Emerging Drug Developer: Arete Therapeutics

Arete Therapeutics adopts a thrifty approach to drug development

With its lead program safely through Phase I testing and a lineup of investors satisfied with the discovery path Arete Therapeutics has blazed for itself so far, the Hayward, CA-based developer was able to top up its Series A with $16.7 million two weeks ago, the final tranche in a hefty $51 million round.

Arete now has enough money to keep to its development schedule into the middle of 2010. The developer has the potential to strike a partnership for the lead program in Type 2 diabetes after mid-stage data arrives late next year. There are also future pact opportunities in other disease areas and company CEO James Sabry says he is open to taking a look at a possible Series B as the cash dwindles. At some point, says Sabry, the expertise Arete is building could also make the company a desirable takeover target.

But don't expect any sudden, uncharted moves in the months ahead. Sabry plans to stick as close as possible to the road map Arete has plotted for the next 18 months.

"Given the quality of the science, it went very smoothly," says Sabry about the last tranche. But Sabry is under no illusion that investment money is easy to come by these days.

"It is," he notes, "a really ugly environment out there for fundraising."

No one understands that better than Burrill & Co., where CEO Steven Burrill has sounded a loud warning over the bleak prospects that lie ahead for under-funded developers. Burrill is an investor in Arete, though, along with Three Arch Partners, and Altitude Life Science Ventures. Frazier Healthcare Ventures and Alta Partners co-led the last tranche.

Arete's IP is based on the research work of Dr. Bruce Hammock from UC Davis on soluble epoxide hydrolase (s-EH) inhibitors. These inhibitors influence a key enzyme for the metabolism of arachidonic acid - a third pathway that's headed in the same direction as drugs such as Celebrex and Vioxx--that in turn plays a big role in metabolic, inflammatory and cardiovascular physiology. Hammock laid the groundwork for Arete to create new compounds "that we think are attractive and will bring forward in discovery."

Arete has selected one of those compounds, AR9281, as its lead program and recently completed an early-stage safety study.

"The compound we have is orally available, taken as a pill," says Sabry. "We are developing it for Type 2 diabetes." And it may also have a regulatory effect on blood pressure as well. "This is not uncommon for inhibitors in this pathway. If you look at Celebrex or Vioxx, they have multiple effects in the body. We are a discovery company working in an area no one has been in before, working in a pathway extremely well validated by these other compounds."

Next year will be crucial for Arete as it prepares to make its case to possible collaborators.

"Phase II will start in the first quarter and will be finished in the fourth quarter of '09," says Sabry. After that, "there may be a Phase IIb ahead of a III." That study could be used to do additional work studying different dose levels and possible drug combinations. "The FDA has been guiding companies on diabetes to be very safe on cardiovascular ahead of Phase III.

"We're going to look for a partnership after IIa," adds the CEO. "We plan to partner with a pharma company as we get results from the IIa at the end of next year or early 2010."

For a company like Arete, a late-stage trial for diabetes is a financially daunting prospect.

"I think the thing making diabetes expensive is that the cardiovascular safety aspect requires a larger trial," says Sabry. "What we've seen in animals suggests the drug is extremely safe. We don't expect to have cardio toxicity."

Arete is doing additional discovery work, but don't look for any new clinical programs in the near future. 

"We're going to be looking in discovery next year for other indications, but we won't advance them into the clinic," says Sabry. These days, he adds, "companies have to be extremely capital efficient. We're going to focus on the lead program and bring other molecules to other indications, but we will not take them into the clinic in 2009."

Arete is small and intends to stay that way through this phase of its development. The developer has 23 staffers now and Sabry expects to add fewer than 10 more in the near term.

That's a far cry from Sabry's days as CEO of Cytokinetics, which he co-founded in 2007.

"Cytokinetics is very different," says Sabry. "That company worked on multiple targets and raised hundreds of millions of dollars to get to proof-of-concept. It had eight times as many employees as Arete."

By the time Sabry left Cytokinetics, he had plenty of contacts in the industry who knew about his plans to "go and do start-ups again." Among those contacts was just about everyone on Arete's board of directors. And when the board decided to replace the company's founding CEO, Dinesh Patel, Sabry got the call.

But don't look for him to eventually follow the Cytokinetics model.

In many respects, adds Sabry, the whole industry has been undergoing a transformation. He adds: "Arete and other companies will be built quite differently."

And a thrifty approach to discovery will be key to their success.

Says Sabry: "I think every biotech company has to take a sharp pencil to its budget."

Emerging Drug Developer: Arete Therapeutics

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