The sale of Amira Pharmaceuticals will likely go down as one of the standout life sciences deals of 2011—it certainly ranks as one of the biggest payouts in San Diego, where Amira was founded in 2005.

But what may be more significant than hitting the bell in the strongman game at the biotech carnival is the way Amira approached the deal—and how the buyout has opened the way to an intriguing new business model for life sciences startups.

Luke already has explained how Amira beat the odds when New York’s Bristol-Myers Squibb (NYSE: BMY) agreed in July to pay $325 million in upfront cash, and another $150 million in anticipated milestone payments. It’s unusual these days when a big pharmaceutical writes a check that big for a six-year-old startup whose lead drug candidate has barely completed early stage trials.

Amira also kept some other drug candidates out of the deal. Some went to a new San Diego biotech called Panmira Pharmaceuticals, which is continuing the development work under CEO Hari Kumar, who was previously Amira’s chief business officer. Another important program, which was the focus of a partnership Amira had with GlaxoSmithKline (GSK), was spun into a new standalone company.

In other words, Amira worked to find a good home for every important drug in its pipeline. This doesn’t happen in many buyouts, as the acquiring pharmaceutical company is often interested in one or two drugs in development, and the rest get relegated to the “no more resources” pile.

Peppi Prasit

Since then, Amira co-founder (and San Diego Xconomist) Peppi Prasit has raised the curtain on another life sciences startup, Inception Sciences, which was conceived as a kind of mothership for spinning out new drugs. The idea was to create an incubator-type holding company that would enable Amira’s drug discovery group to hatch new drug development programs. Prasit, Jilly Evans, and John Hutchinson, who were the scientific founders of Amira, would lead the effort to identify new pathways as well as potential drug compounds for these new targets.

Under this new business model, each group of new drug candidates would be organized as a separate development program within different business entities. For venture firms, investing would be like ordering from the à la carte menu, giving investors an equity stake in a specific drug program—without the general and administrative baggage that typically goes with a biotech acquisition. As the drug candidates of each program advance to … Next Page »

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Cambridge, MA-based Epizyme has nabbed another pharmaceutical partnership. Two months after announcing a deal worth as much as $650 million with GlaxoSmithKline (NYSE:GSK), the startup says today that it has landed a partnership with the Japanese drugmaker Eisai to develop drugs against an epigenetic enzyme for treating lymphomas and other cancers.

In its latest deal, Epizyme gets $6 million from Eisai at the start and potentially more than $200 million in milestone payments for various research, development, and sales goals tied to drugs against the EZH2 enzyme target. Tokyo-based Eisai, which has been expanding its investment in cancer research in Cambridge of late, has also agreed to finance all R&D expenses for the program through early human studies or “human proof-of-concept.” Epizyme then has an option to share in the profits and commercialization of products through its partnership with Eisai in the U.S.

The companies aim to develop drugs against this epigenetic target along with a genetic test that shows whether a patient’s cancer has the right genetic profile to respond to the treatments, a strategy that is being used more and more after the success other cancer drugs that use similar approaches such as Roche’s trastuzumab (Herceptin) for breast cancer and, most recently, Plexxikon and Roche’s PLX4032 for melanoma. This deal also provides another endorsement of Epizyme’s research, which is focused on a class of epigenetic enzymes called histone methyltransferases that are believed to play roles in cancers and other diseases.

In general, the field of epigenetics explores how certain genes get turned on and off without changing the underlying DNA code. While Epizyme has made cancer the focus of its research, the firm also sees an opportunity for drugs against epigenetic targets to treat inflammation, metabolic disorders, and neurodegenerative diseases. And the startup’s deal with London-based Glaxo covers cancer and other types of diseases.

From left: Jason Rhodes, chief business officer of Epizyme, and Robert Gould, president and CEO of Epizyme.

Eisai is also taking yet another step to increase its stake in Boston-area cancer drug development with its Epizyme deal. Last month, Eisai said it planned to invest $200 million over 10 years in a Cambridge-based venture called H3 Biomedicine, which is collaborating with scientific luminaries in the Boston area to discover drugs that target weak points in tumors. As of last month, Eisai already employed about 300 people at its R&D operation in Andover, MA, where it does some of its oncology research. And the company has had Boston-area research presence since the 1980s.

“Epizyme’s proprietary product platform; leadership in determining the oncogenic role of EZH2 in genetically-defined cancers; and success in discovering novel, potent, and selective small molecule inhibitors of histone methyltransferases, an important epigenetic target class, led us to them as the partner of choice in epigenetic drug discovery,” Takashi Owa, president of Eisai’s oncology product creation unit, said in a press release.

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[Corrected 2/9/11, 2:15 pm. See below.] Their histories are so entwined, it’s hard to say which were sowed first—the seeds of San Diego’s Leading Ventures or those of InflammaGen, an early stage biotech founded to commercialize technology conceived by Geert Schmid-Schönbein, a professor of bioengineering at UC San Diego.

