With Novartis Deal Dead, Proteon Embarks on Plan B With $45M Round

Xconomy Boston — 

Proteon Therapeutics almost became a piece of Novartis’ portfolio before an option-to-buy deal with the Swiss pharma giant fell apart last summer. Now it’s going down a different path altogether—one that looks like it might take the Waltham, MA-based company all the way to Wall Street.

Proteon is announcing today that it’s raised a $45 million Series D round of equity financing that includes both existing backers and new “crossover” investors—those better known for investing in public companies. The newcomers include Abingworth, which is leading the round, Deerfield Management, and Pharmstandard International, an entity affiliated with Russian pharmaceutical company Pharmstandard.

Existing investors TVM Capital, Prism VentureWorks, Skyline Ventures, Intersouth Partners, MPM Capital, Devon Park Bioventures, Bessemer Venture Partners, and the Vectis Healthcare and Life Sciences Fund, contributed some of the cash as well. Abingworth partner Tim Haines and Inbio Ventures investment manager Dmitry Kobyzev (who represented Pharmstandard) are joining Proteon’s board as part of the deal. Proteon has now raised a total of $123 million in private funding since its inception in 2006.

Proteon is getting $25 million of the new cash up front, primarily to help start up a big Phase 3 study of its lead drug, PRT-201. CEO Timothy Noyes says that the rest of the cash is tied to the success of the trial. Proteon expects to begin enrolling patients this summer, and to produce data in early 2017. The round would fully fund Proteon through the trial, according to Noyes.

PRT-201 is an engineered form of the human enzyme called elastase that Proteon is trying to show can improve the outcome of a surgical procedure—the creation of an arteriovenous fistula, or AVF—commonly used to prepare kidney failure patients for hemodialysis.

In AVF surgery, a connection is created between an artery and a vein in a person’s arm, which boosts the blood flow through the area and thickens the blood vessel wall, making it stand up better to being pricked constantly by the big needles used in dialysis. AVFs often fail in the first year, however, largely because while the blood vessel is healing, a bunch of cells head to the area and stay there, clogging up the vessel and cutting blood flow. PRT-201 is designed to prevent that from happening.

In 2009, after putting PRT-201 through an early-stage study, Proteon cut a big deal with Novartis, granting the pharma giant an option to either buy Proteon outright or license PRT-201 after a Phase 2 study. In return, Proteon was to receive upfront and deferred payments adding up to $550 million. But last August, a few months after Proteon wrapped up that study, the Novartis deal fell apart. Noyes told Xconomy earlier this year that the two companies couldn’t come to terms on an acquisition deal structure, not that Novartis was displeased with the data. (Though the trial produced somewhat mixed results due to what Noyes said was an “imbalance” in the study’s placebo group, Proteon deemed it a success, as I wrote in March.)

Regardless of the reasons, however, the ill-fated deal left Proteon with a Phase 3 trial to fund and no big partner to pick up the tab. Noyes said at the time that the company would likely raise some cash privately and even potentially consider an IPO afterwards if things broke right. Today, Proteon’s taken part of the first step down that road. And given the makeup of the investors in its latest round, including Pharmstandard—which was the lead investor in Durham, NC-based Argos Therapeutics’ (NASDAQ: ARGS) last private round, before helping back stop the company’s IPO in February, according to Noyes—a public offering looks to indeed be in the offing, even as the appetite for biotech IPOs has started to dwindle.

“Whether or not we [go public], this private round has certainly put us in a better position to do that,” Noyes says. “With the cash we’ve brought in, and they type of investors we’ve brought in, I think we have positioned ourselves to take advantage of a public offering if that’s where the company wants to go and if the markets become healthy.”

As for the coming Phase 3 study, much like in the Phase 2 trial, Proteon will look to prove that PRT-201 can speed up the time between surgery and when the AVF can actually be used in dialysis (called a “maturation rate,” typically a 12-week process), and that it can increase the time between an AVF surgery and any necessary corrective procedures. The only differences this time around are Proteon will enroll about 300 patients instead of 151 (200 will get PRT-201, and 100 a placebo), and Proteon will only enroll people with radiocephalic fistulas—an AVF down by the wrist—as they responded the best to its treatment in Phase 2 studies. Radiocephalic fistulas are the recommended starting points for AVFs before surgeons move higher up on the arm to the elbow (brachiocephalic fistulas), according to Noyes.

“We think the drug worked well [in elbow AVFs] too, but because the medical need there is less robust—the failure rate (of those AVFs) is lower—you’re going to need more patients to demonstrate a statistically significant benefit,” he says. “So our view is let’s take whatever risk we might have out of our Phase 3 program, let’s go with the type of fistula that people want to make in a first-line approach, and the group of patients in whom we saw the most robust effect.”