NanoBio closes $10M funding round, changes name to BlueWillow Biologics, and plans to take NanoVax nasal spray vaccine platform into clinical trials

5/7/2018

Ann Arbor-based NanoBio Corp., considered by many as perhaps the most successful fundraiser in the history of state tech startups, has raised another funding round as it makes a pivot in search of a profitable market for its molecular technology.

The pivot is drastic enough that it includes renaming itself as a new corporate entity, BlueWillow Biologics Inc.

The company, which was founded in 2000 by James Baker, a physician and researcher at the University of Michigan who was then director of the school’s Center for Biologic Nanotechnology, has closed on a funding round of $10 million to focus its technology on administering a wide variety of vaccines through administration by nasal spray instead of through shots.

NanoBio, which previously had raised more than $150 million in funding, nearly half of that in equity funding from angel investors, venture capitalists and private-equity firms and the rest through large grants from federal and nonprofit institutions, had tried to commercialize antimicrobial ointments for the topical treatment of such things as coldsores and fungal infections.

Leading this investment round was Ann Arbor-based North Coast Technology Investors LP, and it was joined by Atlanta-based Line Moon Ventures LLC and the University of Michigan MINTS (Michigan Invests in New Technology Startups) fund. The company said the new name is a reference to its long UM ties and to the medicinal power and deep roots of the willow tree.

BlueWillow will continue to develop skin and wound treatments through partnerships and external collaborations under the NanoBio trademark.

The intranasal vaccine platform is built upon the company’s patented technology, branded as NanoVax, that uses an oil-in-water emulsion.

According to company CEO David Peralta, most infectious pathogens enter the body through mucosal surfaces, but most vaccines are injected, which leads to less immune response.

Based on company studies, Peralta said BlueWillow hopes to improve on existing vaccines for respiratory syncytial virus (RSV), pertussis, influenza, anthrax, herpes simplex virus 1 and 2 and chlamydia.

Peralta said BlueWillow will be participating in two Phase I U.S. Food and Drug Administration trials. The first, which will begin late this year or early next year, is as a partner on an anthrax vaccine with Public Health England, which was awarded a $24 million grant by the National Institutes of Health.

The second, funded in part by a $10 million NIH grant, will be for a trial expected to start next year on a pandemic flu vaccine.

“Over the past several years, our research has increasingly demonstrated that our intranasal platform can play a pivotal role in the vaccines of tomorrow,” Peralta said in a press release. “Much of our data points to increased protection against some of the world’s most severe respiratory and sexually transmitted infections.”

Hugo Braun, a partner and co-founder of North Coast Technology Investors LP, joined NanoBio’s board in 2015. He said that while NanoBio’s core technology has fascinated investors for years, the problem has been finding an application where it clearly stands out.

Of the long focus of using the antimicrobial properties of its emulsions to treat fungus and cold sores, Braun said there was such promise that it lured partners such as GlaxoSmithKline plc, Merck & Co. and the Washington-based private equity firm of Perseus LLC.

“Perseus alone put in $40 million and others put in tens of millions,” said Braun. “It worked, but ultimately, it wasn’t very effective from a clinical point of view. I love the new plan.”

“The NanoBio team, led by Dave Peralta, have done a good job pivoting the company. The new investment round and the multiple programs they have under development have been making steady progress and are promising.” said Jim Adox, managing director of the Ann Arbor office of Madison, Wis.-based Venture Investors LLC, a previous investor in NanoBio who did not join this round.

Peralta said there were enough positive results from human trials for topical treatments to believe that other trials structured differently would have led to better results, but that there was no appetite from previous investors to raise the large sums needed for those trials.

But he has hopes that some of the topical applications can move forward through partnerships or licensing, and that BlueWillow will use the NanoBio brand for those efforts.

What was the secret sauce behind what made NanoBio so intriguing to investors over the years?

A sauce made up of extremely tiny droplets, and a sauce that acted in a completely unforeseen manner.

In 1999, company founder Baker and his fellow researchers at the Center for Biologic Nanotechnology were looking for a medium to deliver genetic material into bacteria, and came up with an emulsion of tiny droplets, each about 1/400th the width of the average human hair, made up of soybean oil and solvent and coated with a lubricant.

But instead of delivering the genetic material into the targeted bacteria, the emulsion exploded it on contact.

“It was salad dressing that kills,” Baker said.

The droplets were so slippery they wouldn’t bind with each other, but they would bind with the bacteria, causing it to burst open to form a larger droplet. Tests showed similar results with a wide range of viruses, including HIV and influenza.

The nanoemulsion and what it did with viruses and bacteria were very cool science, and cool applications seemed a certainty.

Peralta and BlueWillow investors hope there are still commercial applications, just of a different sort.

“If things go well, we could explore an initial public offering in three years,” he said.

NanoBio previously has made 101 appearances in Crain’s since its founding, the first major story in November 2001 under the headline “Bio-terror defenses take shape in local laboratories,” a post-9/11 piece on NanoBio getting funding for an emulsion that could protect against anthrax and other threats.

News of various federal grants were reported over the years, including one in 2004 on the company getting a $3.2 million contract from the U.S. Department of Defense to development of antimicrobial emulsions to treat soldiers with fungal, viral and bacterial infections.

The biggest news in company history broke in 2006, with Washington-based Perseus LLC announced it was making a $30 million investment in the company. “We see this as a billion-dollar company,” Norm Selby, a partner in the firm, told Crain’s about why it was breaking its own rules by investing in a small company with no sales and no product ready for market.

The investment was the second-largest in a state biotech company in 10 years, just behind the $31 million invested in Ann Arbor-based QuatRx Pharmaceuticals Co. in December 2004.

In 2009 more big headlines followed the news of another funding round of $22 million led by Perseus, this for the development of a topical treatment of acne and research into a possible treatment for cystic fibrosis.

Also in 2009, NanoBio announced it had signed an exclusive licensing agreement with GlaxoSmithKline plc for the over-the-counter sale of a topical treatment for cold sores. The deal gave NanoBio an upfront fee of $14.5 million, with milestone payments of up to $40 million plus royalties on future sales. But eventual Phase 3 trials for the U.S. Food and Drug Administration didn’t show enough efficacy to bring the product to market.

In 2012, the company announced it had closed on an $11 million round of venture capital from previous investors.

In 2014, NanoBio announced it had signed a licensing agreement with a subsidiary of Merck & Co., the New Jersey-based pharmaceutical giant, to help develop two potential vaccines, Merck receiving the exclusive rights to an intranasal vaccine to fight respiratory syncytial virus and nonexclusive rights for an intranasal flu vaccine.

Alas, soon after Merck scaled back its vaccine program, with all rights reverting to NanoBio, those rights now at the heart of BlueWillow’s business model.

“We almost died in 2015. It was a very trying time,” Peralta said.

He was able to get some debt converted to equity, allowing the company to keep more of its limited cash while it assessed the appetite for funding for the latest pivot.

“It’s been a rough road. For those of us who have been here, it’s been very aging,” said Peralta.