Railroad barons from the 19th century ruined it for Washington State, the common business perception goes, by snookering states into coughing up egregious corporate welfare. It led to a popular uprising and a subsequent state Constitution that forever prohibited direct aid to corporations. That, politicians often say, is the reason the state can’t invest in local startups today.
So it surprised a lot of people in October—me included—when the state’s Life Sciences Discovery Fund defied the perception by funneling $5 million of state money into a biotech corporation—Seattle-based Omeros (NASDAQ: [[ticker:OMER]]). This was part of a larger deal in which the state pooled resources with Paul Allen’s Vulcan Capital to invest a total of $25 million into a basic research program at Omeros. The vision is that the company could make it possible to develop new therapies against 100 or more protein targets on cells that have been inaccessible to drugmakers.
This deal was remarkable because it represents the first time the state Life Sciences Discovery Fund has plowed its resources directly into a for-profit entity. The transaction was done through a project financing structure which has never been used by the state life sciences agency before, and which is within the legal boundaries set by the state’s Constitution, says executive director Lee Huntsman. If the bet fails, the state and Vulcan will have lost their money. If it pays off, the state could get back five times its original investment, and Omeros could end up throwing off much more cash flow into a new nonprofit entity that hasn’t yet been named, Huntsman says. That nonprofit agency could provide grants to Washington State researchers and companies long after the sun sets on the state’s Life Sciences Discovery Fund, originally envisioned by Gov. Chris Gregoire as a 10-year, $350 million plan to boost biotech in the state.
“I’m very excited about what this could mean medically, and I’m optimistic about what it could mean economically for the state,” Huntsman says. “You can do wild-eyed calculations about home run scenarios, and I don’t want to get too wrapped up in that. There are a lot of things that can go wrong. But we were convinced, and the board was convinced, they didn’t need to get any home run to justify this award. It was well within our mission, our mechanisms, and within our risk profile.”
This deal involves some complicated scientific and financial considerations which I’ve been meaning to follow up on ever since the original story broke. Huntsman talked about all of that in a detailed interview at his Seattle office a few weeks ago.
The story began back in the summer of 2009, when Omeros CEO Greg Demopulos and chairman Tom Cable approached Huntsman. They told him about the company’s opportunity to discover new drug targets known as G-protein coupled receptors (GPCRs). These are complex spaghetti-like 3-D protein structures that weave in and out of the surface of cells. Many of today’s best-selling therapies for allergies, pain, and mental illness hit these GPCR targets, including billion dollar blockbusters of the past and present like Merck’s loratadine (Claritin), Bristol-Myers Squibb’s aripiprazole (Abilify), and Purdue Pharma’s oxycodone (Oxycontin).
Omeros, through its acquisition of Seattle-based Nura five years ago, and a subsequent license it obtained to technology from Toronto-based Patobios, thought it had hit upon
