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WARF Leads $12M Financing Round in UW Spinout Deltanoid to Further Vitamin D Tech

Deltanoid Pharmaceuticals, a privately held company founded by University of Wisconsin-Madison researchers, has raised $12 million in Series B financing to further the development of renal disease therapies based on vitamin D analogs discovered at UW, the company said this month.
The Wisconsin Alumni Research Foundation, UW’s tech-transfer organization, led the financing round, which also included contributions from local venture capital firms Mason Wells and Venture Investors, as well as an undisclosed local corporation, angel investors, and company founders. The Series B financing brings Deltanoid’s total funding to more than $16 million since it was founded in 2001.
According to WARF Managing Director Carl Gulbrandsen, WARF decided to directly invest in Deltanoid to speed commercialization of therapies based on the company’s vitamin D analogs before the underlying patents expire. In addition, WARF hopes the cash influx can help fill a void that was left when Pfizer opted out of a license agreement signed with Deltanoid in 2004 to further develop the vitamin D analogs into therapies for osteoporosis, Gulbrandsen said.
Deltanoid’s therapeutic pipeline is based on a compound known as 2MD, which itself is based on an analog of vitamin D that has been shown to be more potent, more selective, and less toxic than other vitamin D analogs. The 2MD analogs were developed in the laboratory of Hector DeLuca, president and CEO of Deltanoid and professor of biochemistry at UW-Madison.
DeLuca has invented hundreds of compounds and methods related to vitamin D since the 1970s, and Gulbrandsen said that the licensing of several of those inventions has led to the development of multiple pharmaceutical products and reaped more than $100 million in related licensing and royalty payments for the university.
“This technology represents the fourth or fifth generation of vitamin D analogs that have been developed by Dr. Deluca,” Gulbrandsen said. “The particular analog he is dealing with now, 2MD, is about a thousand times more potent than the natural form of vitamin D, and has had a very nice safety profile in pre-clinical studies.”
Deltanoid is specifically developing 2MD as a treatment for osteoporosis, a market that Gulbrandsen said is underserved.
“In this country, vitamin D has not been used to any great extent, if at all, in the osteoporosis area, but that’s always been a natural application,” he said. “The active forms of vitamin D are used widely in Japan and to some extent in Europe for us. But they were never really developed in the US because of toxicity concerns. This new analog that [DeLuca] has takes away a lot of those concerns, plus its ability to build bone is much stronger than natural vitamin D.”
In addition, Deltanoid is developing other shortened side-chain analogs of 2MD that act on parathyroid glands or keratinocytes for treating renal diseases and psoriasis.
Betting on Success
WARF, Mason Wells, and Venture Investors were also among the investors in Deltanoid’s Series A fundraising following its founding in 2001. It is unclear exactly how much WARF has contributed to the company’s total funding. However, Gulbrandsen told BTW that WARF maintains a “significant” equity position in Deltanoid.
“We do have in our equity agreements what are called pre-emption rights,” said Gulbrandsen, who also joined the Deltanoid board of directors with the completion of the Series B financing. “When we are doing a fundraising round, we may choose to invest in order to keep our equity position.
“In this case we have taken a little bit greater equity position,” Gulbrandsen added. “The reason is that we feel the technology is very solid, and [DeLuca] has proven himself as a successful inventor who is very savvy on the market. We have a lot of confidence that we’ll ultimately get a very good return on this.”
Apparently, Pfizer did not share WARF’s confidence in the therapeutic potential of the Deltanoid compounds. In April 2004, Deltanoid announced that it had successfully completed early-stage human clinical trials to develop 2MD for preventing and treating osteoporosis. As a result of this milestone, Pfizer made an undisclosed payment to the company and said it would take over development and commercialization of the compound.

“[W]e feel the technology is very solid, and [DeLuca] has proven himself as a successful inventor who is very savvy on the market. We have a lot of confidence that we’ll ultimately get a very good return on this.”

According to Gulbrandsen, however, approximately six months into Phase II clinical trials, Pfizer abandoned ship, opting out of its license agreement with Deltanoid and leaving the company to continue the clinical trials for osteoporosis on its own.
“We obviously didn’t agree with Pfizer’s decision,” Gulbrandsen said. “I think it was too early in the phase II clinical trials for them to draw any conclusion about the effectiveness of the drug.”
However, he noted that there were “other things at stake” at Pfizer. “There are a lot of other pressures on them. I think like with any big company, they just have so many priorities they can throw their resources at, and this turned out to be one that they felt, I guess, would be too much for them to handle.”
Deltanoid has attracted pharmaceutical partners for other analogs of 2MD, including Abbott for renal disease and QuatRx for psoriasis. And although the latest round of funding is primarily intended to support additional applications of 2MD compounds for renal disease, WARF and Deltanoid are not willing to let the osteoporosis applications fall by the wayside.
“These things take time, and we’re anxious to see that the Phase II clinical trials get done, and for the other compounds to get developed hopefully in a form for bone care that can either commercialize itself or can be outlicensed,” Gulbrandsen said. “With 2MD, the patent license is going by on that, so the longer we wait around to get something done, we just lose value.”
Gulbrandsen added that the urgency is compounded by recent changes in US Patent and Trademark Office rules that limit the terms of patents to 20 years from the date of the patent filing.
“It used to be that when patents were [valid for] seventeen years from date of issuance, you could kind of take your time on development, knowing that if you had a patent that was still in prosecution, once it issued, you still had 17 years,” Gulbrandsen said. “Today we’ve got to take advantage as much as we can in getting the product developed. That was one of the reasons that WARF agreed to participate in this.” The issue and expiry date of the core 2MD patents is unclear.
Despite the Pfizer setback, WARF and other Deltanoid investors continue to show confidence in the potential of 2MD compounds. In a statement, John Neis, managing director of Venture Investors, said that the most recent financing round was “oversubscribed by just our current investors, which is a strong vote of confidence in the Deltanoid team’s ability to identify and progress commercially viable therapies.”
WARF’s confidence in Deltanoid is underscored by the extreme selectivity with which it directly invests in companies. Gulbrandsen estimated that WARF has equity in nearly 40 companies, but has directly invested in only eight of them, dipping into a “small internal fund” it maintains for such purposes.
“We don’t do it very often, but we have in the past,” he said. “WARF has an investment portfolio in excess of $1.5 billion. We do allocate a very small amount of this for follow-on funding for faculty start-up companies.” Gulbrandsen added that WARF only directly invests in companies that are using technologies derived from UW research and licensed from WARF, and which have a “credible” co-investor, such as a VC firm – “someone that can do the essential due diligence, and has credibility as far as being able to put a reasonable value on the technology,” Gulbrandsen said.

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