So Close They Can Taste It; NanoBio, Investors Eye Potential IPO

6/2/11Follow @xconomy

Is NanoBio heading towards an IPO?

Probably way too early to make that call. But the Ann Arbor, MI-based drug startup and its investors are not exactly discouraging such talk.

“I think the company has the potential to be a public company,” says George Arida, a managing director of Venture Investors. “It absolutely has the breadth [of potential products] to do that. It’s not too far down the road to go down the path towards an IPO.”

Arida, whose firm invested in NanoBio, is going out on a bit of limb by making such a bold prediction. There aren’t a whole lot of startups and investors in Michigan (or for anywhere else for that matter) clamoring for a stock offering. Plus, most drug startups these days would be just happy to make it to human clinical trials in one piece, never mind an IPO.

Drug development “is not for the faint of heart,” says NanoBio CEO James Baker. “It costs a tremendous amount of money. Most companies are not doing unique things because the risk/benefit ratios are skewed. Any hiccup and you’re dead.”

Baker didn’t say for sure whether he wants to pursue an IPO or not. But there’s ample reason for NanoBio to be in good spirits.

Last month, the company announced it was starting Phase III clinical trials of NB-001, an over-the-counter drug it’s developing with GlaxoSmithKline (GSK) to treat cold sores. In exchange for exclusive licensing rights in the United States and Canada, GSK provided an upfront payment of $14.5 million to NanoBio. The pharma giant will also pay $6 million more if the drug passes Phase III clinical trials and wins FDA approval.

With NB-001 in the home stretch, Baker envisions NanoBio generating its first sales by 2013.

“We’re at the end of the startup phase and becoming a real company,” he says.

Such a milestone will validate the company’s core NanoStat technology, a technology so unorthodox, Baker says, that “nobody believed it.”

First developed in Baker’s lab at the University of Michigan, NanoStat consists of formulating high energy, oil-and-water emulsions shrunk to 150-400 nanometers and then applied to the skin. Because the droplets are so small (one nano equals 1 billionth of a meter), the therapy can better reach the source of infection than oral drugs, the company claims.

But make no mistake about it: NanoBio’s ambitions lies far beyond over-the-counter skin medications.

“I’m not starting a Walgreens or CVS,” Baker says.

The company sees NanoStat treating far more serious complications like cystic fibrosis; Baker says he has already seen good pre-clinical data on a drug candidate. NanoBio is also partnering with institutions like the U-M and the Bill and Melinda Gates Foundation to develop vaccines against urinary tract infections and respiratory syncytial virus (RSV). Hepatitis, influenza, and anthrax are also on the company’s hit list.

That’s why an IPO could be in the company’s immediate future. Drug makers that focus on one disease are probably not good candidates for a stock offering, Baker says. But a company that uses its platform technology to deliver several therapies, especially vaccines to prevent serious infections, will attract Wall Street, Baker says.

“It’s a unique situation,” Baker says. “We know that we have a broad platform. Having multiple shots on goal is important.” The big opportunity, he adds, is in using its nanotech tools to make new vaccines.

Of course, NanoBio could always sell itself or even sell off portions of its platform, Arida says. The company recently added TareGen co-founder Peter Ulrich to its board. Last year, Sanofi-aventis acquired TareGen for $560 million.

A viable IPO could be “helpful” towards boosting the company’s value to potential buyers, Arida says.

A potential IPO “puts much of your destiny in your own hands,” he says.

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