Cambridge, MA-based Stromedix is planning to begin a mid-stage trial of its lead drug in patients with a chronic lung disease called idiopathic pulmonary fibrosis before the end of June, CEO Michael Gilman tells me. And the firm’s investors have committed as much as $15.5 million in debt to cover the costs the trial.
Debt financings aren’t as sexy as big equity rounds, yet Gilman sounds optimistic about his company’s prospects. For one, he points out that the debt financing, which can be converted into equity, provides all the money his small startup needs to complete its Phase II trial of its lead drug, STX-100, in patients with idiopathic pulmonary fibrosis (IPF). There’s also a “ton” of interest from potential pharmaceutical partners in the experimental drug for IPF—for which there are no FDA-approved therapies, Gilman says. So far, Stromedix has only taken $2 million of the debt that it can draw from the new offering, Gilman says.
Stromedix, founded in 2007, previously raised $29.4 million through two round of equity funding from well-known life sciences investors such as Atlas Venture, Bessemer Venture Partners, Frazier Healthcare Ventures, and Red Abbey Venture Partners. Those investors also participated in the company’s debt financing, according to Gilman.
While no drugs are approved for IPF, which causes scarring in the lungs that limits the body’s ability to oxygenate the blood, there are more than 120,000 Americans with the illness awaiting new therapies. This has helped make IPF a hot market. For example, the biotech powerhouse Gilead Sciences (NASDAQ:GILD) in December scooped up Palo Alto, CA-based startup Arresto Biosciences, which is in early development of an antibody for treating IPF and cancer, for $225 million. Also, the market value of Brisbane, CA-based InterMune (NASDAQ:ITMN) has taken $1 billion-plus swings after both positive and negative regulatory opinions of its late-stage IPF candidate, pirfenidone, over the past year, Gilman says.
“The situation hasn’t really changed—it’s a terrible disease, the median survival is three to four years” after diagnosis, and “there are no approved drugs in the U.S. or Europe,” Gilman says.
All these factors support the case for further investment in the development of STX-100, an antibody drug that Stromedix has licensed from Weston, MA-based Biogen Idec. Gilman, a former Biogen research executive, had initially talked up the potential benefits of the drug in treating scarring of the kidneys that causes the organs to fail. But U.S. regulators later gave the company the green light for a mid-stage study of the drug in patients with IPF, while they raised safety concerns about the treatment in prolonging the function of transplanted kidneys. So now the company is emphasizing its development for IPF patients. Gilman hasn’t said what the FDA’s specific safety concerns are.
Stromedix has approval from the FDA for its mid-stage IPF trial, which will be double-blinded, randomized, and placebo-controlled, according to Gilman. The study will seek to find an optimal dose for treating the lung disease and provide some early clues about whether it’s an effective treatment for the disease. To see whether the drug is working, the company plans to measure certain biomarkers from protein and cell samples taken from the lungs of patients. (Collecting the samples is done relatively simply by squirting a water-based solution into the lungs, letting it move around, and then extracting the fluid containing the patient’s cells and proteins used in the analyses.)
Idiopathic pulmonary fibrosis, of which the cause is not fully known, is typically treated today with corticosteroids to reduce inflammation, or, in more severe cases, with lung transplants. Yet the steroids don’t cure chronic disease, and lung transplants are costly and availability of organs is limited.
Gilman says that the debt financing his company has completed gives his investors and the company some nice options. The deal gives the company the ability to draw down the money it needs for the mid-stage study of STX-100 in IPF. But, if the company finds a new equity investor or a pharmaceutical partner to provide more funding for the trial, it might not have to use as much of the debt as it would otherwise need, Gilman says.