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Friday, June 16, 2006 - Page updated at 12:00 AM

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Biotech startup gets cash infusion

Seattle Times business reporter

Biotechnology startup VLST said it received a commitment of $55 million in funding to continue its efforts to find treatments for autoimmune and inflammatory diseases such as arthritis, multiple sclerosis, asthma, lupus and psoriasis.

The money is enough to carry the company, started just two years ago, through Phase II human clinical trials that would demonstrate whether potential products are effective.

VLST, which stands for viral logic systems technology, will more than double in size to as many as 30 employees, and move next month from its South Lake Union location to offices on Elliott Avenue formerly occupied by Cell Therapeutics, the company said.

After an initial $20 million that is now available, receiving the subsequent stages of the $55 million commitment depends on VLST hitting milestones showing that its compounds work, said Martin Simonetti, VLST chief executive.

"This pot of money is there to get the company to the next major step up in value," which is proving its technology works, said Steven Gillis, a partner at Arch Venture Partners, a Seattle venture-capital group that is among VLST funders.

The relatively large sum for such a small company reflects the backers' confidence in VLST's unusual approach to finding new medicines.

VLST is sorting through the gene structures of viruses and using them to point to human genes that might be able to suppress immune responses that cause ailments like MS, asthma and lupus.

Many biotech companies search for useful products one at a time. VLST's approach is based on an observation that company principals Craig Smith and Ray Goodwin made while at Immunex, where they worked on the blockbuster arthritis drug Enbrel: Viruses have genes that suppress the immune system. Those genes aren't useful as drugs themselves. But they can be used to find analogous genes in humans that would have a similar immune-suppressing ability, Gillis said.

Using this approach, VLST has discovered about 70 potential products. It has tested about a dozen of those and found two or three that warrant further study.

"It's not just another one-molecule company," said Chad Waite, a partner in OVP Venture Partners, another of the backers.

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"Here's a predictable, documented way of finding drug targets. If even one of these becomes a blockbuster, the formula for discovery here becomes immensely valuable."

Texas Pacific Group Ventures led the funding, VLST's second round. Existing investors MPM Capital, Arch Venture Partners, OVP Venture Partners and Amgen Ventures also contributed.

And the company drew two other new investors: MedImmune Ventures Inc. and WRF Capital, the venture-investment arm of the Washington Research Foundation.

VLST was founded by Smith and Steven Wiley, who are among the executives. Goodwin is on the company's science advisory board, and all three have substantial stakes in the venture.

Initial funding for VLST was provided through Accelerator, a biotech-development company funded by venture capital that provides management expertise, administration, lab and office space for startups.

Simonetti figures it allowed VLST to do in two years what would ordinarily have taken four. When it moves next month, VLST becomes the first company to graduate out of the Accelerator.

Alwyn Scott: 206-464-3329 or ascott@seattletimes.com

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