Cellumen this week pocketed $8.7 million in a Series B round of venture capital financing to help it begin selling its cell-systems platform.
In addition, one of its investors said that he believes the company is more likely to merge with another shop or be acquired rather than go public, which is the more typical route for private companies paying off for their venture capital backers.
Cellumen CEO Lans Taylor said that the financing will also enable the company to broaden its presence in the drug-discovery, cytotoxicity-testing, and clinical-trials markets; to increase advertising on the Internet and in scientific journals; and have a bigger presence at international scientific meetings.
“The key is bringing on additional people in marketing, sales, and manufacturing,” said Taylor, who added that the Pittsburgh-based company recently moved to a larger facility, where it has much bigger compound-screening capabilities, and was able to expand its reagent-manufacturing facility.
He said that the company currently employs 15 people, and that he expects that number to at least double during the rest of 2007.
Cellumen is building a variety of biosensors and cellular-manipulation reagents designed for drug makers to use in-house, Taylor said. He said Cellumen’s current drug-discovery projects focus on Huntington’s disease, cancer, Parkinson’s disease, and spinal muscular atrophy.
He added that the company is exploring opportunities with diabetes and several other diseases, but declined to elaborate because Cellumen has not closed on any collaborative projects yet.
“We are disease-independent because our approach of engineering the right cellular model of disease with the right reagents to make a more powerful model can be done for any disease,” Taylor said.
Cellumen has collaborated with Millipore to develop a cytotoxicity panel that provides an 11-biological-parameter fingerprint for hepatocytes. He went on to say that the reagent panel, which will launch next month, will be jointly marketed and co-branded with Millipore.
The hepatotoxicity panel will be the first in a series of cytotoxicity panels that measure the toxic effects of compounds on different cell types. Cellumen believes that when taken together as compound profiling results, these panels can become a predictive tool for the potential human toxicity of drug candidates, said Taylor.
However, Taylor said that the method for manufacturing these panels, which could include panels for cardiomyocyte toxicities, and the network for distributing them is something that Cellumen is currently evaluating.
Peter Staple, CEO of BioSeek, said that cell-based assays and cell-based disease models represent a significant opportunity. “We are seeing a lot more interest in it from our standpoint. I think the fact that Cellumen is up and running and getting financing indicates that there are significant opportunities, and that quality companies are starting up around these opportunities.”
Pharmaceutical companies are increasing their use of cell-based models of disease, said John Westwick, president and CSO of Odyssey Thera, which competes with Cellumen in the drug-discovery market.
And more importantly, Westwick said, these companies are looking into deeper cell-based analyses. They are not just doing what has been done in the past — membrane preparations, reporter gene analyses, or other simple functional or phenotypic cell-based models.
Westwick said that companies are using biosensors, HCA, and things that give them a better understanding of the underlying biochemical events, as opposed to looking at changes in cell structure or something simple like proliferation.
The Cellumen deal indicates to a certain extent that investors are making moves back into so-called “platform companies,” said Westwick. To him, this really reflects the fact that pharmaceutical companies recognize and appreciate that leading-edge technologies are providing a major advantage to the companies that have these capabilities. Investors are starting to see this as well, he said.
But pharmaceutical companies are realizing that they need to reach out to companies like Cellumen to engage in these activities, said Westwick, and they are also realizing that the creativity needed to solve their key challenges is not really fostered in the “big pharma environment.”
“I’m glad to see that Cellumen achieved a Series B,” said Westwick. The fundamental problem for companies in this space with getting these investments, he explained, is that their technologies are seen as platform technologies, and investors traditionally do not go after platform technologies.
These companies are usually valued by VCs as a small multiple of their revenues, Westwick said. “The fact that Cellumen achieved a Series B is a very positive sign, and I am sure that the company will capitalize on this.”
Ahead Of the Curve?
Pennsylvania private-equity funds Safeguard Scientifics and PA Early Stage Partners, which provided Cellumen with its Series A financing in 2005, led the round. Peter Schmitt, managing director of PA Early Stage Partners, told CBA News that big pharma is moving away from target-based assays, and that Cellumen understands that drug makers need a systemic approach that considers all the protein-protein interactions and other reactions that can occur in a cell-based system that cannot be evaluated in a target-based system.
“Cellumen understands that drug discovery and development needs a systemic approach that considers all the protein-protein interactions and other things that can happen in a cell-based system.”
Michael Pellini, Safeguard Scientifics’ vice president of life sciences, said that much of the technical risk associated with Cellumen’s business model is behind it and the company now is focused on the commercial risk.
According to Pellini, Cellumen is focused on the cellular content in order to better apply high-content analysis. HCA technology now resides in most of the mid- and large-size pharmaceutical companies and biotechs, but these shops are still looking for better ways to apply that technology, said Pellini.
There are other companies that focus on various pieces of the content within HCA, Pellini said, but Safeguard Scientifics believes that Cellumen is two to three years ahead of the market, and that Cellumen’s approach is much more comprehensive, which is critical, than any other approach it has seen.
The HCA/cell-based systems approach is an emerging trend among drug makers, Schmitt added. For example, Cellumen has launched a profiling service in a project with Cambridge Healthtech Associates, a Massachusetts-based company dedicated to improving the drug discovery and development processes, under which the partners will evaluate the safety of compounds from more than 11 pharmaceutical companies.
What they are looking for is a more highly predictive cell-based systems-biology model to predict toxicology than what animal models can offer. Schmitt said that PA Early Stage Partners is confident that the efficiency and specificity of these systems will be in excess of 95 percent.
Cellumen is also developing a broad portfolio of IP in cell-based assays across cytotoxicity testing and drug efficacy testing in major disease areas, Schmitt said.
While it is too early to tell what the payoff will be for Cellumen’s investors, Safeguard Scientifics thinks that the M&A route, in the long-term, is more likely than the firm going public.
Pellini explained that dozens of companies have what he termed a “rich appetite” for “the Cellumens of the world, once they achieve some type of critical mass” on the commercial side. It often makes sense for a larger company to acquire a company like Cellumen rather than building it from scratch, he said.
Schmitt said he sees the cell-based assay market growing dramatically over the next several years, and stressed that PA Early Stage Partners has a pretty aggressive growth plan for Cellumen. He declined to elaborate on the plan, however.