Leading Ventures revealed last month that it plans to raise an inaugural fund of as much as $10 million that would be used primarily to fund InflammaGen and AnoZyme, a related diagnostics startup that also licensed technology developed in Schmid-Schöenbein’s lab.

With each company, “Our strategy is to fund human testing, and then find a partner to take us through the full FDA approval process,” says John Rodenrys, a senior managing director at Leading Ventures. Until now, Leading Ventures has operated mostly behind the scenes as a vehicle for investing money from friends and family, says Rodenrys, an angel investor and longtime medical device executive in San Diego and Orange Counties.

John Rodenrys (courtesy UCSD)

[Corrects to show Chip Parker instead of John Macfie as a founder] “Five years ago, I sat down with two colleagues and we discussed how angel investing was just not generating returns,” Rodenrys tells me. He decided with his partners, Charles Gathers and Chip Parker, that Leading Ventures would actually manage the technology development and commercialization from an early stage. “It’s a different model than most VCs use,” says Rodenrys, who initially served as InflammaGen’s CEO. The firm says it intends to serve as an alternative funding resource for early startups with long-term potential.

Rodenrys and Schmid-Schönbein met in 2005 at an informal event organized by UC San Diego’s William J. von Liebig Center for Entrepreneurism and Technology Advancement, which was founded to help commercialize technology coming out of UCSD’s engineering labs.

“The von Liebig Center has supported the translation of some of Dr. Schimid-Schönbein’s research through the award of three grants for proof of concept,” von Liebig Director Rosibel Ochoa told me by e-mail. Volunteer business and technology advisors “continued providing support to Dr. Schönbein and Mr. Rodenrys, even after the grant funding was completely spent and the company was launched.”

Rodenrys says Leading Ventures picked up … Next Page »

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Xoma (NASDAQ: XOMA), the Berkeley, CA-based developer of targeted antibody drugs, said today it will receive a $35 million upfront fee from France-based Les Laboratories Servier for the right to co-develop a new anti-inflammation treatment. Xoma could receive as much as $470 million in milestone payments through the partnership, and a “mid-teens” percentage cut of sales if the drug, XOMA 052, ever becomes a marketed product. Shares of Xoma climbed about 20 percent to $6.36 a share at the opening of trading today on the news.

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Big Pharma giants are gathering in Chicago this week to wine and dine doctors at the American Heart Association’s Scientific Sessions, hoping docs will keep prescribing their multi-billion dollar heart drugs. Not many little biotechs can compete in this league, but Hayward, CA-based Anthera Pharmaceuticals is hoping to lay some groundwork for a new drug that could give Big Pharma another way to generate billions from treating heart attacks.

Anthera (NASDAQ: ANTH) is a small fish in this pond, having raised about $37 million in its initial public offering and burned through just about $93 million of investor cash in its five-year history. Anthera certainly fell off a number of radar screens when its stock dipped from its initial price of $7 to a low of $2.82 earlier this year. But the company has since bounced back to $6.12 at yesterday’s close, and is clearly eager to show some early-stage clinical trial of its lead drug at the American Heart Association meeting on Wednesday.

The idea at Anthera is to help prevent relapses in seriously ill heart patients by tamping down excess inflammation. The idea that inflammation causes plaque buildups in blood vessels to rupture, leading to heart attacks and strokes, hasn’t been solidly established in the scientific community, but evidence has been mounting for years to support the idea. Anthera, founded in 2004, is now in the midst of working to prove that a once-daily anti-inflammatory pill can significantly reduce the risk of heart attack, stroke, and death when taken in combination with the whole kitchen sink of other drugs like cholesterol-lowering agents, blood pressure meds, and anti-clotting agents. If Anthera can gather that kind of proof, it may have a drug that could be taken by as many as 1.5 million patients in the U.S. who get rushed to the hospital each year with a heart condition and are hoping to avoid a relapse that could be debilitating or fatal. The drug could be worth “multi-billions,” Anthera says.

“This is a true paradigm shift in the treatment of cardiovascular disease,” CEO Paul Truex says.

Anthera has at least a couple years of work ahead before it will know if it can live up to that billing. But the company has clearly staked out an interesting strategy in pursuit of the next big market for cardiovascular disease, in a way that a little cash-burning biotech company might actually be able to handle. The company, founded in 2004, got its early backing from Vantage Point Venture Partners, Sofinnova Ventures, Caxton Advantage Life Sciences Fund, HBM BioCapital, and others.

The lead drug Anthera’s investors are betting on here is varespladib methyl (A002), which was originally designed by Eli Lilly and Japan-based Shionogi to … Next Page »

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It’s a big day for Aileron Therapeutics. The Cambridge, MA-based biotech firm announced this morning it has formed a partnership with Swiss drug and diagnostics giant Roche to discover, develop, and commercialize a new class of drugs known as “stapled peptides.”

Under the terms of the deal, Roche (OTCQX: RHHBY) will provide at least $25 million in technology access fees and R&D support to Aileron. What’s more, Aileron will be eligible to receive up to $1.1 billion in milestone payments if drug candidates are developed against five targets from Roche’s main therapeutic areas—oncology, virology, inflammation, metabolism, and the central nervous system. Aileron will also receive royalties on future sales for any marketed products resulting from the collaboration.

