ARCHIVED - Zelos Therapeutics Inc. Raises Record Levels of Investment for its Bone Building Osteoporosis Treatment

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August 05, 2005— Ottawa, Ontario

Zelos Therapeutics Inc.

The NRC spin-off Zelos Therapeutics Inc. has recently raised one of the largest rounds of investment among Ottawa-based biotech companies. Top-ranked US biotech investors are funding Zelos to take their osteoporosis treatment through to Phase 2 clinical trials.

"Our initial target was to raise 25 million dollars but we actually raised US$ 42 million," said Dr. Paul Morley, Chief Technical Officer at Zelos and former senior researcher at the NRC Institute of Biological Sciences (NRC-IBS). "It could have been in the 60 million range but we had to turn people away. The prestige in the finance community of Alta Partners, our lead investor, was such that when they said: 'We've done our due diligence and we're going to invest' everyone else said: 'Well all right, we're in too!'"

Zelos' lead product is Ostabolin-C™, an injectable drug designed to fight osteoporosis. Their parathyroid hormone (PTH) based products evolved from work that originated in the PTH Project group at NRC-IBS.

Over the 1990's, the NRC PTH team analyzed the full-length (84 amino acid) peptide to determine the active region for bone building and other characteristics of the molecule. In that process, they developed a shorter length analogue, named Ostabolin-C™, that featured only the bone building aspect of the peptide and eliminated the part of the PTH molecule that was responsible for bone resorption. This modification thereby eliminated PTH's classic adverse side effect – hypercalcemia, or elevated levels of calcium in the blood.

"When you use the full-length PTH you stimulate the osteoblasts that make the bone but you also stimulate the osteoclasts, which resorb bone," Dr. Morley explained. "The net effect is in favour of bone formation but the osteoclastic activity causes calcium levels to go up. We don't turn on bone resorption with Ostabolin-C™ so we don't see hypercalcemia."

Image of elderly woman.

Zelos is using the investment to take Ostabolin-C™ through to Phase 2 clinical trials. They are presently recruiting up to 300 women currently suffering from osteoporosis for the trial at 30 sites in Canada and the US. Concurrent with the Ostabolin-C™ trial, Zelos is collaborating with Nektar Therapeutics to develop an inhalable version of the drug to eliminate the inconvenience of daily injections.

"The osteoporosis market is growing at about 15 percent per year. If we are successful in developing the inhalable version of this so it doesn't have to be injected, we will greatly enhance the market acceptance of our product," said Dr. Morley.

NRC Industry Partnership Facilities

Zelos is located at one of NRC's industrial partnership facilities (IPFs) but the current financing success will allow them to make it on their own, a step that is celebrated by both the company and the NRC. "The IPF worked out very well," said Dr. Morley. "The NRC was very happy when we decided we'd become too big and had to go. We went out and found office space in Ottawa where we can put everyone together."

In 2003-2004, 115 companies were incubated within NRC industry partnership facilities across Canada and 11 companies "graduated" from NRC IPFs last year.

The PTH program at NRC-IBS continues to be one of Zelos' research resources. "We're part-way through a three-year research collaboration," said Scott Ferguson, the Business Development Officer at NRC-IBS who has been working with Zelos from its inception. "Our services have included validation work comparing Ostabolin-C™ against existing products, peptide synthesis for laboratory use, initial chemical characterization of the product and other related work."

The NRC PTH Project team includes peptide chemists, animal physiologists and biochemists that provide the critical mix of expertise needed to take basic research findings into product development.

"The only reason we've gotten to where we are is because we had that breadth of experience within that research group," said Dr. Morley. "Also, if you don't have a patented molecule you won't be able to interest the venture capitalists and raise the venture money."

In addition to being a research partner, NRC is also a shareholder. NRC owns the Ostabolin-C™ and related PTH derivatives Intellectual Property and has licensed Zelos to develop and commercialize the technology. Scott Ferguson explains the NRC's evolving relationship with Zelos. "It's a question of providing what the company needs. Now they're in the position to seek out the best partnerships available. We provide them with understanding that will generate a competitive advantage."

Bone density comparison between a normal bone (left) and one afflicted by osteoporosis (right).
Bone density comparison between a normal bone (left) and one afflicted by osteoporosis (right).

"The focus of everything we do is to make sure that the Phase 2 program gets completed on time and at very high quality so we can take that data and talk to large pharma companies about partnering, licensing or buying" said Morley.

In osteoporosis, a phase 3 trial could easily cost more than US$300 million dollars. A small- or medium-size enterprise like Zelos would not be able to raise that kind of money alone, so partnership with large pharmaceutical companies at the end of Phase 2 becomes necessary.

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