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Brain Cells Inc., No Dummy, Raised $50M Before Recession Got Really Ugly

Xconomy San Diego — 

At least in the world of finance, Brain Cells Inc. can make a credible claim that it has a little more going on upstairs than your average biotech company. The San Diego-based startup had flawless timing, by completing a $50 million Series B financing back in April, before venture capital became really hard to come by this fall.

I learned more about the company’s science and business strategy from CEO Jim Schoeneck on a visit to the company’s new headquarters a few weeks ago on General Atomics Court. The company has attracted some big-name investors to the same door, including New Enterprise Associates, Alexandria Real Estate Equities, MedImmune Ventures, Bay City Capital, Oxford Bioscience Partners, Technology Partners, Pappas Ventures, and NeuroVentures.

Brain Cells was formed in December 2004, when technologies from the labs of Fred Gage at the Salk Institute, and Rene Hen and Eric Kandel of Columbia University were merged. Gage’s long body of work debunked conventional wisdom in the 1990s that said adults don’t grow new brain cells. The next step is to show he can coax immature brain cells to become adult brain cells. Hen’s research showed how serotonin (a neurotransmitter) interacts with receptors in the brain, and how that’s connected to depression, anxiety, and other mood disorders. If the work is on the right track, they should be able to sharpen scientists’ understanding of why certain depression treatments work. Then Brain Cells could be off and running, develop new drugs that work better against mood disorders because they stimulate new neurons that grow, migrate, differentiate, and survive in the brain to fight off disease.

“We are at the beginning of understanding the biology that underlies mood disorders,” says Schoeneck. “It’s been a black box for a long time.”

Want to know how little is understood about the basic biology of mood disorders? Something like 11 percent of drugs that enter clinical trials ever make it through all the trials needed to become an FDA approved product, and that number is even lower, about 5 to 6 percent, for psychiatric drugs, Schoeneck says. The only classes with even worse batting averages are cancer treatments and women’s health drugs, he says.

Figuring out the basic biology of these diseases is time-consuming and risky, and venture capitalists certainly don’t like to plunk down that much money for a set of science experiments. So Brain Cells is trying to develop an existing small-molecule drug, called BCI-540, that has already been tested in 700 patients and shown a safety profile, so it can move fast into a new set of trials, Schoeneck says.

This compound, licensed in August 2006 from Mitsubishi Pharmaceutical, failed in clinical studies for Alzheimer’s disease, partly because the placebo group had a higher-than-expected response to therapy, Schoeneck says.

Brain Cells grabbed BCI-540 off the shelf, because it believes the drug has the ability to spur growth of neural stem cells, which can grow up to replace adult brain cells, and help treat depression with anxiety. The company is enrolling 90 patients in a mid-stage clinical trial, which should produce results in mid-to-late 2009, Schoeneck says. A second drug candidate, BCI-838, is going through animal toxicology studies, and could be ready to enter clinical trials in mid-2009 for depression and cognitive disorders, Schoeneck says.

The company has the luxury, with its generous funding, to think about building a wide pipeline of candidates. The goal is to have four product candidates in 2011, Schoeneck says. The company has 32 employees doing the work, he says.

Since clinical trials of these treatments are sure to be big and expensive, Brain Cells is seeking to form partnerships with Big Pharma companies. None have yet signed up, and many of them have taken a skeptical attitude toward the idea that stimulating growth of new brain cells is the way to treat mood disorders, Schoeneck says. Some of the skepticism is fading, although many in the pharmaceutical business want to see whether spurring growth of brain cells is really causing the improvement in mood, or whether they are just bystanders that aren’t really responsible, he says.

Still, there’s already some interest from pharma companies in forming alliances, Schoeneck says. He can afford to wait for the best deal to come along, thanks to that VC cash cushion he raised in the spring. “I’m a very happy camper,” Schoeneck says.”Whenever I put my head on the pillow at night, I’m thankful.”

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