A drug developer rooted in Southwest Michigan and backed by investors across the region may pursue an initial public stock offering that could net up to $86.2 million to support further development and commercialization.
In a preliminary registration statement filed with federal securities regulators, Cirius Therapeutics LLC said the proceeds it could raise from the potential offering would take it through late-stage clinical trials for a new drug to treat nonalcoholic steatohepatitis, or NASH, with fibrosis. The company believes the drug, known as MSDC-0602K, “has the potential to be used as a cornerstone NASH therapy” and has shown potential to treat Type 2 diabetes.
“Our goal is to become a leading pharmaceutical company focused on the development and commercialization of innovative therapies for the treatment of liver and metabolic diseases,” the company said in the preliminary registration statement filed in January with the U.S. Securities and Exchange Commission.
The company said it applied to have its shares listed on the Nasdaq Global Select Market under the ticker symbol CSTX.
Formerly known as Octeta Therapeutics, Cirius Therapeutics in November 2015 spun out from Kalamazoo-based Metabolic Solutions Development Co. to focus on commercializing a compound for treating NASH. Metabolic Solutions itself just raised a small amount of capital as it seeks new investors to support further development of its other potential drug compounds.
Octeta changed its name to Cirius Therapeutics in March 2017 following a $40 million capital round and the hiring of a new executive management team. Cirius Therapeutics today is headquartered in San Diego, Calif., but operates its research labs in Kalamazoo.
The company is conducting a Phase 2B clinical trial involving 402 patients diagnosed with NASH with fibrosis. Preliminary findings last October on 328 subjects after a six-month follow-up visit reported “positive interim results,” according to the SEC filing.
NASH with fibrosis presently lacks a drug therapy. Just last week, Foster City, Calif.-based Gilead Sciences Inc. (Nasdaq: GILD) reported that its drug candidate to treat NASH failed a Phase 3 trial.
A November 2018 research report from U.K.-based Global Data pegged the global market potential for a drug to treat NASH in the U.S. and five European countries at $18.3 billion by 2026. Cirius Therapeutics’ preliminary registration statement noted that several pharmaceutical companies are working to develop a NASH therapy.
Thomas Moore, a senior analyst at Global Data, said in a statement that given the unmet need for a NASH therapy, “any new drug which is proven to help patients with NASH is expected to see rapid uptake, and generate significant market growth.”
'Good for everybody'
Cirius Therapeutics expects final results from the ongoing Phase 2B clinical trial to come out in mid 2019. Positive findings would enable the company to proceed with a Phase 3 clinical trial to get U.S. Food and Drug Administration licensing.
Filing a preliminary registration statement for a possible IPO gives Cirius Therapeutics a potential option for raising the additional capital it would need to complete clinical trials, get to market, and generate a return for investors.
“As investors, we’re very bullish on what that can be,” said Mark Olesnavage, managing director at Hopen Life Science Ventures, a Grand Rapids-based venture capital firm that holds a sizeable stake in Cirius Therapeutics.
“We believe this has a potential return to be good for everybody,” Olesnavage said.
Hopen was one of the early investors in Metabolic Solutions and, after the spin out, became a large investor in Cirius Therapeutics. The firm and its affiliated entities own 7.98 million shares of Cirius Therapeutics, according to SEC filings.
Michael Jandernoa, a managing general partner at Hopen Life Science Ventures, sits on the Cirius Therapeutics board of directors, as does David Van Andel, CEO of the Van Andel Institute in Grand Rapids.
The William D. Johnson Trust in Kalamazoo also owns a large stake in Cirius Therapeutics with 6.5 million shares, according to the preliminary registration statement.
Metabolic Solutions, as the largest shareholder of Cirius Therapeutics, owns 18.3 million shares, or 22.2 percent of the company.
Cirius Therapeutics’ CEO Robert Baltera declined to comment to MiBiz.
The Cirius Therapeutics preliminary filing follows what Pitchbook called a “very robust” year in 2018 with 85 IPOs involving venture capital-backed companies that collectively raised $63.5 billion. Last year saw the highest number of IPOs since 2014, when 125 firms raised $43.4 billion, according to Pitchbook’s quarterly Venture Monitor report released in mid January.
Health care companies alone accounted for more than two-thirds of the 17 IPOs in the U.S. during the fourth quarter.
Metabolic seeks lead investor
As Cirius Therapeutics awaits final data from the clinical trial and decides whether to pursue a public offering or raise needed capital elsewhere, Metabolic Solutions is pursuing options for its other compounds. One of the compounds “has some clinical relevance” in Parkinson’s and Alzheimer’s disease, said Olesnavage, who also serves as chairman of the board at Metabolic Solutions.
Metabolic Solutions, founded in 2006, seeks to secure funding for clinical studies on the compound that would give some proof of concept to use the compound for either disease in humans.
“We have not given up. We have not found a lead investor, but we have talked with several,” he said.
The company last year ended its in-house R&D work in Kalamazoo. Research on the company’s compounds continues at outside labs, including at the Van Andel Institute and Washington University in St. Louis, Mo., Olesnavage said.
“We’re collaborating with others to continue to move this thing forward, hopefully, and generate enough data that we can get somebody the confidence to invest and put one or more of these drugs into the clinic,” he said.
Metabolic Solutions also has conducted pre-clinical work on another compound in an attempt to show they could “be very beneficial in certain diseases,” including diabetes and NASH.
The company has “been in discussion with several companies,” one of them in Europe, and “had ongoing dialogue for many, many months” about the compound. The European company recently told Metabolic that it wants to “figure out a way to move some of these or maybe one forward,” Olesnavage said.
“We’re just now beginning to talk about how that could happen,” he said. “We’re hopeful that could happen in the near term.”
Metabolic Solutions — whose early investors also included Michigan Accelerator Fund I in Grand Rapids and the former Southwest Michigan Life Science Venture Fund in Kalamazoo — closed this month on a $200,000 capital raise involving 15 investors, according to a filing with federal securities regulators.
The capital will go toward continuing operations that allow the company to prosecute and protect its intellectual property globally, Olesnavage said.
If Cirius Therapeutics reports positive final data on the NASH drug candidate later this year, it “could go a long ways in terms of validating some of the assumptions on what our drugs do,” Olesnavage said of the other compounds that originated at Metabolic Solutions.
Other large investors in Cirius Therapeutics include Seattle, Wash.-based venture capital firm Frazier Healthcare Partners, which holds 16.91 million shares, or 20.9 percent of the company, and Novo A/S, a holding company in Denmark for a group of health care firms that owns 16.23 million shares, or 19.7 percent. Chicago-based investment fund Adams Street Partners and affiliated entities own 7.23 million shares in Cirius, or 8.8 percent.
EDITOR’S NOTE: The online version of this story has been updated. When it was originally posted, the first paragraph was inadvertently cut off.