Fate Therapeutics Bags $30M Venture Deal, Led by OVP, to Develop “Industrialized” Stem Cells

11/16/09Follow @xconomy

Fate Therapeutics, the San Diego-based company on a quest to develop techniques that make stem cell research practical for the pharmaceutical industry, has raised $30 million in a Series B round of venture financing.

Kirkland, WA-based OVP Venture Partners led the deal, which included the three venture firms that co-founded the company two years ago—Arch Venture Partners, Polaris Venture Partners, and Venrock Associates. This time, Fate also drew investment from three strategic corporate investors, two of whom are being named—Astellas Venture Management, and Genzyme Ventures. The company has now raised a total of about $50 million since inception, according to Scott Wolchko, Fate’s chief financial officer.

The round is the latest step forward for Fate, which was founded by a band of high-profile scientists from Harvard University, the University of Washington, Stanford University, and The Scripps Research Institute. Fate generated some scientific buzz last month when one of its co-founders, Sheng Ding of Scripps, found a way to use three conventional small-molecule compounds to coax adult human cells into an embryonic-like state. That’s important not only because it circumvents the ethical controversy around destroying embryos for research, but it also paves the way for “industrialized” stem cells. The Ding lab’s method is twice as fast and 200 times more efficient than previous techniques of creating induced pluripotent stem cells—with potential to turn into any type of cell. The Fate method also sidesteps the use of viruses and genetic modification of cells that has been one of the main disadvantages of the prior methods—and a big reason why pharma has steered clear.

Fate’s hope is to keep building enough momentum for its stem cell production technology that it will become a useful tool for creating models of disease in the lab, and for toxicology testing to see which drug candidates have the best odds of success. Further in the future, it hopes to create regenerative medicines to replace damaged tissues in the body.

While that capability is getting built up, and Fate is seeking pharmaceutical partners to help pay the bills, the company is also pushing ahead with its own proprietary drug candidate in clinical trials. The drug, FT-1050—a conventional small-molecule chemical compound that isn’t nearly as risky as an injectable cell therapy—is designed to help improve the effectiveness of adult stem cell transplants for blood cancers like leukemias and lymphomas.

“This is a company that has performed exactly as planned,” says Carl Weissman, managing director with OVP, who is taking a board seat in connection with the financing. “This management team is rounding out into a very sharp and effective group. It made sense for us to double down.”

OVP invested a small amount in Fate’s Series A round, and by betting bigger this time around, Weissman says, it has put its equity stake in the company on par with the other three big VCs—Arch, Venrock, and Polaris. “We wanted to participate at a higher level in the Series A,” he says.

While this deal doesn’t include any formal co-development partnership rights to Japan-based Astellas, Cambridge, MA-based Genzyme, or the third corporate investor, it does give these firms an up-close look at the technology as it is evolving, Wolchko says. Each of the three companies has strategic interests in stem cells, he adds, noting that Astellas is a leader in immunosuppressive drugs that are used in adult stem cell transplants, and Genzyme markets a product for mobilizing blood-forming stem cells so they can be effectively transplanted for cancer patients.

This latest round of financing gives Fate at least two years of operating capital in the bank, without factoring in any federal research grants or payments from pharmaceutical partners that it may receive in the future, Wolchko says. But even as its financial position gets stronger, the company is still going to watch its spending carefully. It has about 35 employees, and will look to hire just 8 to 10 more people over the next six months, in key scientific positions, Wolchko says. “We’re not going to double the size of the company,” he says.

By conserving cash like this, Fate hopes to be in a strong bargaining position with potential partners, and in a position to make a bigger contribution to a new collaboration than it otherwise would be with less resources, Wolchko says.

So what does Fate hope to accomplish in the coming year? The company is looking to complete enrollment in the initial clinical trial of FT-1050 by next spring, Wolchko says. It’s possible that if things go well in that study, Fate could begin a pivotal clinical trial as soon as the second half of 2010, he says.

The company has dropped a lot of hints that it could entice a pharmaceutical company to help support the emerging technology for making induced pluripotent stem cells, although Wolchko avoided making any specific promises when we spoke Friday. In a profile I did back in September, Fate spokeswoman Jessica Yingling cited one of Fate’s scientific co-founders, MIT biologist Rudolf Jaenisch, on the rationale for why a Big Pharma should open up its checkbook:

“You can wait for it all to be figured out and miss the boat, or you can work on it now and help shape it,” Yingling said. She added, “We’re talking to everyone.”

The field is still in its earliest, nascent days, Fate acknowledges. Lots of scientific questions still need to be answered. One biggie is whether the induced cells really have embryonic-like properties in their ability to become any type of cell. Another is whether the induced pluripotent stem cells can in fact be differentiated to produce certain cell types of interest—like heart cells or neurons—that are the same as those made in nature. And can it all be reproduced at truly cost-effective industrial scale?

That will all take time and a lot of cash to answer. By raising this $30 million, Fate has bought itself a lot more time to show it can create something valuable with its stem cell technology. “Money is the lifeblood of a biotech company, and this really allows us to push forward,” Wolchko says.

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