A storied New York investment firm is leading a $40 million funding round for Nobex, which company officials say will position the drug delivery company for a public stock offering by late next year.

AEA Investors is putting $12 million behind Nobex in the company’s sixth and, potentially, final venture round. Other investors in the round, which puts a $61 million pre-money valuation on the company, include Aurora Funds of Durham, Crescendo Ventures of Palo Alto, Calif., and Sweden-based HealthCap.

The $40 million round would almost double the amount of venture money invested in Nobex since its inception nine years ago. Chief Financial Officer Chuck Osborne told the audience at the recent Venture 2002 conference that the company expects to close the round in the next two months.

“Once we have this mezzanine round in place to fund the continued development of our drug pipeline, we expect to be able to pursue an IPO in 2003,” Osborne said.

Osborne and Nobex Chief Executive Chris Price decline to comment further on the company’s funding, although the company profile distributed during Venture 2002 lists AEA as its lead investor.

“Things are as they are written,” Price told Local Tech Wire on Wednesday. “I would prefer that we wait until everything is done before getting into more detail than that.”

AEA Managing Director Michael Berendt didn’t return telephone calls seeking comment.

Big money, big bets

AEA was founded more than 30 years ago by the Rockefeller, Harriman and Mellon industrial families, and counts top executives of companies like AT&T, IBM and General Motors among its investors. It specializes in management buyouts of middle-market companies and also invests in industries as varied as consumer products, chemicals, retail, communications and life sciences.

The firm participated in Intronn’s $7 million first-round funding last fall. The genomics company has since relocated from Raleigh to Maryland.

AEA’s biggest recent play in the Southeast was its $1.4 billion purchase of the chemicals division of Charlotte-based BF Goodrich in February 2001.

In Nobex, AEA is betting on the potential of oral versions of protein-based drugs that are currently available only through injection because enzymes in the gastrointestinal tract break down the proteins before the body can absorb them. Nobex’s technology combines medicinal and polymer chemistry to stall this enzymatic process until the drug can be delivered.

The company’s lead drug candidate, oral insulin, is in its final stage of Phase II clinical trials and has shown promise in earlier tests in treating diabetes. By ingesting rather than injecting the drug, more insulin is delivered to the liver without adverse side effects.

A joint venture between Nobex and Irish drug company Elan recently launched Phase I trials of an oral calcitonin to treat osteoporosis. A drug for Crohn’s disease, an inflammatory bowel ailment, is expected to be in trials later this year. An oral version of human growth hormone may be ready for testing by 2003.

Long road to funding

The company has been lining up partners among big pharmaceutical firms and small biotechs to expand its pipeline. In addition to Elan, it is working with Pharmacia and Novartis on other oral medications, and it recently signed a deal with Albany Molecular Research of Albany, N.Y., to gain access to a library of polymer compounds to use in new drug formulations.

Osborne also told the Venture 2002 audience that Nobex has spoken with five major drug companies about licensing its technology and expects a deal this year.

Nobex has been working on its current funding round for more than a year, and the size of the total investment has risen steadily in that time, from $25 million last spring to $30 million last fall to the current $40 million level. Price attributes the difficulty in closing the round to the continuing tight venture market and the aftershocks of the Sept. 11 terrorist attacks.

“It’s tough for everybody, not just us and not just life sciences companies,” he said. “Everybody (in the venture industry) is just so cautious about doing deals.”

The company closed on almost a third of the round last fall, obtaining $12.5 million from Aurora, Crescendo and other investors.

Nobex website: www.nobexcorp.com