Resolve Nabs $2M For Lupus Drug, First Step on the Road to Returns With No IPO, No M&A

5/17/11Follow @xconomy

Seattle-based Resolve Therapeutics raised its first $2 million to execute on a plan that challenges about 30 years of conventional wisdom of how you make money in biotech. And it took some creative thinking from a couple of New York-based venture firms to pull it together.

The plan, crafted by Resolve CEO Jim Posada, is set up so that the startup can generate returns without ever going public, or getting acquired by a bigger biotech or pharma company. It’s an unusual pitch, since those are the two classic ways biotechs can generate returns. But after hearing Posada’s pitch, a couple of New York firms—New Science Ventures, and Easton Capital—agreed to join the $2 million Series A round, to support early development of Resolve’s new drug candidate for lupus, a chronic inflammatory disease.

“We don’t think there’s a large probability of going public or being acquired,” Posada says. “Our exit will be a licensing transaction. The probability of that happening is quite high.”

In connection with the financing, Somu Subramaniam, the founder and managing partner of New Science Ventures, was added to Resolve’s board, while John Friedman, managing partner of Easton Capital, will be a board observer. Peter Kiener, the CEO of Gaithersburg, MD-based Zyngenia and a former global head of biologics R&D at AstraZeneca’s MedImmune unit, has signed on as chairman of Resolve.

Resolve was first profiled in these pages back in November. Here’s the gist: Posada, a former dealmaker for Eli Lilly (NYSE: LLY) and Lebanon, NH-based GlycoFi, decided to try to advance the development of a new biologic drug for lupus based on research from University of Washington researchers Jeff Ledbetter and Keith Elkon.

Like a lot of companies, Resolve is following the lean and mean “virtual” company model that has become popular in recent years as investors have sought some kind of relief from the long development cycles and huge capital investments that are the bane of biotech. Knowing that a traditional business model wouldn’t fly, Resolve decided to try to raise a total of about $10 million to $15 million to push a single drug candidate through the first part of mid-stage clinical trials over a three year period, and then generate returns through a partnership with a Big Pharma company that seeks to finish the rest of the long, expensive, and risky slog of drug development. Resolve’s investors would make instant returns on any up-front payment from a partner—typically in the $30 million to $50 million ballpark—and could receive upside returns, if the partner hits milestones further along in development, that often exceed $400-$500 million.

Jim Posada

This requires some different structures and lawyering than most biotech investors are used to, Posada says. Instead of being incorporated as a “C” corporation, like most biotech companies that seek to get returns by striking IPOs or getting acquired, Resolve was set up as a limited liability corporation (LLC), which enables the investors to realize their returns directly upon a license transaction being struck, Posada says.

Resolve isn’t the only company thinking about how to generate returns for investors through some other way than the IPO or M&A lottery. San Francisco-based … Next Page »

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