This is Aileron’s first major industry collaboration—and a big step forward for the company. My colleague Luke first wrote about Aileron back in November 2008, when the startup talked about its plan to develop peptide-based drug compounds that block interactions between proteins in the body that can’t be affected by conventional small-molecule chemical drugs or genetically engineered protein drugs. The peptides apparently work because they’ve been chemically “stapled” to resist unraveling under the influence of enzymes in the body that would render them useless.

Last year, Aileron closed a $40 million financing round led by the venture arm of GlaxoSmithKline and Boston-based Excel Medical Ventures, with participation from Novartis, Eli Lilly, Apple Tree Partners, and, yes, Roche. Aileron was founded in 2005 by the late Stanley Korsmeyer and Loren Walensky, a pair of biologists from Harvard Medical School and the Dana-Farber Cancer Institute, and Gregory Verdine, a Harvard University chemist.

It’s still very early for the company, in terms of any possible clinical impact. But last November, scientists at Harvard, Dana-Farber, and the Broad Institute of Harvard and MIT reported promising results from multiple disease models and animal tests, when they used a stapled peptide from Aileron to stop the production of a protein associated with uncontrolled growth of cancer cells. The hope is that stapled peptide drugs might be able to target previously “undruggable” protein targets inside cells, without the side effects of existing drugs.

In any case, the deal with one of the world’s biggest biotechs seems to support Aileron’s approach to date. “This alliance with Roche validates the broad potential for our Stapled Peptide platform across multiple therapeutic areas and classes of targets and also provides Aileron with capital to advance our platform and internal drug development pipeline” said Joe Yanchik, Aileron’s president and CEO, in a statement.

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Alder Biopharmaceuticals, the Bothell, WA-based developer of targeted antibody drugs against cancer and inflammation, said today its lead product candidate was effective against anemia for more than half of advanced cancer patients in a trial. The study, of 124 patients, randomly assigned patients to take Alder’s ALD518 or a placebo. About 58 percent of patients who got the Alder drug saw their levels of hemoglobin—a protein that carries oxygen in the blood—rise from anemic levels to a more normal state, researchers said. Patients who got the Alder drug were also able to maintain more of their body weight than those on placebo. Detailed results were presented today at the American Society of Clinical Oncology meeting. I described this unusual strategy, of fighting cancer by tamping down inflammation, in a feature story last month.

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Scientists have been buzzing for years now about new drugs that can turn DNA on or off in ways that affect many diseases. Now more big pharmaceutical dollars are flowing to support this idea at a Cambridge, MA-based biotech that specializes in making drugs based this field of genetics research.

SR One, the venture capital arm of London-based drug giant GlaxoSmithKline, has led a $22 million Series B round of financing for Cambridge, MA-based Constellation Pharmaceuticals. (Christoph Westphal, a well-known biotech entrepreneur based in Boston, became the president and head of SR One in April.) Constellation also drew part of its second-round financing from its previous venture backers: Altitude Life Sciences, The Column Group, Third Rock Ventures, and Venrock Associates.

Constellation, which has now raised $54 million since it was founded in 2008, is searching for new ways to treat cancer with drugs that target so-called epigenetic enzymes. The enzymes can control how spools of DNA strands in our cells express or mute certain genes. The drugs could be useful, say, in blocking the enzymes that prevent tumor-suppressing genes from making natural proteins that kill cancer cells. (More on epigenetics here.) Mark Goldsmith, the company’s CEO, says drugs that target epigenetic enzymes could also be used to treat inflammatory, immune, and diseases other than cancer.

Glaxo (NYSE:[GSK), one of the ten largest drug firms in the world, has made Constellation its latest bet in the field of epigenetics. In October, the drug giant spent $8 million upfront to form a collaboration with the Dublin, CA-based biotech firm SuperGen to develop cancer drugs that home in on epigenetic targets. Also, Glaxo operates an epigenetic research group in the U.K. called EpiNova.

With SR One's investment in Constellation, Westphal is making his leadership at Glaxo's venture arm felt in his hometown. Though SR One is officially headquartered in Conshohocken, PA, Westphal has said he would remain based in the Boston area, where he's co-founded and served as CEO of such high-flying biotech firms as Alnylam Pharmaceuticals (NASDAQ:[[ALNY]]), Momenta Pharmaceuticals (NASDAQ:MNTA), and, perhaps most famously, Sirtris Pharmaceuticals. Glaxo bought Sirtris, a developer of drugs that target anti-aging genes, for $720 million in May 2008. And Westphal had remained CEO of Sirtris until April, when he resigned to take the helm at SR One.

On top of his SR One duties, Westphal is quietly putting together the pieces for a new venture firm in Boston called … Next Page »

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Larry Smarr is one of the people who had a vision in the 1980s for a high-speed computer network that grew to become the Internet of today. So sharing data is important to him. Now he has found a new source of data that he believes has great potential if shared widely: information from his own body.

