You can bet that workers at Somaxon Pharmaceuticals Inc. slept well last night after the firm closed a $23 million second round of financing.

The San Diego-based specialty pharmaceutical company, which is developing products for neuropsychiatric disorders such as insomnia, has raised $25.3 million since its inception last year. It plans to use the latest funds to reach the next clinical milestone with its lead product, SO-101 (low-dose doxepin), which is entering Phase II development for insomnia.

"It's never easy to raise money, but, relatively speaking, we were fortunate," Somaxon President and CEO Kenneth Cohen told BioWorld Today. "We've got some great people both in and behind the company, [and] if you look at what the company is doing, we have something that from an investor's perspective looks to be a pretty good tradeoff of risk vs. potential reward."

Somaxon is not in the business of drug discovery. Rather, it is in-licensing products with some measure of a clinical background, as was the case in August when the firm completed its license of SO-101. The company was formed around that event, receiving seed and other initial funding worth $2.3 million to get off the ground and pay for the license.

The patents are owned by Neil Kavey of the Columbia Presbyterian Medical Center in New York. Cohen said Kavey, a biophysician, observed that the compound, which has been marketed as an antidepressant for more than 30 years, was useful at a dosage much lower than previously approved.

"The idea of a product that had substantial human experience behind it and only had to be demonstrated in controlled studies that it's effective for the indication - we just thought was an exceptional opportunity," Cohen said.

Cohen said Somaxon expects to soon begin clinical trials of SO-101, though he declined to provide further study details such as size, duration and endpoints. Should the drug reach the market, the company would develop an internal sales force to sell SO-101 to a niche of psychiatric specialists, though Cohen noted that such efforts would likely require a deal with a large promotion partner to reach a primary-care or other targeted audience.

He said the current insomnia market ranges between $2 billion and $2.5 billion, with growth clipping along at 20 percent per year. The market leader, Ambien (zolpidem, from Sanofi-Synthelabo SA), generated $1.8 billion in sales last year, Cohen said. Other marketed insomnia products include benzodiazepines, and a number of additional candidates are awaiting near-term approval.

"Some people have said that insomnia today is about where depression was prior to the launch of Prozac," Cohen said. "Now, I, coincidentally, was the marketing manager who launched Prozac at Eli Lilly in 1988, and I do see a lot of parallels. But obviously the future will have to tell us what the market really is going to do."

He added that most current and future insomnia products act on similar targets that relate to gamma-amino-butyric acid (GABA) and are regulated as a controlled substance. Though its mechanism of action is not fully understood, SO-101 appears to act on a different target and would not be a controlled substance.

Somaxon's latest funding also allows the seven-employee company to pursue in-licensing and acquisition opportunities in neuropsychiatry.

"We're looking for things where we could step in at a relatively advanced stage of clinical development," Cohen said, "and manage our risks in that way."

Princeton, N.J.-based Domain Partners VI LP led the Series B round, which also included BA Venture Partners, of Foster City, Calif.; Montreux Equity Partners, of Menlo Park, Calif.; Fog City Fund, of San Francisco; CDIB Bioscience Ventures, of Taipei, Taiwan; and Windamere Venture Partners, of San Diego.

In connection with the preferred stock sale, two investor representatives joined Somaxon's now eight-person board - Louis Bock, BA Venture's managing director, and Daniel Turner III, a general partner at Montreux.