Usually when a biotech company makes a large fundraising announcement, the cash is committed to taking a specific drug through clinical trials. Arrivo BioVentures has secured $49 million in capital to first find the drugs to develop.
The approach is similar to what the Morrisville, NC-based company’s management team did with three previous biotech firms, each of which culminated in a deal for that company’s lead drug. Rather than focusing on in-house drug discovery efforts, the previous companies sought out early-stage drug candidates developed by outside researchers or firms, or drugs already on the market that could be administered differently or developed for an additional therapeutic application. But this time, rather than betting on one drug for one, perhaps two, medical conditions, Arrivo aims to up its odds of success by pursuing four to six drug candidates.
Jazz Pharmaceuticals (NASDAQ: JAZZ) led the Arrivo investment and was joined by Solas BioVentures, Rex Health Ventures, and individual investors. Arrivo CEO Steve Butts says that by pursuing multiple drug candidates, the company will diversify the opportunities for investors by giving them more chances at developing a successful drug.
Butts was part of the management teams of Research Triangle Park, NC-area companies Addrenex Pharmaceuticals, Neuronex, and Aerial BioPharma. Addrenex, formed in 2006, developed clonidine (Clonicel) for the treatment of hypertension and attention deficit hyperactivity disorder. Japan-based Shionogi & Co. acquired Addrenex for $29 million in 2009.
The following year, Addrenex’s former management team formed Neuronex, a company that in-licensed from South Korea-based SK Holdings a form of the epileptic seizure drug diazepam that is administered as a nasal spray. Ardsley, NY-based Acorda Therapeutics (NASDAQ: ACOR) acquired Neuronex in 2012, paying $2 million up front, with more than $120 million in additional payments due upon hitting regulatory and commercial milestones.
Butts and others from Neuronex formed Aerial BioPharma in 2011, focusing on central nervous system drugs. Similar to the approach that Arrivo is taking now, Aerial’s model involves identifying early-stage drug candidates that can be quickly developed, reaching a point where they become attractive acquisition targets for a larger biopharma company. That’s what happened with Aerial’s narcolepsy drug candidate ADX-N05. Jazz acquired rights to the Aerial drug in 2014 for $125 million up front.
Though Aerial has focused on central nervous system drugs, Arrivo hasn’t said which therapeutic areas it will target. But similar to the approach taken by their previous companies, Butts and his team say they’re looking for drug candidates with a clinical and financial upside, a clear regulatory and development pathway, and prospects for hitting milestones that would support a sale or partnering deal for the drug within four years. This approach could pay off in a big way—Aerial stands to gain up to $270 million in additional payments from Jazz if the narcolepsy drug, currently in late-stage trials, hits regulatory and sales milestones.
But these deals can also fizzle. Last week, Acorda announced it would stop work on the Neuronex nasal epilepsy spray after studies showed that the drug was not bioequivalent to an existing Valeant Pharmaceuticals (NYSE: VRX) drug currently used to treat epileptic seizures.