The Skinny blog is written by Rick Smith, editor and co-founder of WRAL Tech Wire and business editor of WRAL.com.
RESEARCH TRIANGLE PARK, N.C. – Almost every venture capital investment is a gamble, especially in the high risk of failure drug development space, but the new Rex Healthcare venture fund is placing a bet on a startup led by a team of veterans who have been successful in the past.
They also are developing fast with a new drug targeting narcolepsy in Phase 2 clinical trial even though the firm is just over a year old.
Aerial BioPharma, led by Chief Executive officer Dr. Moise A. Khayrallah, President Steve Butts, and Dr. Gary Bream, executive vice president of Clinical Affairs, has landed $500,000 from Rex Health Ventures. The team also is running another drug firm, Neuronex, which announced a merger agreement with Accordia Therapeutics in February. That deal could lead to a $100 million payday for Neuronex investors.
Angel investors are also backing Aerial as is 3G Capital, enabling Aerial to raise $4 million.
“This is precisely why we created Rex Health Ventures and Rex Strategic Innovations: to find and support promising companies with exciting products that could improve the lives of thousands of patients,” said Rex President David Strong. “We look forward to a long and successful relationship with the very capable team at Aerial.”
The Skinny asked Dr. Khayrallah about working with Rex and why Aerial raised outside money, something he and his team were largely able to avoid in building Addrenex to a successful exit.
What benefits does Rex bring as an investor other than the obvious plus of the money?
We are thrilled to have Rex as in investor. It is important to us to have supporters in the local community, particular one as well respected at Rex. In addition to the credibility for other potential investors, Rex has a broad network of experts in all therapeutic areas. We are excited to have access to this network, which should help with current and future development programs both from a strategic and tactical perspective.
You were able to grow Addrenex to a $29M exit without raising outside money beyond licensing deals with Sciele – why raise venture capital this time?
Although the funding strategy for the three companies that this team has led has so far focused on angels, foundations and partnerships, we are always open to other sources of funding if we fit their profile. We view Rex Health Ventures as a strategic investor that is different from traditional venture capital funds. Rex offers us access to their network of therapeutic experts. Having a high quality local investor with expert resources is a real advantage for a company like Aerial.
How were you able to find investors this time when VCs did not invest in Addrenex? Was it technology? Better product potential? Improved learning curve by you and your team in making the “pitch”?
While the early finding for Addrenex came from angels and a partnership, we did have interest from VCs as our product portfolio expanded. However, by that point we had developed an alternative funding strategy and decided against pursuing VC money. Following our success with Addrenex, we continued with our model of funding our companies using Angels, foundations and small investment groups. We believe this is a model that allows all shareholders to win.
In October you set out to raise $12 million – how much remains to be raised, and are you close to securing additional backers beyond those announced Tuesday?
We are planning to raise $12M between October 2011 and early 2014. Because we work primarily with Angel investors and smaller investment groups, we have always adopted a strategy to tranche our capital calls both to minimize the risk to the investor and to help them with managing cash flow. We achieved our target of approximately $4M in funding for this first tranche and believe that positive data from our lead two products positions us well to achieve our overall funding target.
What impact if any does this deal have on Neuronex?
Aerial and Neuronex are separate corporate entities, so financially, there is no impact. However, it is important for the investment community, and current and future partners to continue to demonstrate a track record of success.
How were you able to keep tour management team together through the sale of Addrenex – how so?
Our team is the key to our success. We have the right combination of skills, experience, and entrepreneurial savvy that blend together to create a high performing team. Everyone enjoys working together and views each project as a challenge. This is a group of experts that understands that drug development can be done more effectively and efficiently than is common in the industry. We hope to keep the team together for years to come as we continue licensing in and developing useful medicines for patients in need.