SmartCells CEO Reflects on Strategy Leading to $500M Exit with Merck

12/3/10

Beverly, MA-based SmartCells has kept a relatively low profile since it was founded seven years ago, quietly working on a potential blockbuster drug for diabetes with technology from MIT. But yesterday the drug giant Merck (NASDAQ:MRK) made headlines with its plans to buy the biotech startup for upfront and potential milestone payments of more than $500 million.

Todd Zion, the co-founder and CEO of SmartCells, talked to Xconomy hours after the big deal was announced, and he reflected on what seems to be the less-traveled path that his startup has taken. It might have made all the difference. (Read on for what the CEO plans to do after his firm has transferred its technology to Merck.)

This deal represents an unusually big payday to the founding team of a biotech startup, because SmartCells never sold any shares in the startup to venture capital firms. It’s also somewhat of a surprise to those of us in the media, because Zion has never tried to generate hype in the press about the potential benefits of its lead drug, a formulation of insulin that could provide greater convenience and control over blood sugar for patients with diabetes.

Rather, SmartCells has raised just $9.8 million in equity investments from angel groups and individuals since the firm got going with a Series A funding round in 2004, Zion said. Its most recent round of financing was a $4.1 million Series D round in June from Boston Harbor Angels, Angel Healthcare Investors, Beacon Street Angels, Cherrystone Angels and members of Common Angels. In fact, the firm has received more money via grants from the National Institutes of Health than it has from private investors, the CEO said.

“We’ve always had a philosophy here that we let our operating plan dictate our financing plan and not the other way around,” Zion says. “It made more sense to us to raise the amount of dollars we needed from these individual investors.”

For one, the startup wanted to avoid raising more money than it needed to enable its team to retain a significant share of ownership in the firm, Zion says. Merck’s upfront payment in the acquisition deal … Next Page »

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  • James Geshwiler

    Congratulations Todd & company! Great benefits for patients seem on the near horizon. Wonderful return for all your angel investors.

  • Bernat Olle

    Congratulations Todd and Tom. Way to put MIT ChemE on the map!

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  • Howard I Benesch, Ph.D.

    Congratulations Todd & company! Any chance of doing something similar with glucagon?

  • donna schindler

    We, as parents of Type 1 diabetic children still up at 2:42 am after having contacted Todd Zion and Merck as of September 2011 almost a year after this buyout and No response are wondering in vain, where is SmartInsulin? Glad you have your 500 mil, Todd, and glad you have secured the rights to this wonderful invention that would cut drastically into your profits, Merck, but before I go check my beloved child’s bg with a finger prick of blood from his finger whilst he sleeps, and ascertain if he needs an insulin shot, or juice or God willing, neither, I ask, where is SmartInsulin?