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VLST Snags Partnership with Novo Nordisk to Develop New Drugs for Autoimmunity

Xconomy Seattle — 

VLST has nailed down its first partnership with a major pharmaceutical company. The Seattle biotech is announcing today it has formed an exclusive, worldwide collaboration that will allow Danish drugmaker Novo Nordisk to develop drugs against cell targets VLST has discovered for autoimmune and inflammatory diseases.

It’s a pretty big deal for VLST. The collaboration will pump $12 million into the company through a combination of upfront fees and equity investment, plus undisclosed future milestone payments and royalties for every drug that Novo decides to cherry-pick and push through development. Novo, the world’s largest maker of insulin for diabetes, is also agreeing to pay the salaries of 12 of VLST’s 40 employees over the next three years. This means VLST should have enough capital now to operate through the end of 2010.

“Oh man, are we ever thankful,” says Martin Simonetti, CEO of VLST, and an Xconomist. “This couldn’t have come at a better time. The markets are beyond ugly. To get this collaboration in place, and still be able to create value for VLST outside the collaboration, is a major step forward.”

The Novo deal is the first time a major drugmaker has validated the VLST technology, which is still at very early stages of development and hasn’t yet translated into a drug candidate in clinical trials. The company is built around the idea of studying proteins that viruses secrete in the body to help fend off an immune system reaction that might kill them as “foreign invaders,” says Simonetti. The concept is to study these proteins, and the targets they hit on cells, to develop new drugs that mimic that same viral effect created by Mother Nature. If this idea is on the right track, drugs made this way could tamp down the overactive immune reactions that attack healthy tissues. This is the root cause of a lot of chronic diseases like rheumatoid arthritis, multiple sclerosis, Type 1 diabetes, and lupus, that affect a staggering number of people, about 14 million to 24 million in the U.S. alone, according to the National Institutes of Health.

This deal has benefits for both sides, Simonetti says. Novo Nordisk announced over the summer that it is opening an autoimmune/inflammation research center of excellence in Seattle with 80 people, who are being set up at a new lab building at Mercer Street and Fairview Avenue North. This is about five blocks from VLST’s offices on Westlake Avenue, so this will make it easy to meet, and help “jumpstart” the new Novo research center, Simonetti says.

For VLST, it gives Simonetti a little more breathing room on financing. The company raised a $55 million financing commitment in 2006, and has currently drawn down $35 million of that, Simonetti says. That leaves one more tranche of $20 million that it can get access to from that round, provided it reaches goals set by its investors. The company’s investment syndicate includes Texas Pacific Group Ventures, MPM Capital, Arch Venture Partners, OVP Venture Partners, Amgen Ventures, MedImmune Ventures, and WRF Capital.

At the same time, VLST was careful not to give away the store, or hand over so much value to Novo Nordisk that it had very little left, Simonetti says. That’s why the three-year time frame is important. It means that after Novo gets to look at VLST’s drug candidates, it has three years to choose whether to harvest them for development—after that, the rights revert to VLST, which can then develop them on its own, or find a new partner, Simonetti says. The deal basically gives Novo the right of first refusal on drug candidates, he says.

So far, VLST has discovered 225 of what it calls “virulence factors,” the key proteins that can help viruses fend off immune reactions. About 20 of these form the basis of drug targets, which VLST will retain full ownership of without sharing with Novo, Simonetti says. Novo will get to look at the rest as potential targets, he says. VLST is still a long way from introducing drug candidates for clinical trials. Two drug candidates—genetically engineered antibodies—are in early-stages of animal testing, and are still being fiddled with for optimal characteristics, he said.

ZymoGenetics CEO Bruce Carter, the executive in Seattle with the most experience working with Novo Nordisk, might get a chuckle out of seeing news of this collaboration. Monday night, he ripped Novo at an event hosted by the Washington Biotechnology & Biomedical Association. Carter said Novo, and other large pharmaceutical companies, are populated with too many experienced hands who are bound to pour cold water on promising new ideas. “Novo has to license in everything. They never discover anything, and they never will,” he said. (Simonetti, not surprisingly, pointed to the positive aspect of dealing with Novo, and how it has a lot of drug development horsepower back in Copenhagen.)

The deal certainly cements VLST as one of the early success stories to emerge from the Seattle-based Accelerator. VLST was born in that incubator in March 2004 from an idea by Craig Smith and Steven Wiley, a pair of scientists at Seattle-based Immunex, which was acquired by Amgen. Smith is credited with the co-discovery of etanercept (Enbrel) while at Immunex, and the drug has gone on to become the world’s biggest selling biotech treatment, with more than $5.2 billion in worldwide sales last year for Amgen and Wyeth combined. It is an engineered protein drug that soaks up excess inflammatory proteins in patients with rheumatoid arthritis, psoriasis, and other autoimmune diseases.

A lot of these autoimmune diseases are poorly treated by modern pharmaceuticals, so there’s plenty of room for someone to come along with another blockbuster like Smith’s earlier creation. VLST is hoping for a repeat of history. “Craig likes to say that if you listen to the virus, it will tell you a lot,” Simonetti says.

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