Novocell Inc. closed a $25 million Series C financing to support its human embryonic stem cell (hESC)-derived cell therapy and cancer stem cell programs.

Existing investor Johnson & Johnson Development Corp. led the round, with participation by existing investors Sanderling Ventures, Asset Management Co. and Pacific Horizon Ventures. Edward Baetge, Novocell's vice president and chief scientific officer, said the funding should last two to two and a half years and predominantly will support the cell therapy program.

Novocell was founded in 1999 out of cell transplant therapy company Neocrin Co. and merged with stem cell companies CyThera Inc. and BresaGen Ltd. in 2004. Shortly afterward, the San Diego-based company became "among the first to publish in a reputable journal" the process by which hESCs can be engineered into definitive endoderm, Baetge said. Definitive endoderm can differentiate into liver, intestinal, lung, thyroid, bladder, pancreatic and other types of cells.

Initially, Novocell is focused on using that approach to convert hESCs into a plentiful supply of insulin-producing pancreatic endocrine cells for the treatment of Type I diabetes.

"You need close to a billion cells to treat an individual [Type I diabetes] patient fully," Baetge explained. Since ESCs can double their population between 250 and 500 times per year, they provide an option to obtain such a large amount of cells, he added.

Last fall, Novocell published an article in Nature Biotechnology describing a process for differentiating hESCs into definitive endoderm and eventually into pancreatic endocrine cells, although it said the cells created did not yet secrete significant amounts of insulin in response to sugar levels.

Novocell also is tackling the delivery of stem cell treatments. Cell therapy often requires treatment with high doses of immunosuppressive drugs to prevent the immune system from destroying the transplanted cells. To avoid the unpleasant aspect of treatment, Novocell coats the cells in polyethylene glycol (PEG), which allows glucose and insulin to pass out into the body while protecting the cells from the immune system.

Novocell is validating its theory of pegylated cell therapy using transplanted islet cells prior to experimenting on hESC-derived cells. In preclinical studies, five diabetic monkeys and four diabetic baboons received transplanted allograft islets but had their immunosuppressive treatment discontinued after 30 days rather than continuing long-term. The transplanted cells continued to function for up to 20 months, with three monkeys and one baboon lasting up to 10 months without insulin injections. Additionally, the two other monkeys and three other baboons were able to achieve significantly reduced blood glucose levels with fewer insulin injections.

Based on those data, Novocell initiated a Phase I/II trial in late 2005 to evaluate the safety and efficacy of PEG-coated human pancreatic islet cells in two Type I diabetics. Interim data in June 2006 showed no evidence of allograft rejection or immune destruction of the cells in the two patients. Novocell intends to begin clinical trials using pegylated hESC-derived islet cells in early 2010. Prior to that, the company will report additional preclinical data from the program and provide an update on the two patients.

Utilization of hESCs to create islet cells for the treatment on Type I diabetes may have become even more critical this May, when scientists from the University of Pennsylvania School of Medicine published a paper in Developmental Cell stating that they were unable to track down an adult stem cell that gives rise to insulin-producing pancreatic beta cells.

Instead, the scientists found that most adult beta cells continue to divide, but this division occurs very slowly. So while stimulating the few functioning beta cells in Type I diabetics to divide might provide a treatment option, overcoming the slow growth would be a significant challenge. (See BioWorld Today, May 11, 2007.)

Novocell's research in hESCs also has led the company to discover a novel cell surface molecule that may be involved in the differentiation of cancer stem cells into tumors. The molecule is expressed in breast, colorectal, prostate and ovarian tumors and thus may be a good target for anticancer drug development. Novocell has identified antibodies that target the molecule but plans to seek a partner for clinical development. Baetge said the company will "probably begin to think about potential partners" later this year or early next.

Novocell, CyThera and BresaGen all raised funds prior to merging. The combined entity's fund-raising history includes a $6.5 million seed round, a $12 million Series A that closed in 2004, a $33 million Series B that closed in 2006, and the current round, which brings the grand total to about $77 million.