Actually, Smarr is just using himself as one example in the coming trend he sees in using information technology to regularly monitor wellness. I heard Smarr speak in Seattle last week when he joined a panel with biotech entrepreneur Leroy Hood and University of Washington computer science professor Ed Lazowska, at the OVP Tech Summit. This trio of visionaries all talked about how they see the healthcare system switching from a reactive mode that attempts to treat illness into a more data-driven science that is proactively geared toward keeping people healthy.

Smarr, the founding director of the California Institute for Telecommunications and Information Technology, is an early adopter of a lifestyle that attempts to create a “quantified self.” Every few months, he gives blood and has it analyzed for 30 or 40 measurements, which are stored in a spreadsheet to provide “biofeedback” on his state of wellness. This is still time-consuming and cumbersome, and nowhere near more futuristic visions of people giving daily pinpricks of blood that send their daily wellness data into a database stored in the cloud.

While many people are afraid that insurers will use genetic data to discriminate against them, Smarr is hopeful that people will want to openly share data on the quantified state of their wellness. This information could spread and create a positive form of peer pressure, as people will compete with their friends and family to improve their heart rate, blood pressure, triglycerides, etc. to a healthy balance. The data will be shared widely via social networking sites, and people will carry it around with them everywhere on their smartphones, Smarr predicts. (It should be noted that Smarr’s group at Calit2 gets federal research grants to study how people’s behavior changes in the new era of quantitative health.)

“The counter-revolution to obesity is centered here. People will be able to tune their bodies,” Smarr said.

I followed up directly with Smarr after the panel to ask him some more about his personal experience with becoming a “quantified self.” By looking at the data, and adjusting his diet and exercise accordingly, he’s already put together some impressive wellness statistics. Without going too deep into his medical file, here are some health statistics he volunteered:

Here’s what he had to say about how he achieved those goals.

Xconomy: You talked about these early adopters who are taking deep quantitative measurements on their health, much more so than standing on a bathroom scale every day.

Larry Smarr: Although that’s not a bad start.

X: OK, but can you explain what you see happening with this group of scientists. What are they looking for?

LS: Well, it is a much larger group than just scientists. And it’s not just San Diego, but in Silicon Valley, too. There’s this whole site, the Quantified Self, which is the more extreme version.

For instance, I’m going in tomorrow to get the latest readouts from my last blood test that I’ll talk about with my doctor. The problem is we find that very few doctors are really knowledgeable enough … Next Page »

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Mirina, one of the intriguing startups hatched in the past couple years at Seattle-based Accelerator, has passed a key test that will allow it to live to fight another day. The developer of microRNA-based therapies has secured an undisclosed “expansion round” of financing that will allow it to operate another 12 to 15 months, according to Accelerator CEO Carl Weissman.

Versant Ventures, one of the original backers of Accelerator seven years ago, has jumped in to lead this additional round of financing for Mirina, Weissman says. Most of the usual Accelerator syndicate is joining in too—Alexandria Real Estate Equities, Arch Venture Partners, OVP Venture Partners, and WRF Capital. While this isn’t enough money for Mirina to spin out of Accelerator like some of its predecessors, Mirina will use the cash to keep testing its technology for making microRNA drugs, and it will have a chance to secure some new intellectual property around some surprising new pharmaceutical characteristics, Weissman says.

Mirina’s ability to secure cash is a reflection of how microRNA has emerged as one of the hottest concepts in biology since they were first discovered in humans about a decade ago. The idea is to create drugs that can inhibit specific stretches of RNA that regulate how networks of proteins are expressed. By hitting switches that control entire networks of proteins, scientists hope to have success against complex diseases like diabetes, cancer, and inflammation that involve activity of many genes and proteins. Hitting these networks may have more power against these complex conditions than more traditional approaches that tend to rely on specifically inhibiting a single gene or protein, scientists say.

MicroRNA still represents the bleeding edge of biological research, as no one has yet come close to FDA approval of a drug that works this way, and only one company, Denmark-based Santaris Pharma, is thought to have entered clinical trials. But a number of companies have sprouted up to take advantage of the concept, including Santaris, Carlsbad, CA-based Regulus Therapeutics, Boulder, CO-based Miragen Therapeutics, and Austin, TX-based Mirna Therapeutics.

Carl Weissman

The Accelerator’s bet on the space, Mirina, was founded in August 2008 with a license to a chemistry platform from Nanogen (now part of France’s Elitech Group) which it believes allows for more potent microRNA-inhibitors than the rest of the pack,Weissman says. Accelerator is known for keeping its startups on a short leash, insisting they hit specific milestones in their first 18 to 24 months. While Mirina hasn’t hit all of them, it has produced such compelling evidence on a couple of counts, and shown some upside surprises, that it enticed investors to keep it going. The company has shown it can make its oligonucleotide drugs, and that they are potent and specific for certain microRNA regulatory switches. Now it wants to know how well that can be applied to certain models of disease.

