.2 billion deal to buy Receptos ($RCPT) and its late-stage IBD therapy. In recent years, though, Protagonist has been at work doing preclinical studies to take an oral route, a major next-gen hurdle that could pave the way to safer, more effective and far easier-to-manage drugs than the current generation in play.

The initial challenge at Protagonist, says CEO Dinesh Patel, has been to take its first two venture rounds of $27 million and use it to study how a rare group of peptides has managed to steer clear of nature's peptide traps. And they've been doing extensive mouse and rat studies--employing rodents' higher metabolic rate--to come up with a drug, PTG-100, that will now be tested in a Phase I study and then put into a Phase II trial in 2016 in search of proof-of-concept data. PTG-100 is an alpha-4-beta-7 integrin blocker.

Coming along for the ride are two Big Pharma venture arms, J&J Innovation and Lilly Ventures, which were involved in earlier rounds, along with Pharmstandard and Starfish Ventures. Canaan Partners is stepping in as the lead investor in the C round, along with some crossovers like Adage Capital, RA Capital and Foresite Capital.

The third round leaves Protagonist squarely focused on its next big step. After that, anything is possible. The biotech established a couple of discovery deals early on, including one with Ironwood ($IRWD). But its lead drug and a follow-up program still in the preclinical stage are owned free and clear.

"We are creating optionality here," says Patel. There are several potential collaborative deal structures to consider, an IPO or buyout or some other arrangement. In the meantime, the company's 25 staffers have lots of work to do proving that their oral peptide is the new-new thing in IBD. 

- here's the release