Proteon inks deal for equity, Novartis sale option

Dow Jones VentureWire
03.10.09

Proteon inks deal for equity, Novartis sale option

Renal and vascular disease treatment developer Proteon Therapeutics Inc. has raised a $38 million Series B round and formed an exclusive option agreement with Novartis AG for the possible sale of the company.

New investor MPM Capital participated in the round on behalf of the MPM Bio IV NVS Strategic Fund LP, an investment fund that MPM manages on behalf of Novartis. New investor Vectis Healthcare & Life Sciences Fund also took part in the round alongside Proteon's existing venture syndicate including Intersouth Partners, Prism VentureWorks, Skyline Ventures and TVM Capital. Other existing angel investors, including individuals and small investment firms, also participated in the round. The valuation of the round, which closed on Wednesday, was not disclosed.

Investments made from the MPM Bio IV NVS Strategic Fund require approval from both MPM and Novartis, said Proteon President and Chief Executive Timothy Noyes. The fund's investment in the deal and Novartis' new agreement mark separate but related transactions, Noyes said. MPM Bio IV NVS Strategic Fund typically works to contribute equity and form agreements with Novartis at the same time. It previously set up investments and transactions in companies including Radius Health Inc. and Peptimmune Inc.

Proteon's agreement with Novartis gives the Swiss drug giant the exclusive option to acquire Waltham, Mass.-based Proteon after it successfully completes a Phase II trial for its lead candidate, PRT-201. The agreement also provides for the possibility of a secondary right to a global license. The Novartis deal could total more than $550 million including an initial acquisition payment and possible regulatory milestone payments. With the agreement, Proteon has received an undisclosed upfront payment from Novartis.

"It is a phased transaction with a compact timeline that doesn't extend out into sales milestones," Noyes said. The agreement also leaves the possibility open that Novartis could prefer a license agreement instead of the acquisition once the Phase II trial is completed, Noyes said.

Proteon's new transactions follow the initiation of a Phase I/II clinical trial for its lead product in patients with end stage renal disease who are undergoing surgery for arteriovenous fistula creation. Proteon plans to have Phase I results for that trial by the middle of next year, with Phase II results scheduled for 2012.

"Right now we have money well into 2012, maybe to the end of 2012," Noyes said. "Right now we have enough money to get us through the Phase II trial."

Proteon, which also has laboratory facilities in Kansas City, Mo., also plans to file an Investigational New Drug supplement this year for the potential use of PRT-201 for arterial venous graft. The company also plans to investigate the treatment's potential to treat peripheral arterial disease, Noyes said.

The funding and acquisition option agreement come after several years of talks between MPM and Proteon. MPM Managing Director Steven St. Peter was roommates with Proteon founder and Chief Scientific Officer F. Nicholas Franano in both college and medical school. MPM began following Proteon once St. Peter joined the firm in 2004.

"The company overcame some challenging manufacturing issues and preclinical issues," St. Peter said. "With a very good syndicate with the Series A, they've accomplished a lot."

The funding is slated to last until the end of the Phase II trials. The Novartis deal provides for another potential deal with the successful completion of those trials.

"The right partner de-risks the opportunities," St. Peter said. "We think it's a very innovative way to be investing, especially in this environment. It may not be right for all companies, but for this one it certainly is."

St. Peter has joined Proteon's board with the round, while Intersouth General Partner Garheng Kong has stepped down. To date, Proteon has raised $72 million in equity, not including any non-dilutive funding from Novartis, according to Noyes.

For Prism VentureWorks, which became an investor in the company with its 2006 Series A round, Proteon has been executing very well, working with a great product and great team, General Partner Brendan O'Leary said.

"It's been a pleasure to be on the board of this company," O'Leary said. "We all tend to be in violent agreement on everything."