“This is spectacular,” Weissman says. “The chemistry has some new and unexpected properties that will differentiate it in more ways than just potency, compared with everybody else out there.”

Weissman declined to be more specific about what those characteristics are, because Mirina is in the midst of trying to secure new intellectual property around them, he says.

If Mirina’s technology is really so hot, I wondered, why isn’t it “graduating” from Accelerator … Next Page »

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Headlines from both long-established pharma companies and stealthy biotech startups made it a busy life sciences news week for us.

—It was a life sciences-focused week for us, with the introduction of our new life sciences columnist, Sylvia Pagán Westphal, a journalist who’s covered biotech for big-name publications. Her inaugural post likened the lack of disclosure behind the recent Goldman Sachs scandal to the self-interest that’s fueled myriad missteps in life sciences companies.

—Hygeia Therapeutics, a Holden, MA-based maker of topical medicine, raised $1 million in Series A funding to go toward testing a topical synthetic estrogen drug to treat age-related skin thinning, and developing an anti-androgen.

—Cambridge-based Javelin Pharmaceuticals (AMEX: JAV), a developer of pain treatments, accepted a $145 million buyout offer from specialty drugmaker Hospira, nixing a previous merger agreement with Myriad Pharmaceuticals (NASDAQ: MYRX). Lake Forest, IL-based Hospira (NYSE:HSP) plans to pay $2.20 per share for Javelin common stock, and will also loan the company money to repay loans from Myriad and cover expenses related to breaking the agreement.

—Dyax, a Cambridge drug developer, will collect as much as $12 million from Paul Capital Healthcare for selling the rights to royalties and fees from its hemophilia treatment, with $10 million upfront and up to $2 million in milestone payments related to the drug’s sales.

—Luke took a closer look at Catabasis Pharmaceuticals, a seven-person Cambridge startup that’s developing drugs to treat inflammation diseases, particularly diabetes. He first broke the news last week that the stealthy company had pulled in $7.7 million of a planned $39.6 million Series A round from SV Life Sciences, Clarus Ventures, and MedImmune Ventures; the company said it will get the remaining funding if it meets certain development goals.

—HemaQuest Pharmaceuticals, a biotech founded in Newton, MA that moved to Seattle sometime last year, announced it completed a $12 million Series B funding round. New investors Aberdare Ventures, of San Francisco, led the round, which also included a slew of returning backers and will go to … Next Page »

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One of the big ideas in diabetes research today is that inflammation is one of the major culprits. Tamp down inflammation, and maybe you can reduce the assault on blood vessels that leads to all sorts of complications like heart attacks, blindness, and amputations. If this can be proven over time, Cambridge, MA-based Catabasis Pharmaceuticals might have just the drugs to stop the inflammation and all its nasty effects.

That’s the concept anyway, and it’s one that Catabasis is being richly financed to pursue. The Cambridge, MA-based company has secured a $39.6 million Series A financing from SV Life Sciences, Clarus Ventures, and MedImmune Ventures. We first broke the story last week saying that Catabasis pocketed the first $7.7 million tranche of this deal. CEO Jill Milne confirmed the figure today, adding that Catabasis will get the rest of the money if it can hit certain development goals.

The Catabasis story began in the summer of 2008 when Milne and her colleague Mike Jirousek decided to leave senior jobs at Sirtris Pharmaceuticals after it was acquired by GlaxoSmithKline. They started talking with Steven Shoelson, a leading researcher at Harvard Medical School and the Joslin Diabetes Center, about the emerging understanding of inflammation as an underlying culprit in diabetes. The diabetes market is one of the biggest in the pharmaceutical industry, with an estimated 24 million people in the U.S.—almost one out of every 12 people—suffering from adult-onset or Type 2 diabetes. Incidence has roughly tripled over the past three decades as more people eat unhealthy diets, and live sedentary lives.

The pharmaceutical market has responded to this epidemic by flooding doctors and patients with drugs like metformin, various forms of insulin, GLP-1 inhibitors, and DPP4 inhibitors that work in different ways to keep blood sugar under control. Yet despite all that intense effort at every Big Pharma company, no one has yet gotten a drug approved for Type 2 diabetes that works by controlling inflammation.

“This is a novel way of treating the disease,” Milne says. “It got me excited.”

Catabasis has a plan to tackle this problem with what amounts to a combination drug strategy. Milne and Jirousek, who are trained in biochemistry and chemistry, respectively, started piecing this plan together after they heard about some promising results from Shoelson’s research. His team had shown that a generic anti-inflammatory drug, a type of salicylate, was effective at helping reduce blood sugar in a clinical trial. But there was a catch. The patients had to get a whopping 4 grams a day, and take their pills three times daily. And, researchers saw a case of tinnitus, a serious condition in which people suffer from ringing in their ears, which isn’t an effect the FDA or patients would consider allowable for treating a chronic condition like diabetes.

“That was not acceptable,” Milne says.

