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Yale Startup Kolltan Pharmaceuticals Nets $35M in VC Financing to Develop Cancer Rx

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Kolltan Pharmaceuticals, a cancer therapeutics company founded last year based on scientific discoveries made at Yale University, said last week that it has raised more than $35 million in a Series A financing round to advance its therapeutic development pipeline.

Kolltan is the latest in a string of life science companies in the last two years that are based at least in part on research conducted at Yale and have garnered $25 million or more in startup financing.

However, the Series A investment in Kolltan is particularly notable considering the current economic climate. Those close to the deal attribute the unusually large investment to the involvement of Yale researcher and tyrosine kinase pioneer Joseph Schlessinger and a number of entrepreneurs that were also involved in Sugen, which was founded in 1991 based in part on research he conducted while at New York University.

Kolltan will develop monoclonal antibody-based cancer therapeutics targeting novel receptor tyrosine kinases identified and validated by Schlessinger, professor and chairman of pharmacology at the Yale University School of Medicine.

Yale has granted the company a license to Schlessinger's discoveries. In exchange, the school has taken an undisclosed equity stake in Kolltan and will receive undisclosed royalties on future products. Other terms of the licensing agreement have not been disclosed.

In addition, Jon Soderstrom, managing director of the Yale University Office of Cooperative Research, serves on the company's board of directors.

"Yale is a founding shareholder and had a founding stake when the company has launched," Arthur Altschul, co-founder and chairman of Kolltan, told BTW this week. "I have never worked with an academic institution or licensing group that has been more proactive and supportive than Jon and his licensing team in every regard; and Jon is an active and welcome member of the board."

Participants in Kolltan's Series A financing include Purdue Pharma, HBM Capital Partners, the Pritzker/Vlock family, and "other substantial private life science investors," the company said in a statement.

Altschul told BTW that Kolltan "really had the ability to pick and tailor the group of investors we brought in. We initially went out to raise somewhere between $15 million and $20 million. We probably will close on a little more than $35 million, including some people that wanted to come in late. We were dramatically oversubscribed, but there came a point when it didn't make sense to go any higher."

Altschul credits Kolltan's substantial financing round to the involvement of Schlessinger, who is well-known for his work on tyrosine kinases, and has previously founded two companies, most notably Sugen.

Founded in 1991 by Schlessinger and the Max Planck Institute of Biochemistry's Axel Ullrich, Sugen was an early developer of anti-cancer kinase inhibitors. The company was acquired by Pharmacia in 1999, and Pharmacia was acquired by Pfizer in 2002. Pfizer went on to win US Food and Drug Administration approval for Sutent, a treatment for advanced renal cell carcinoma and gastrointestinal stromal tumors originally developed at Sugen.

Sugen's core scientific and management team was eventually disbanded after becoming part of Pfizer, but many of the former employees, including Altschul, remained in close contact, Altschul said.

Two years ago, Schlessinger and Altschul – who had since launched pharma- and biotech-focused asset management firm Diaz and Altschul Capital Management – met to discuss some of Schlessinger's recent research on the precise mechanisms of activation of certain sub-families of receptor tyrosine kinases.

"Not only was it an academic breakthrough, but it had great commercial relevance, and as soon as he explained it to me, I was excited," Altschul said. "This was a piece of work he had spent a lot of time on, and had theories about. The devil was in the details, which were unexpected, and really provided this great proprietary and commercial platform such that it became incumbent upon us to start a new company."

Schlessinger had also co-founded drug-discovery outfit Plexxikon, where he still serves as chairman. Plexxikon has a broad pipeline of early-stage drug candidates, and in recent years has struck multiple development deals with various large pharmaceutical companies.

Altschul said that Schlessinger "has a unique and very special reputation within science and business that he has repeatedly been able to be a pioneer."

Kolltan also brought on board CEO Michael Schmertzler, an adjunct professor in the Yale School of Management who has also been involved in several life sciences startups; and vice president of research Yaron Hadari, a former senior director of tumor biology at ImClone and alum of Schlessinger's Yale laboratory.

Once Altschul and Yale got word out to various investor contacts about the team that they had formed to commercialize Schlessinger's discoveries, "I think a lot of people became interested the minute they heard this was happening," Altschul said.

For Yale, Kolltan is the latest in a notable run of startups that the university has had a hand in that have garnered significant early-stage financing.

Examples include BioRelix, a biopharma firm developing anti-infective agents based on research by Yale professor Ronald Breaker; and Optherion, which is developing products to diagnose and treat dry and wet age-related macular degeneration. In 2007, BioRelix closed on a $25.75 million series A financing found, while Optherion netted some $37 million in startup financing.

Soderstrom said that "the formula hasn't changed" for creating a biopharma startup and attracting significant early-stage financing, "but the level of confidence that people have that we can deliver on the technology" has changed.

"This is, to an extent, an extension of the technology that went into Sugen," Yale's Soderstrom said. "People believe that [Schlessinger] understands what these mechanisms are. For that reason, we ended up putting together much of the same team that was behind Sugen. There are new investors, but the team is similar – entrepreneurs, investors, the whole science."

Kolltan will use the proceeds from its financing round to jump directly into drug development based on Schlessinger's discoveries.

"Kolltan starts business on day one as a development stage company," Altschul said. "We're not conducting any early research. The entire focus is to proceed directly to antibody-based drug development, based on targets we identified.

"One of the reasons this was so exciting was the many years of target ID and validation that most companies have to go through … have essentially been eliminated because they've already been done," he added. "What we have licensed and are moving forward with are targets that have already gone directly into drug development."

According to Altschul, the targets provide both a new route to treat a variety of cancers and a way to address resistance issues that have begun to rear their head with existing, marketed tyrosine kinase drugs.

"In some cases we're going after targets that have already been well-validated in the clinic and the literature," Altschul said. "But Schlessinger's insight and proprietary discoveries allow us a completely novel way to approach those targets. His discovery has not only given us a very vulnerable set of targets in cancer, but that vulnerability will also allow us to overcome the resistance that is popping up in almost all of these tyrosine kinases."

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