Looking to push its sleep disorder drug programs into clinical development, Hypnion Inc. raised $47.5 million in a Series B round of private equity financing.

In the short term, the Worcester, Mass.-based firm plans to use a portion of the funding to advance its lead program into clinical trials by early next year. Not quite three years old, Hypnion's plans have caught the eyes of its latest group of investors.

"One of the disheartening sides to being a venture capitalist is when you see something that's exciting, you start to dig into it and find more and more questions," Joel Martin, a partner at San Diego-based Forward Ventures, told BioWorld Today. "But with this company, we started digging and found more and more answers. Every step of the way, we felt better about it, which is highly unusual."

Forward Ventures co-led the investment with Boston-based MPM Capital. The group uncovered a company with several programs poised for clinical development.

"In these days and times, it's fantastic news," Hypnion President and CEO John Dee told BioWorld Today. "It really was a question of getting our lead programs far enough along in this difficult environment to really excite the venture capitalists, and that's ultimately what happened."

Founded in September 2000, Hypnion is working to transform marketed compounds into sleep-wake therapeutics by designing patentable analogues that have optimal sleep-wake efficacy and minimal side effects. Such compounds work on primary sleep-wake pathways that have no evidence of addiction or abuse potential.

"Our objective is to develop what we would call non-addictive therapeutics that have a real potential to not be scheduled by the DEA," Dee said, adding that a large portion of sleep sufferers avoid prescription therapeutics because of their association with dependence-causing side effects. "We have identified several marketed drugs that have very significant sleep and wake side effects. We then applied medicinal chemistry enhancements to those marketed drugs to optimize their sleep-wake aspects but minimize all their other side effects."

Hypnion, which has three such preclinical drug programs and others under evaluation, has selected a clinical development candidate for its lead insomnia program as well as several backup compounds. Dee said the company budgeted a minimum of three years' usage of the latest funding - enough time to advance its lead candidate through Phase I studies next year, followed by a small Phase II trial. A year later, Hypnion expects to conduct a larger, more comprehensive Phase II study combined with differential studies.

"We were very specific in why we raised this amount - to ensure that we got our lead program through all the Phase II trials we feel will be required to land a large, big pharma partnership," Dee said. "We raised enough money to give us three years of funding, plus a cushion to ensure that we could close a partnership."

The company, which raised $10.4 million in its Series A round, expects to select preclinical development candidates for two other programs this year.

Hypnion said its therapies could overcome the limitations associated with chronic use of marketed sleep disorder drugs - preclinically proven through testing with the company's in vivo sleep-wake system, Score-2000.

"We bring to this market the world's most sophisticated animal bioassay system," he said. "Venture capitalists are looking for Phase II programs these days, but I think that because we have compounds with extremely exciting results in this in vivo system that has proven to be highly predictive of human response, that has been key to attracting this investor interest."

Dee said that based on their findings after testing with the Score-2000 system, the company's lead candidate and two backups show greater efficacy and no side effects compared to the market leaders. Hypnion expects its products to compete with Ambien (zolpidem, developed by Sanofi-Synthelabo SA), reported to be a $1 billion sleep therapeutic, and ProVigil (modafinil, from Cephalon Inc.), reported to be a $200 million wake-alertness product.

Founded on the Score-2000 technology, Hypnion maintains rights to the system. Dale Edgar, now the company's chief science and technology officer, developed it over 15 years of research at Stanford University. He was part of the company's team of co-founders, a group that also included Emmanuel Mignot, Joe Takahashi, Michael Rosvash and Karen Moore.

Hypnion keeps 27 full-time employees on its books, with an additional 10 contractors and consultants on hand as well.

Besides Forward Ventures and MPM, other investors include Advanced Technology Ventures, of Waltham, Mass.; S.R. One Ltd., of Philadelphia; Jafco Co. Ltd., of Palo Alto, Calif.; and Coastview Capital, of Thousand Oaks, Calif. Returning investors include Oxford Bioscience Partners, of Boston; Flagship Ventures, of Cambridge, Mass.; and GIMV Venture Capital, of Antwerp, Belgium.

In conjunction with the financing, Hypnion named a number of investor representatives to its board, including Martin, MPM general partner Nicholas Galakatos, Advanced Technology partner Jean George and Edward Scolnick, the former president of Merck Research Laboratories. Other members of the now eight-member board include two investor representatives from Hypnion's first round of financing.