While some scientists have pursuing the anti-inflammatory hypothesis, others have been studying Omega-3 fatty acids—those heralded substances in fish oil … Next Page »

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Ascent Therapeutics, a Cambridge, MA-based pre-clinical stage drug development company, announced today that it has changed its name to Anchor Therapeutics to better reflect its technology. The company is developing drugs based on “pepducins,” which anchor in cell membranes to target molecules called G protein coupled receptors that are involved in ailments such as cancers, heart disease, inflammation, pain, and metabolic disorders. Anchor’s backers include HealthCare Ventures, Novartis Option Fund, and TVM Capital.

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Flexion Therapeutics is a little company built on the idea it can steer through early clinical trials in a faster and cheaper way than a lumbering Big Pharma giant. Now the Woburn, MA-based startup, founded by a pair of Eli Lilly veterans, has secured backing from four major drugmakers to put the idea to the test.

The world’s largest pharma company, Pfizer, has agreed to pump in $9 million in venture financing to Flexion, bringing the startup’s total Series A financing to $42 million. Flexion is also announcing today that it has secured partnerships with U.K.-based AstraZeneca, Germany-based Merck KGaA, and one other unnamed drugmaker. The mission will be to run early-stage clinical trials on four drug candidates that have been sitting on the shelf at the bigger companies, to see whether they have potential to treat inflammatory diseases.

We first broke news on Flexion back in October when the company raised money from Versant Ventures, 5AM Ventures, and Sofinnova Partners. The biotech, which pronounces its name FLEK-shun, is, like the name suggests, focused on bringing drug candidates to a value-creating “inflection point.” Flexion’s founders, Mike Clayman and Neil Bodick, built their reputations doing that at an incubator in Lilly called Chorus. The model there, as with Flexion, was to take raw drug candidates and design fast, cheap, elegant experiments that would demonstrate they have what it takes to go to the later, more expensive stages of development.

Drug development, of course, is a horrifically inefficient, time-consuming, risky, and expensive business. An estimated one out of every 10 drugs entering clinical trials ever makes it all the way to FDA approval, and the development process takes a decade or more and costs more than a billion dollars on average—depending on whose figures you want to believe. Regardless of the actual math, pharma is crying out for ways to increase its batting average in clinical trials, and lower its costs. So Clayman and Bodick found plenty of interest in Flexion, and ultimately had “in-depth” talks with 10 major drugmakers from the U.S. and Europe, Clayman says.

Mike Clayman

“What we offered them was a track record that says we’ve done this before, and if they outlicense their products to us, they will be in good development hands,” Clayman says.

The plan is to take “de-prioritized” early phase assets of a pharmaceutical company and seek to turn them into diamonds in the rough. Sometimes these drugs have been put on the back burner because the pharma company dropped out of an entire disease category, or went through budget-cutting that forced it to place its bets on drugs in the more expensive, final phase of development.

Flexion isn’t afraid to make some pretty specific, and bold, claims about what it can do. Instead of investing three to four years and $15 million to $40 million in generating proof of concept for a new molecule, Flexion aims to use “compact experimental designs” to cut that time frame in half, while slashing the costs of proof of concept to as little as $3 million to $5 million.

The company only has six employees, and says it intends … Next Page »

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Omeros, the Seattle biotech company that’s attempting to pull off the first IPO from a Washington company in two years, took a step closer toward its goal today by updating its prospectus and stating it hopes to go public at a range of $10 to $12 a share.

Xconomy broke the news last month based on unidentified sources that Omeros was gearing up to do an IPO after Labor Day, and today’s updated SEC filing provides more evidence for Omeros’s plan. It hopes to find investors willing to buy 6.8 million shares of its common stock, which could generate as much as $81.8 million in proceeds if it finds demand from investors at the high end of its price range. The company also plans to grant its underwriters the right to buy another 1 million shares.

Omeros has been around the Seattle biotech scene since 1994. It had 67 employees at the end of May, and has no marketed products. It has spent more than $108.8 million of investors’ money from inception through June 30, according to its latest prospectus. The company was co-founded by CEO Greg Demopulos, an orthopedic surgeon who received training at Stanford University and Duke University.

The company’s goal is to develop proprietary low-dose combinations of existing drugs, and deliver them directly to a point on the body that’s undergoing surgery, to reduce inflammation, pain, and other complications that prolong recovery time. Omeros’s lead drug candidate is in the final stage of clinical trials for patients undergoing arthroscopic knee surgery—a procedure that 2.6 million people undergo each year in the U.S., according to market research cited by Omeros.

If Omeros is successful in going public, it will be the first Washington company to make that leap since Kirkland, WA-based Clearwire (NASDAQ: CLWR) did it in March 2007.

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Logical Therapeutics, a Waltham, MA-based developer of drugs to treat inflammation, says that Peter Lankau has been named CEO of the company, according to a press release. Lankau was previously CEO of Endo Pharmaceuticals (NASDAQ:ENDP), a specialty drug firm headquartered in Chadds Ford, PA. Rebecca caught up the Logical in late 2007 and detailed how Logical plans to develop a new compound that turns into anti-inflammation drug naproxen in the bloodstream.

