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Vega Therapeutics, With Roots in Michigan and San Diego, Aims High in Fight Against Diabetes

Classic elements of a big biotech story are brewing in a little startup in South San Francisco called Vega Therapeutics. There’s leading-edge science from big names at the University of Michigan and UC San Diego. A proven management team from the Bay Area. If everything comes together, there is potential to shake up the standard of care for millions of people with Type 2 diabetes.

Venture capitalists haven’t pulled out their checkbooks yet. Few have shown much interest in starting new biotech companies like Vega since the Great Recession struck two years ago. Even so, to hear executive chairman John “Chip” Scarlett and CEO Craig Parker talk, VCs will enter this picture soon enough. For now, Vega is still at the four-people-with-cardboard-boxes-laying-around-a-bare-office stage, at least when I stopped by to visit a couple weeks ago.

“This is an old-fashioned, from-the-ground-up, hard-core discovery biotech, and there aren’t very many of those getting funded today, because of the conditions of the markets,” Scarlett says.

Vega, which hasn’t talked publicly about its plans until now, started last December. That was a few weeks after Scarlett sold his most-recent company, South San Francisco-based Proteolix, to Onyx Pharmaceuticals (NASDAQ: ONXX) for $276 million upfront and potentially another $535 million more based on the success of a drug it developed for multiple myeloma. Scarlett teamed up with a couple of key colleagues from the Proteolix experience, Craig Parker and Raheleh (Rah) Mansoor, to start a company. Parker, through his connections on an advisory board to the University of Michigan, was well aware of a big idea emerging in the labs of Alan Saltiel, the director of the U-M Life Sciences Institute. And Scarlett, an endocrinologist by training, was once a fellow in the lab of one of Saltiel’s key collaborators, Jerrold Olefsky at UC San Diego.

The big idea, which has been gaining currency for years in the scientific literature, is that inflammation is one of the major culprits causing problems for people with Type 2 diabetes. This chronic condition, in which people lose their ability to control blood sugar, can lead to all kinds of complications like heart attacks, strokes, blindness, nerve damage, and amputations, to name a few. An estimated 25 million people in the U.S. have diabetes, and as the obesity epidemic rages on, the incidence of diabetes is expected to double over the next 25 years.

Alan Saltiel

Alan Saltiel

There are lots of drugs today that work through different ways. Some reduce the amount of sugar the liver releases into the blood, others help the body secrete more insulin naturally, or people can just get regular insulin replacement therapy via injection.

Vega has a different strategy for fighting diabetes. By blocking the excessive inflammation that occurs, it hopes to stop the destructive process that leads to the worst complications of diabetes—like heart attacks and strokes that ultimately kill people, Scarlett says.

“The bet here is not that we’ll have something a little bit better or a little safer, or you use a little less insulin. It’s about attacking the underlying disease,” Scarlett says.

The research is still at an early stage, at least by corporate biotech standards. Saltiel’s research has focused on a biological target called IKK epsilon, which was described in a September 2009 paper published in Cell. When this gene was deleted in mice, the mice were protected from getting chronic inflammation of the liver and fat tissue. They were also able to avoid becoming resistant to insulin. And they were able to avoid getting fat after eating a high-fat diet.

The target itself is a protein kinase, which is important because that means it ought to be possible to make a conventional orally-delivered small molecule drug to block it. Vega is just in the early phases of synthesizing small molecule candidates against this target, so it can start screening the best ones for further tests.

Vega also has a second target in mind that’s believed to play a similar role in inflammation and insulin resistance. It’s GPR120, a protein receptor that binds with Omega-3 fatty acids. Omega-3’s, best known for being one of the good things that come from eating fish, are known to have anti-inflammatory effects. The UC San Diego group recently published work in Cell showing that when they stimulated GPR120 in mice, they saw a broad anti-inflammatory effect and improved insulin sensitivity.

A handful of academic labs are working in the field, but I didn’t get the sense that any Big Pharma companies are making a serious push in making drugs against these same targets. Cambridge, MA-based Catabasis Pharmaceuticals, is developing drugs based on the anti-inflammatory properties of Omega-3 fatty acids, but they are made to work differently than Vega’s, Parker says.

I wondered whether it’s wise to try to make a single drug against a single target when inflammation is a complex process governed by multiple biological pathways. No one on the Vega team dismissed the question—no one can really say for sure that concern is wrong until future experiments prove otherwise.

So far, Scarlett and Parker have been financing the company, along with one other angel investor, Scarlett says. Saltiel, while still on faculty at U-M, has been spending a lot of time helping the company get started, and he was even at the Oyster Point Boulevard office when I stopped by for the interview.

The plan is to raise venture capital this fall, to start pushing ahead with the long slog of drug development. Synthesizing drug candidates, screening the best ones, running them through animal tests are all on the agenda. It’s the fundamental stuff that takes a long time and a healthy appetite for risk that many biotech VCs just aren’t willing to stomach these days. Scarlett has been around long enough to see more than a couple cycles in biotech like this before, and he says he’s confident that it’s a good time in 2010 to be starting a discovery stage biotech.

“Craig and I both believe strongly there has never been a better time to start a discovery-based company,” Scarlett says. “Most people would look at us like we have antlers on when we say that. But I do think it’s a great time, because there have been relatively few discovery-based companies, certainly in diabetes, started in the last few years. And the science Alan and Jerry have come up with is quite amazing. If this has happened in 2000, there would be five new companies working on inflammation and diabetes and they’d all be funded to the tune of about $200 million or so by now.”

He adds: “All things go in cycles. By the time the rest of the industry gets revved up and interested in this kind of work, I’d hope that we’ll be there with some answers.”