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Biotech Neighbors, VLST and Novo Nordisk, Forge Alliance in Seattle’s South Lake Union

One of the things we believe at Xconomy is that innovation happens in geographic clusters, especially when people can easily interact across multiple disciplines. I got a sense of how one of those important interactions is starting to blossom in pockets of a massive construction zone otherwise known as Seattle’s South Lake Union.

Smack in the middle of the neighborhood on Westlake Avenue is VLST, a classic startup that, like most biotechs, needs cash and outside validation of its ideas. About a five-minute walk away on Fairview Avenue North is a budding research center for Denmark’s Novo Nordisk. It’s the classic Big Pharma company, loaded with dough, but in need of innovative product ideas to keep its shareholders happy. To hear VLST CEO Martin Simonetti tell the story, the proximity and familiarity of these two companies makes all the difference between success and failure in their partnership.

“It’s not like we show up four times a year in Copenhagen and say ‘here you go, here’s our stuff,’ and then leave,” Simonetti says. “We lay the groundwork with regular communications, so there are no surprises. The partnership is really off to a great start.”

When I stopped by VLST’s offices a few weeks ago, Simonetti still looked like a guy who was counting his blessings. He was thankful to have secured the Novo partnership in December. It brought in $12 million to his company immediately, paid the salaries for 12 of his 40 employees, and gave him enough cash to keep VLST operating at least through the end of 2010. This was a coup for any small biotech, but especially one like VLST that doesn’t have any drugs of its own advancing yet through clinical trials. That’s where the most value is created in the eyes of venture capitalists.

The value at VLST is largely being assigned to its “platform,” which is biotech-lingo for a special technology that represents the opportunity to create a lot of potential new drugs. The company’s core idea is that it can learn something from the insidious tricks viruses use to infect people. More specifically, the company studies proteins that viruses secrete (known as “virulence factors”) that help tamp down an inflammatory immune defense reaction that might otherwise kill them. Tamping down the immune system is a huge deal if you’re one of the estimated 14 million to 24 million people in the U.S. with diseases in which the immune system flips into overdrive, like rheumatoid arthritis, multiple sclerosis, and Type 1 diabetes. VLST hopes to identify these viral proteins, and uncover how they interact with other proteins, which might lead to genetically engineered drugs.

The folks at Novo Nordisk’s new Seattle research center, which is planning to expand to house 80 people, are now starting to sort through some of VLST’s basic biology to see what might provide the basis for good drug targets. Site head Don Foster made plain to me in this January feature that Novo sees autoimmune disease as one of the biggest opportunities in pharmaceuticals. That, and Seattle’s historically strong immunology talent pool, are the big reasons Novo has placed this multi-million dollar bet in South Lake Union.

Scientists frequently make the short walk between these two companies to keep each other informed. When they feel like meeting on neutral ground in a laid-back atmosphere, they gather at Uptown Espresso on Westlake and Republican, Simonetti says.

It could take years for these interactions to bear fruit. But at least for the next couple years, it means VLST can stay in the game long enough to show the venture capitalists what kind of progress they can make. If they succeed, it might create a little more demand to fill up all that office space under construction in the neighborhood.