Lotus Pioneers New Treatment for Rare and Disfiguring Disorder, Raises $26 Million From Third Rock

6/30/11Follow @arleneweintraub

Today marks the debut of Lotus Tissue Repair, a Cambridge, MA-based company that’s developing a treatment for a rare, genetic disease called dystrophic epidermolysis bullosa (DEB). The disease may not be well known, but the folks behind the startup certainly are. Lotus has closed a $26 million Series A financing round led by Boston-based Third Rock Ventures. Co-founders include Philip Reilly, a Third Rock partner and a clinical geneticist by training, and Mark de Souza, a veteran of Cambridge biotech Dyax (NASDAQ: DYAX).

DEB only affects about 300 people in the U.S., but it ends up being a death sentence for many of those patients. The disease, which emerges during childhood, is caused by a deficiency or malfunction of a protein called collagen type VII. DEB causes painful skin blisters that can result in fingers and toes getting fused together. Sometimes the blisters erupt in the esophagus, making it difficult for patients to eat. And the disease puts its victims at high risk of developing squamous cell carcinoma—a deadly skin cancer. “These children suffer terribly, then they develop a fatal cancer in their adult years,” says Reilly, who specializes in finding opportunities in rare diseases for Third Rock. “And there is no effective therapy.”

Lotus was co-founded by University of Southern California (USC) dermatology professors Mei Chen and David Woodley, who licensed their technology to the startup. Chen and Woodley developed a genetically engineered form of collagen type VII called rC7, which they believe could be given to DEB patients to keep the disease in check. The researchers have performed a number of animal studies showing that the protein replacement treatment specifically zeroes in on wounded skin, healing it in a potent and long-lasting manner.

Chen and Woodly recently received grant money to start the first human trials, which will begin at USC shortly, de Souza says. The company has not yet determined the timeline for the complete clinical-trial program, but with the new source of cash, he says, “We’ll be able to move forward quickly.”

DEB is so rare that it’s considered an “ultra-orphan” disease, de Souza says. But USC’s early research indicates that rC7 might also work in other skin disorders that are much more common, such as diabetic foot ulcers—a key consideration in determining the technology’s promise as a commercial product. “The pre-clinical evidence shows that collagen VII plays a role in accelerating healing, so we think there’s a huge upside in treating other types of chronic wounds,” says de Souza, who is serving as the company’s founding CEO. The company’s co-founder and president, James Fordyce, is a longtime VC whose investments include Genentech, Regeneron, and Centocor. (Fordyce did not invest in Lotus’ Series A.)

De Souza discovered USC’s work while serving in a business development role at Dyax. “I was monitoring various opportunities and found this,” he says. “It seemed like a straightforward way to treat a horrible disease.”

Third Rock’s Reilly readily agreed. Despite an ongoing debate in the venture community about whether rare diseases are lucrative enough for drugmakers, Reilly believed an effective DEB treatment would offer an attractive market opportunity—and one that insurance companies would support. Because there are no treatments for DEB, parents often have to cover their childrens’ hands and feet with gauze. Then there’s the cost of treating the skin cancer. Lotus’ drug would likely need to be taken chronically. Still, says Reilly, “Even if it ends up being an expensive therapy, it would reduce the overall costs of caring for these patients. We don’t expect much resistance from insurance companies.”

Third Rock has already invested in two rare-disease plays: Edimer and Bluebird Bio. In April, Bluebird raised a $30 million Series C, which included new money from ARCH Venture Partners, as well as contributions from Third Rock and several other previous investors. The Cambridge, MA company is working on gene therapies for rare diseases.

Big Pharma traditionally has had more interest in mass markets like cardiovascular disease and diabetes, but interest has been growing in the rare disease field—witness Sanofi’s recent takeover of Cambridge, MA-based Genzyme. Big Pharma’s burgeoning investments in rare diseases makes opportunities like Lotus all that more tantalizing, Reilly says. “We can create companies and sell them early” to pharma firms that are desperate to fill their pipelines, he says. “Third Rock got into rare diseases a long time ago. But now we see groups like GlaxoSmithKline, Pfizer, and Novartis doing deals [for orphan drugs]. The big guys are really confirming our idea.”

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