Novocell: With diabetes study pending, investors pony up another $25M

Novocell, a San Diego embryonic stem-cell company, raised $25 million in a third round of funding. That’s presumably a bit of a letdown for the company, which had previously hoped to pull in as much as $35 million in the round. I wrote earlier about Novocell’s fundraising here.

The round was led by Johnson & Johnson Development, the venture arm of J&J itself, joined by Sanderling Ventures, Asset Management Company and Pacific Horizon Ventures.

In my earlier piece, I explored whether J&J’s involvement marked the first time that Big Pharma had directly funded an embryonic stem-cell company. It turns out that’s probably true, although J&J’s investment in Novocell dates back to at least 2005, a fact I didn’t learn until a few days after I wrote that post. (I had updated the previous item with that acknowledgement, but the update somehow got lost in WordPress, so I’ll just make the point again here.)

I’ve also heard from some sources that J&J’s interest isn’t so much in stem cells as in a separate Novocell technology for “encapsulating” cells to protect them from immune-system rejection after a transplant. Although that sort of technology might be useful for protecting stem-cell transplants, it’s also got potential utility outside the stem-cell field. For instance, if transplants of insulin-producing pancreatic islet cells ever became feasible as a diabetes treatment, encapsulation might be one way to ensure that the cell transplants “take” without forcing patients onto immunosuppressive drugs for the rest of their lives. (Exactly how to procure a reliable supply of islet cells is a separate problem, since donors and cadavers tend to be in short supply — and that’s where stem cells are likely to enter the picture.)

Novocell, in fact, is currently performing early-stage trials of exactly that sort of therapy, using islet cells procured from cadavers. The encapsulated cells are injected into “tissue pockets” just under the skin of the thighs or the lower abdomen. Last year, the company presented preliminary data from the study in which the cells transplanted into the first two treated diabetics appeared to show early signs of functioning without triggering an immune-rejection response.

Since the study was supposed to include 12 patients who would be monitored for 12 months, new data from that study might not be too far off, which probably helps explain J&J’s interest in leading this new round.