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Pfizer is the world’s largest drugmaker, and it tends to make headlines when it pulls off megadeals like its pending $68 billion takeover of Wyeth. It’s one of the deals the company is hoping will help replenish its pipeline with new medicines after the patent expires in 2010 for atorvastatin (Lipitor), the $12 billion a year drug that accounts for about one-fourth of its revenues.

Plenty of people have written about Pfizer’s R&D failures and subsequent cutbacks, but what fewer people have noticed is that Pfizer is also looking to fill up its pipeline partly through corporate venture capital investing. In July 2007, it hired Barbara Dalton, a “venture capital star” according to Pharmalot (a great blog that is, sadly, now defunct). Dalton was in Seattle this morning to give a keynote talk at Invest Northwest, so I caught up with her for an interview before she gave her talk.

Dalton, the company’s vice president for venture capital, is part of a four-person VC team based at Pfizer headquarters in New York. She had previous stints in venture capital at SR One, a corporate venture firm aligned with the world’s No. 2 pharmaceutical company, GlaxoSmithKline, and Euclid SR, a more traditional venture firm with limited partners, that also included Glaxo. Dalton, an immunologist by training, made her connections with Seattle biotech at SR One during the mid-90s, when she invested in Corixa and got to know its founder, Steve Gillis. She has managed investments in more than 60 companies in the U.S. and Europe.

Here are the highlights from our conversation:

Xconomy: Who are some of the folks you know in the Northwest, besides, obviously, Steve Gillis?

Barbara Dalton: All the venture guys in healthcare out here, from Arch, Frazier, and OVP Venture Partners.

X: It sounds like you had a lot of experience here in the mid-to-late 90s, then went away. Why is that?

BD: Opportunities were elsewhere. It was never a geographic focus for investment, it was a matter of going where the deals were. That’s the way we invest now. We’re not wedded to Boston and San Francisco. We look for good companies, and good management teams, wherever they may be located.

X: What kind of strategy are you employing in terms of the number of deals, and the kind of disease areas that can make a difference for a company the size of Pfizer?

BD: My mandate is to invest for return, in areas that are of current or future strategic interest to Pfizer. With a company the size of Pfizer, that’s quite a broad mandate. There’s a lot of different things we can touch on. We do not have to be aligned with the company, we can be out in front of them in many ways. New areas, new technologies, new targets.

X: What kinds of diseases are you most interested in?

BD: Pain, Alzheimer’s disease, schizophrenia, diabetes, inflammation, oncology, and anti-infectives. There are very few therapeutic areas we don’t touch on. We don’t do women’s health per se. We’ve announced we’re no longer doing research in ophthalmology, although we are maintaining our ophthalmology products on the market. We have de-emphasized dermatology, and gastro-intestinal disorders.

X: When you look at what’s here in Seattle, why come to Invest Northwest? Why look at what’s here?

BD: You need three things to create great companies. … Next Page »

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Some members of the band that pumped out a one-hit wonder at Icos are getting back together to see if they can produce at least one more hit at Seattle-based Calistoga Pharmaceuticals.

Calistoga has been building up its management team over the past year, and the latest recruit is chief business officer Cliff Stocks. He was a 15-year business development veteran at Bothell, WA-based Icos, the developer of tadalafil (Cialis) for erectile dysfunction, before that company was sold to Eli Lilly for $2.3 billion in 2007. Now Stocks is reunited with a couple of former Icosians—Calistoga’s president, Michael Gallatin, and chief medical officer, Albert Yu.

We last wrote about Calistoga six months ago when CEO Carol Gallagher came on board, so it is time for an update. A fair bit has happened: Calistoga has assembled some basic data from its first drug in clinical trials (for blood cancer), and although it is preliminary, it’s apparently encouraging enough that Calistoga hopes to get results from 60 patients included on the biggest stage for blood cancer research—the American Society of Hematology meeting in December. Plus, Calistoga moved a second drug candidate into clinical trials that may have potential for fighting inflammatory diseases like asthma or runny nose, Gallagher says.

Plenty is still left to prove in a business where only one out of 10 drugs at this stage ever makes it to FDA approval. But Stocks, a dealmaker, sensed it was time for him to pounce. He says his job is to start thinking about a partnership strategy for when Big Pharma comes calling. A year from now, Calistoga expects to have two products in Phase II clinical trials, and a third entering clinical trials.

“There is great value here. When you flip over the cards, you can see they are turning up nicely,” Stocks says. That said, Calistoga needs to be careful on its deal strategy, so it gets the resources from a big drugmaker that it needs without giving away too much of the store. The chief business officer job was a “hole” on the management team that needed to get filled, Gallagher says.

It’s easy to see why Calistoga would need to have a dealmaker on board. The company is pursuing one of the hottest targets in cancer biology, called the PI3 kinase pathway. This pathway’s job is to stimulate a bunch of cell processes like proliferation, migration, and cell survival. When these normal functions get flipped into an overactive mode, it’s a hallmark of cancer cells proliferating out of control as well as an immune system going haywire and attacking healthy tissue.

