Former Yaupon Therapeutics Raises $15 Million In Debt To Prepare To Commercialize Its First Product

Now called Ceptaris, the company is awaiting FDA approval of mechlorethamine gel, a topical formulation of a cytotoxin, for early-stage CTCL.

After changing its name from Yaupon Therapeutics Inc. to Ceptaris Therapeutics Inc. in January, Ceptaris has raised $15 million in a venture debt financing to help fund its transformation from a clinical-stage company to one that anticipates commercializing its first product later this year. Mechlorethamine gel, a topical gel formulation of a generic cytotoxin, has a PDUFA date of May 27 for an indication of early-stage cutaneous T-cell lymphoma (CTCL).

Ceptaris filed an NDA last July 28 for its stable formulation of mechlorethamine, backed by a 260-patient pivotal Phase III trial in which the gel demonstrated non-inferiority against a compounded ointment form of the chemotherapeutic. The primary endpoint was a 50% score improvement on the Composite Assessment of Lesion Index scoring system. Mechlorethamine gel improved scores by 59% in the intent-to-treat population, compared to 48% for the comparator arm of the trial (Also see "Buoyed by Positive Trial Data, Private Yaupon Prepares To File Topical Chemo For Early CTCL" - Pink Sheet, 24 Sep, 2010.).

The company received $7.5 million at closing of the debt financing Feb. 21, and is eligible to draw down the other $7.5 million upon FDA approval of mechlorethamine gel. The debt financing was backed by Silicon Valley Bank and Oxford Finance. Previously, Ceptaris, founded in 2002, had raised more than $33 million over four separate rounds of venture financing, most recently bringing in a $14.4 million Series D last August [See Deal].

Chairman and CEO Stephen Tullman explained that doing a debt financing offered Ceptaris several advantages over another VC round, not the least of which was preventing further dilution of the company’s stock. Although a straight debt, rather than convertible debt, vehicle, the financing included “very minor” warrant coverage for the lenders, which Tullman described as “very usual for venture debt.”

“It’s a good mechanism,” Tullman said in an interview. “The reality is that I can raise more … in terms of normal venture capital, but at this time … venture debt offers us the lowest cost of capital. And as the company continues to advance, if we need more money, particularly post-approval, the cost of capital continues to go down because the risk is going down.”

Tullman took over as chairman and CEO last May, succeeding Robert Alonso, after leading Ception Therapeutics Inc. through its acquisition by Cephalon Inc. in 2010. Then, he was vice chairman of Vicept Therapeutics Inc., a privately held dermatology firm, that was bought out by Allergan Inc. for $75 million upfront and up to $200 million in development and regulatory earn-outs last year [See Deal].

The common thread is that both Ceptaris and Vicept were backed by Vivo Ventures, which eventually asked Tullman to step in at Ceptaris. Back in 2002, the then-Yaupon was spun out of University of Kentucky lab work focused on nicotine metabolites and analogues (Also see "Yaupon Therapeutics Inc." - Scrip, 1 Dec, 2004.). Eventually, the biotech coalesced around a strategy of licensing compounds from academic discovery shops and obtaining government grants – about $15 million over the life of the company – as a source of non-dilutive funding.

If approved by FDA, mechlorethamine gel could be poised to take over a largely underserved, orphan indication. CTCL is a chronic, recurring skin cancer that can spread to other organs and become lethal. It aflicts an estimated 30,000 Americans – mechlorethamine gel has been awarded orphan drug status by FDA. Current treatments include non-stable formulations of mechlorethamine provided by compounding pharmacies, off-label high-dose steroids, and several low-selling marketed drugs.

These include Istodax (romedepsin), a histone deacetylase inhibitor brought to market in 2009 by Gloucester Pharmaceuticals Inc., as well as another HDAC inhibitor, Merck & Co. Inc.’s Zolinza (vorinostat) (Also see "Gloucester's Istodax Gains FDA Approval Ahead Of New Regulatory Requirements" - Pink Sheet, 6 Nov, 2009.). Shortly after FDA approval of Istodax, Gloucester was acquired by Celgene Corp. for $340 million (Also see "Celgene Pays $340 Million For Gloucester And Its New Drug" - Pink Sheet, 7 Dec, 2009.). In 2010, Celgene reported full-year sales of Istodax totaling $15.8 million. For 2011, the biotech did not provide individual sales data for the HDAC inhibitor, instead grouping it among “other products” that yielded total net sales of $35 million.

Also approved for CTCL are Eisai Co. Ltd.’s Targretin (bexarotene) and Ontak (denileukin). For 2011, Eisai did not report individual sales totals for either drug; likewise Merck did not detail Zolinza’s 2011 sales performance when it unveiled its 2011 financial data.

Ceptaris May Commercialize Drug Itself, With Focus On CTCL Subset

Asked how mechlorethamine gel might succeed where other CTCL drugs have failed to thrive, Tullman declined to engage in what he said FDA might perceive as “pre-marketing” dialogue. But he stressed that mechlorethamine gel will be indicated specifically for early-stage CTCL (stages I through IIa). “There’s really not a very good, approved topical product available for early-stage CTCL,” he added.

Currently, Ceptaris is talking with potential commercialization partners about mechlorethamine gel, which Tullman described as typical for almost any asset in the NDA-review stage. The company is not afraid of trying to commercialize the product on its own, however.

“With this one, a small entity can do it very easily,” Tullman said. “Just as we would do drug development, we would hire the distribution, specialty pharma chain – all those things can be contracted. We’ve already contracted manufacturing. It’s really just a question of whether there is a partner that makes sense for us and for the shareholders. If that occurs, then we’re happy to sign up with a partnership.”

A small force would likely be sufficient to market the early-stage CTCL indication, estimated at about two-thirds of the overall CTCL patient base, because treatment and diagnosis of CTCL is concentrated at about 43 medical centers in the U.S.

[Editor’s note: this story was updated Feb. 23 to delete a brand name which Ceptaris is no longer proposing for mechlorethamine gel.]