Better market conditions pushed open the window for life sciences initial public stock offerings this year and kidney therapies developer Nephrogenex is hoping that window stays open a little longer as it prepares a $46 million stock offering of its own.
Research Triangle Park-based Nephrogenex formally filed its plans publicly with securities regulators on Monday. The company plans to use IPO proceeds to finance late-stage clinical trials on its lead drug candidate, an experimental treatment for diabetic neuropathy.
Nephrogenex had initially filed its IPO plans with regulators earlier under the “Jumpstart Our Business Startups” or JOBS Act of 2012. The law enables emerging growth companies to file confidentially with securities regulators before disclosing their IPO plans publicly. A draft registration statement was filed with the Securities and Exchange Commission in November.
Nephrogenex does not yet have any FDA-approved drugs and as is typical of small, pre-revenue drug developers, the company has been directing most of its funds to research and development. Since Nephrogenex’s 2004 start the company has racked up $28.7 million in research and development expenses, much of it for lead drug candidate Pyridorin.
Target: diabetic neuropathy
Pyridorin, an orally-administered drug, is being studied as a treatment to slow the progression of diabetic neuropathy in patients with type 2 diabetes. Diabetic neuropathy is a chronic, degenerative condition of the kidney. The condition affects 6 million patients in the United States, according to figures from the Centers for Disease Control and Prevention. Diabetic neuropathy can progress to end-stage renal failure, requiring dialysis. In some circumstances it can lead to death.
The current standard of care for diabetic neuropathy comes from two classes of drugs: angiotensin-converting enzyme inhibitors or ACE-inhibitors and angiotensin-receptor blockers or ARBs. Both classes of drugs were developed initially as anti-hypertension drugs before finding additional applications in diabetic neuropathy. Nephrogenex says Pyridorin would be administered in conjunction with the existing diabetic neuropathy therapies so it would not compete with them.
“While the market opportunity for drugs to treat diabetic neuropathy is large and growing, the availability of drugs to treat this condition is very limited,” Nephrogenex says in its filing.
But competition is looming from larger and much better-financed pharma companies who also have clinical-stage compounds that take different approaches to the condition. AbbVie is in phase III clinical trials with its diabetic neuropathy drug candidate; Bayer Healthcare, Pfizer, ChemoCentryx and Eli Lilly are all in mid-stage clinical development with their own diabetic neuropathy compounds. Nephrogenex acknowledges the potential competition in the filing but says it could stand out through factors such as efficacy, safety, tolerability, convenience of dosing and reimbursement. Nephrogenex will need to demonstrate some of those qualities with data from clinical trials.
Nephrogenex says in the filing that it has already reached agreement with the Food and Drug Administration on the study goals for the phase III clinical trial of Pyridorin. But the company needs money to finance those studies. In 2012, the most recent full year of available financial data, Nephrongenex reported a $2.9 million net loss. Since the company started in 2004 through the third quarter of 2013, Nephrogenex’s net loss totals $36.8 million. Through the third quarter of 2013, Nephrongenex had spent more than $1.1 million in R&D, down from the $1.7 million spent in the same period in 2012. The company reported a $2.1 million loss through the first three quarters of this year.
According to its balance sheet, Nephrogenex had just $202,344 in cash and cash equivalents as of the end of the third quarter. Nephrogenex has since raised additional funds by selling some debt that is convertible into equity. But it’s not enough to finance phase III clinical trials. The convertible promissory notes, sold on Nov. 12 and Dec. 11 for $1.0 million and $1.65 million respectively, will convert into Nephrogenex common stock when the company goes public.
Proceeds from the IPO would break down to $30.0 million to fund phase III studies of Pyridorin and $1.5 million to study development of an intravenous version of Pyridorin to treat acute kidney injury, which the company says is “a very significant market opportunity for Pyridorin.” Nephrogenex says the IV-administered Pyridorin would be used in hospitals and would not compete with the pill version of the drug. Any remaining IPO proceeds would be reserved for general corporate purposes.
More funds needed
Even if Nephrogenex successfully executes a $46 million IPO, that funding will only take the company so far. The company says in its filing that based on its expected operating expenditures, the stock offering will fund the company only through 2016. Also, the IPO funds won’t foot the entire bill of the necessary phase III studies. Completing those Pyridorin trials and filing for regulatory approval in the United States and Europe will require an estimated $45 million in additional funding, the company said in its filing.
Nephrogenex holds 28 patents in the United States and abroad related to Pyridorin. The compound has patent protection through 2024, though in some unnamed countries outside of the United States, patent protection for treating diabetic neuropathy expires in 2016. Nephrogenex’s intellectual property surrounding Pyridorin was acquired from Durham company BioStratum in 2007.
As of Dec. 13, Nephrogenex had only three employees. The company is led by CEO and director Pierre Legault. Legault, who has been a member of Nephrogenex’s board of directors since November 2012, was named CEO on Oct. 18 of this year. Before his involvement with Nephrogenex Legault was CEO of consulting company Stone Management. From 2009 through 2012 Legault CEO of Prosidion Ltd., a United Kingdom biotech focused on diabetes and obesity.
Nephrogenex has not yet set an effective date for the registration statement. But the company said in its filing that it anticipates its offering would price between $12 and $14 per share. Nephrogenex intends to apply to list on the Nasdaq exchange under the stock symbol “NRX.”