This target is in the cross-hairs of some deep-pocketed pharmaceutical players—GlaxoSmithKline, Novartis, and Genentech, as well as upstarts like Exelixis, Seattle-based Oncothyreon, and San Diego-based Intellikine. These other companies’ drugs tend to block several variations of the PI3 kinase, including one in particular called alpha, Gallagher says. That can be a problem, because blocking that can have the undesired effect of raising the amount of sugar in the blood, and insulin, possibly causing Type 2 diabetes, she says.

What makes Calistoga different is that its drug, CAL-101, is designed specifically to hit the delta isoform, or variation, of the PI3 kinase. This particular target is found on multiple cancer cell types, including chronic lymphocytic leukemia, acute myeloid leukemia, non-Hodgkin’s lymphoma, and multiple myeloma. And there’s no evidence to suggest a link to boosting blood glucose and insulin levels, Gallagher says.

The value for these PI3 kinase blockers could go up (or down) as soon as early June, when some of Calistoga’s rivals are expected to present results from early-stage clinical trials at the American Society of Clinical Oncology meeting.

Calistoga, which has staffed up to 22 employees, raised its initial $21 million in March 2007, and expects to tap its venture backers again this year, Gallagher says. The company received its initial support from Frazier Healthcare Ventures, Alta Partners, Three Arch Partners, and Amgen Ventures.

As for future financing, Stocks was careful to point out that he’s not under the gun to do a quick deal with a big drugmaker to bring in some cash, which would weaken his bargaining position with a larger company. He tossed around various deal scenarios he might consider, including one possibility of a deal with a Japanese company that would allow Calistoga to retain the “lion’s share” of valuable North American rights, which could someday be followed by a bigger global deal with another pharmaceutical company.

When I asked Gallagher and Stocks where they see the company in five years, they both paused and took a deep breath. They didn’t articulate the classic fully-integrated-biotech-company model to become like another Immunex or Genentech. They didn’t say they were looking to get acquired, but it’s hard to see what other option they’d have as long as the IPO window remains closed. Calistoga’s strengths are in moving drugs through the early phases of development, and then letting a bigger company spend the big bucks on larger trials needed to ultimately pass FDA scrutiny, Gallagher says. The venture capitalists, it’s safe to say, aren’t going to write checks for hundreds of millions of dollars to get to that point.

“With a small team of people, and not a lot of money but a lot of focused effort, we can get to be a clinical stage company and then a Big Pharma company can get it to patients,” Gallagher says. “We need to do what’s right for patients, and if we do, we’ll build value.”

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Meritage Pharma, a San Diego-based drug developer, said today it has started a mid-stage clinical trial of an experimental drug for an inflammatory condition of the esophagus, called eosinophilic esophagitis. The trial will enroll 80 children and young adults on three different doses of the Meritage drug or a placebo. We profiled this company’s technology in detail back in December.

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Xconomy has learned that Qwell Pharmaceuticals, a Seattle-based drug developer in stealth mode, has raised $7 million in a Series A financing. The investment was led by Arch Venture Partners and the Wellcome Trust, the world’s second-biggest charitable foundation for biomedical research.

Qwell’s goal is to develop a new family of small-molecule drugs, derived from a plant source, that have a potent ability to fight tumors and excess inflammation of skin cells, says Steve Gillis, a managing director of Arch Venture Partners and the chairman of Qwell. The technology has its roots at the M.D. Anderson Cancer Center in Houston, in the lab of Jordan Gutterman. He’s a cancer researcher who has known Gillis for more than 20 years since he served as a scientific advisor to Seattle-based Immunex. Another longtime Gillis connection, Roger S. Anderson, has been hired to be chief technology officer.

Arch clearly sees this as another ‘”big idea” company, like other firms it has seeded to produce hibernation-on-demand (Ikaria) and develop adult stem cell therapies (Fate Therapeutics). Qwell’s first-round financing could total as much as $35 million in tranches if certain milestones are met, Gillis says. Qwell, which is housed in Arch’s downtown offices on Seattle’s Second Avenue, has already shown its compounds work in animal tests, and the company aims to bring its first drug candidate into clinical trials in 2009, Gillis says.

“This is a very exciting set of molecules,” Gillis says.

Gillis wouldn’t say what plant these compounds are derived from, but Gutterman’s lab appears to have been concentrating the past two years on a triterpene glycoside with unusual properties, derived from a desert legume from Australia. The compounds from these plants, or a mix of them, have been shown to kill a variety of blood cancers and solid tumor cells, with minimal side effects in the lab dish against healthy cells, according to Gutterman’s description of the work on his M.D. Anderson biographical web page.

The Qwell drugs are thought to work by blocking one of the hottest targets in cancer research today, the PI-3 kinase, according to Gutterman’s website. If that’s the mode of action for Qwell’s drugs (Gillis wouldn’t confirm that), then Qwell would be in competition … Next Page »

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