In another spell of good news for the UK biotech sector, privately-owned Novacta Biosystems on July 6 announced it had secured £13.1 million ($21.6 million) in funding, the vast majority of which came from Celtic Pharma Holdings II LP (CP2), the second fund of private equity fund managers Celtic Pharma Holdings Advisors.

Last month, CNS-focused Proximagen, a listed company, raised a whopping £80 million from a series of blue-chip investors at its then-share price level, bucking a trend of sharply discounted fundraisings. (¹ Also see "UK Biotech Proximagen Raises Record $80 Million ‘Asset Acquisition’ Fund" - Pink Sheet, 5 June, 2009.)

Novacta--founded in 2003 around assets from GlaxoSmithKline-- will have access to the funds to take its three core programs through to proof-of-efficacy in man, according to Stephen Parker, a member of Celtic Pharma's management team. According to Elsevier's Strategic Transactions database, the biotech raised 600,000 Euros in seed funding in 2007 and a further £3.5 million in a Series A from the Wellcome Trust in early 2008. Following this deal, Celtic controls the company.

Novacta's lead program, a novel molecule to address C. difficile infections, may generate quite a bit of interest from Big Pharma given the resurgence of the disease in both hospital and community settings. In addition, the biotech is also developing two therapies targeting gram-negative and gram-positive nosocomial infections, respectively.

Leveraging Lantibiotics

Novacta's drug candidates are based on lantibiotics, a naturally occurring class of compounds produced by bacteria. These highly modified peptides contain a rare dimeric amino-acid called lanthionine (from which the name derives). The company's technology allows it to modify these lantibiotics and improve their therapeutic and pharmaceutical properties, thus leveraging a compound class that is more complex than conventional medicinal chemistry.

Novacta's lantibiotics inhibit cell-wall biosynthesis by binding to the same target as glycopeptides (which include, for example, vancomycin and telavancin and are the most rapidly-growing class of anti-bacterials) but by doing so at a different site. As such, according to the company, the compounds do not run into cross-resistance with gold-standard drugs and, in fact, are less prone to resistance.

Early preclinical data suggest that Novacta's C. difficile candidate, due to enter the clinic next year, kills the bacteria with less disturbance to normal gut bacteria than existing drugs, thus possibly minimizing disease recurrence, which has been a problem for existing therapies targeting this particular microorganism.

The company is also developing derivatives of another kind of naturally-occurring compound, bacteriocins. These are protein-based toxins produced by bacteria to inhibit the growth of similar or related strains. Novacta hopes to manipulate these to develop broad-spectrum gram-negative and gram-positive anti-bacterials.

Celtic Banks on Big Need, thus Big Pharma Interest

Celtic's CP2 fund announced its first closing, at $100 million, late last year, but is continuing to raise money, with an overall target of $750 million.

Typically, Celtic's CP2 fund invests at IND stage and exits with a Phase III-ready package, according to Parker, but in this case, "Big Pharma might be prepared to look earlier on" than Phase III, he surmises. Proof-of-efficacy in man tends to be reached earlier in the anti-infectives field than in other indications.

Although several Big Pharma have active anti-infective R&D efforts, the industry has hardly seen a glut of high-value deals in the area. Small tie-ups such as GlaxoSmithKline's June 2008 deal with Mpex Pharmaceuticals and an option-deal with Anacor Pharmaceuticals the year before are more typical.

Meanwhile Johnson & Johnson faces an arbitration claim from its partner and licensor Basilea Pharmaceutica, which is accusing the Big Pharma of dragging its feet with the regulators. J&J submitted a US NDA for the complicated skin and soft tissue infections candidate ceftobiprole in 2007 and the drug remains unapproved (² Also see "Basilea Takes On Partner J&J In Arbitration Claim Over Ceftobiprole Delays" - Pink Sheet, 2 March, 2009.)

Not that FDA has been approving many anti-infectives. Indeed, the dearth of approvals in this field continues; no antibiotics at all were approved in 2008 (³ Also see "The Antibiotic Drought Of 2008: Plenty Of Action But No NME Approvals" - Pink Sheet, 26 January, 2009.). Despite this, and the continued uncertainty over FDA's guidance over non-inferiority margins for anti-infectives, Parker is confident of Big Pharma interest (⁴ Also see "Industry’s Lesson On Non-Inferiority Margins In Anti-Infective Trials: Use 10%" - Pink Sheet, 24 November, 2008.)

Precisely because of this lack of new approvals, coupled with the growing number of C. difficile infections (which grew by 22% in the UK last year) the need is acute. As such, "we know Big Pharma is interested" in novel compounds, Parker said in an interview.

Parker also points to the strong Big Pharma background among many of the fund's management team--head of regulatory Bob Milsted, for example, was VP Global Regulatory Affairs for Oncology and Infection at AstraZeneca for 11 years. The fund's ethos is apparently to combine financial structure expertise with Big Pharma expertise "so that we can deliver something Big Pharma wants, as opposed to something we think they want," Parker continues.

Whenever the licensing deal or acquisition based exit is achieved, however, the idea is that in the interim "we take away the funding risk so that [portfolio companies] don't have to bother doing another round," Parker explains.

More UK Funding Beneficiaries to Come?

That would be music to most biotechs' ears these days, and there may soon be more beneficiaries. The fund is in discussions about four further potential investments, all in the UK (and all in private companies; it doesn't invest in listed groups).

Celtic's CP2 fund was not designed to be UK-focused, but so far it is: Novacta, and a February 2009 investment in diagnostics group Dialog Devices Limited, are both UK-based. "We're seeing very attractive UK opportunities," explains Parker.

Overall, the fund will probably remain largely European-focused, "because we like to keep a close watch on our portfolio and have a relevant expert with the company in about three hours," Parker continues.

How close Celtic gets to its ambitious $750 million target for CP2 may depend on the value it achieves from selling the assets it acquired through its first $400 million private equity fund, CP1. CP1 invested in ten asset-based opportunities and is currently auctioning two assets (⁵ Also see "Asset-Focused Funding" - Scrip, 1 May, 2006.).

- Melanie Senior (m.senior @elsevier.com)

UK Antibiotics Play Novacta Wins £13.1 million, mostly from Celtic Pharma

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