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After Raising $20M in British IPO, Entelos Teams With ADA to Build Biosimulation Core Facility


Entelos this week said that it is partnering with the American Diabetes Association to create an "in silico research facility" that will support basic research into type 1 diabetes by providing academic investigators access to its PhysioLab biosimulation platform.

The news follows the Foster City, Calif.-based company's initial public offering on the London Stock Exchange's Alternative Investment Market. The firm raised $20 million when it began trading on AIM on April 12, but did not announce its IPO in the United States due to US Securities and Exchange Commission regulations — which also happens to be one of the reasons why the company didn't list on the Nasdaq exchange in the US.

The company intends to use this cash to expand its PhysioLab platform into new therapeutic areas, and to enhance its existing PhysioLab models in areas such as asthma, obesity, and rheumatoid arthritis.

One disease area that the company will be focusing its attention on is diabetes, and this week's announcement about the partnership with ADA highlights the firm's interest in that area.

"From the very beginning it was really meant to be made available for academic researchers for basic research purposes and to understand the onset and progression of type 1 diabetes and immunologic disease."

Barry Sudbeck, manager of business development at Entelos, said that the research center will initially focus on the company's type 1 diabetes PhysioLab, which represents the non-obese diabetic mouse. "As far as Entelos' capabilities and other diabetes capabilities, that's up for discussion at this point," he said. The company has also developed a version of PhysioLab for type 2 diabetes in cooperation with the ADA, although that platform is targeted at pharmaceutical partners.

The in silico diabetes research center is currently funded by Entelos and ADA, and will initially be located at Entelos' Foster City headquarters. Sudbeck said that it will eventually be moved to an academic center, although the exact location has yet to be determined.

Sudbeck described the center as "the typical core facility paradigm, where … you send your samples, they do their magic, and they give you the result," although he noted that the nature of biosimulation will require more of a collaborative and iterative process than a typical proteomics or sequencing experiment.

Researchers will apply for access to the center through the ADA's peer-review grant process. Those who are selected will work with Entelos at the company's facility.

Entelos began building the type 1 diabetes PhysioLab platform in collaboration with the ADA in 2004. "From the very beginning it was really meant to be made available for academic researchers for basic research purposes and to understand the onset and progression of type 1 diabetes and immunologic disease," Sudbeck said.

This business model is new territory for Entelos, which has historically targeted large pharmaceutical firms for its PhysioLab platform. The company counts as customers AstraZeneca, Sanofi-Aventis, Bayer, Bristol Myers Squibb, Eli Lilly, Johnson & Johnson, Merck, Pfizer, and Roche, and Sudbeck said these firms are using the simulation technology from early discovery through to development.

"The idea behind [the research center], at least from Entelos' perspective, is to really show the broader academic community the power of biosimulation," Sudbeck said, "and the best way to show that is really through example. So I think publications are going to be a major deliverable from this, because that's the currency of the academic community."

Entelos and the ADA have enlisted a scientific advisory board to provide scientific guidance during the development of the type 1 PhysioLab platform. The board includes Mark Atkinson of the University of Florida, Jeffrey Bluestone of the University of California San Francisco, George Eisenbarth of the University of Colorado at Denver, Diane Mathis of the Joslin Diabetes Center, and Aldo Rossini of the University of Massachusetts.

All of these researchers currently have access to the PhysioLab platform in their labs, but none of them could be reached for comment before press time.

Taking AIM Over Nasdaq

When Entelos decided to go public, London's Alternative Investment Market was a much more appealing prospect than the Nasdaq exchange in the US, which presented a number of regulatory burdens, Jill Fujisaki, vice president of investor relations at Entelos, told BioInform.

Indeed, Fujisaki said the company has kept a low profile in the wake of its IPO because the SEC prohibits firms that go public overseas from "preparing the market" in the US.

One drawback of listing in the US was the Sarbanes-Oxley regulations, which typically add $1 million to $2 million to a public company's accounting expenses. "For a company our size, that would just be so unreasonable to have to pay $2 million a year to accountants when we can invest that money in building new models, so it just didn't make sense for us," Fujisaki said.

In addition, she noted that companies with a market capitalization of under $250 million are "completely lost" in the US market. "There's no coverage in terms of analyst research on your company, and that's not true on AIM — they have much better coverage, so you don't get completely lost in the shuffle."

Entelos began trading at 82.75 pence ($1.53) per common share, giving it a market capitalization of $78 million. As of June 15, the company's stock was trading at 83.5 pence per share. However, its shares are only available to institutional investors in the UK.

AIM is specifically tailored to smaller, early-stage companies, and offers a number of features that appeal to such firms, including no minimum shares in public hands, no prior shareholder approval for transactions, and no minimum market cap.

The exchange is attracting an increasing number of US companies. In 2005, a record 19 US-based firms listed on AIM, raising a total of $2.1 billion. There are now 29 companies from the US quoted on AIM.

Several bioinformatics firms have cited the regulatory burdens associated with listing in the US, primarily Sarbanes-Oxley. John McAlister, CEO of Tripos, has cited the Sarbanes-Oxley requirements as one reason the firm is considering reverting to privately held status.

"I think we're spending well over $2 million a year just in Sarbanes-Oxley compliance activities these days," he said in January. "I think that for many companies that are our size, and even larger, this is a tremendous burden that makes it very difficult to justify, unless you're gaining a substantial benefit from being a public company, and we just don't think the trade-off is there." [BioInform 01-13-06]

In addition, one of the first steps Lion Bioscience took in divesting its bioinformatics business was terminating its SEC registration in May 2005. "A lot of [Lion's] costs are related directly to the registration at the SEC," said Peter Willinger, the firm's chief financial officer, citing as particular financial burdens Sarbanes-Oxley requirements and fees associated with filing its annual report and other SEC documents. [BioInform 05-30-05]

The Biotechnology Industry Organization has criticized the Sarbanes-Oxley Act as being too burdensome for small biotech firms, and has called for a number of reforms in the current law. Further details on BIO's activities in this area are available at:

— Bernadette Toner ([email protected])


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