Biotech startup VLST gets $55 million

VLST Corp., a tiny Seattle biotechnology company that was formed by two former Amgen researchers, has scored $55 million in venture capital that it will use to develop experimental treatments for diseases such as lupus, psoriasis and multiple sclerosis.

The financing -- the 16th-biggest venture capital deal in the country this year and the largest in Washington state -- is a major boost for a 12-person startup that is still years away from selling its first product.

Typically, early-stage biotechnology companies like VLST don't raise rounds of this size. But Chief Executive Martin Simonetti, a former Dendreon executive who joined VLST in January, said the money will allow the company to focus on cutting-edge science rather than fundraising.

"The bottom line is we can build the company and move things forward, without having to raise money annually," said Simonetti. "And that's huge."

The money should carry VLST for about three to four years, at which time it hopes to have a lead product candidate moved through the "proof-of-concept" phase.

Texas Pacific Group Ventures led the round, which also included new investors MedImmune Ventures and WRF Capital. MPM Capital, Arch Venture Partners, OVP Venture Partners and Amgen Ventures -- existing investors who committed $4.5 million to the startup in May 2004 -- also participated.

Not all of the money is flowing into the company's bank account at once. The structure of the deal calls for a $20 million upfront investment, with the remainder of the money tied to two specific milestones. Simonetti declined to discuss those milestones or the time frame in which they must be met.

By tying the money to preset goals, Simonetti said that the company can stay focused on the tasks at hand while investors receive a little protection on such a large investment. The $55 million investment is more than all Washington biotechnology companies raised in venture capital in the first half of last year, according to Dow Jones VentureOne.

VLST, whose name stands for Viral Logic Systems Technology, is attempting to study how viruses attack immune systems in order to create drugs that are targeted to certain diseases.

"When you have the immune system reacting inappropriately, the goal is then to modulate it back to normal if you will, or back to a situation where the patient is not having severe outbreaks whether it is lupus, multiple sclerosis, psoriasis, rheumatoid arthritis or any of a number of different things," Simonetti said. "If you can identify targets that you can modulate back to normal, then, in fact you can help these patients."

So far, VLST has identified 70 "virulence factors" -- virus secretions that alter a person's immune system. VLST hopes to create drugs that mimic the virus secretions in order to make an immune system less vulnerable to attack. VLST has about eight possible programs in development.

Texas Pacific Group's Heather Preston, who is joining the company's board, said the technology holds promise because it could allow researchers to more quickly and efficiently identify drug candidates.

Simonetti added that the virulence factors are "outstanding predictors of potential therapeutics." That's because viruses have small genomes that they use efficiently to reproduce or change a host's immune system. And because the DNA makeup is so small and singularly focused, Simonetti said they could help researchers identify appropriate therapies. That could mean "fewer clinical failures," he said.

Amgen researchers Craig Smith and Steven Wiley -- both of whom studied molecular biology at the University of Wisconsin -- founded VLST in May 2004. Smith played a key role in developing Enbrel, the rheumatoid arthritis drug now marketed by Amgen. Wiley, who serves as chief technical officer at VLST, worked on a program at Immunex and Amgen that kills cancer cells while keeping normal cells intact.

For the past two years, the company has been housed at Accelerator Corp., the biotechnology incubator located in Seattle's South Lake Union neighborhood. With the new funding and plans to more than double its staff in the next year, VLST will move to new offices on the Seattle waterfront north of downtown next month.

While Simonetti said the scientific platform has promise, the 48-year-old biotech executive said the biggest challenge for the young company is staying focused on the near-term milestones.

"Everybody always says cash is king, and I always say focus is queen," he said. "With this financing, we have the cash part dealt with and now the real challenge for us is focusing and staying the course with our programs."

BLOG ROUNDUP: A quick look at some of the items appearing in my venture blog this week. Here is the link: blog.seattlepi.com/venture

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P-I reporter John Cook can be reached at 206-448-8075 or johncook@seattlepi.com. For more information on Seattle-area startups or venture capital firms, visit www.seattlepi.com/venture.

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