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Life Sciences Roundup

SmartCells CEO reflects on strategy with Merck

Xconomy.Com / December 6, 2010

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Beverly-based SmartCells Inc. has kept a relatively low profile since it was founded seven years ago, quietly working on a potential blockbuster drug for diabetes with technology from MIT.

But last week the drug giant Merck made headlines with its plans to buy SmartCells for upfront and potential milestone payments of more than $500 million.

Cofounder Todd Zion talked to Xconomy hours after the deal was announced, reflecting on what seems to be the less-traveled path his company has taken.

The deal represents an unusually big payday for the founding team, because SmartCells never sold shares to venture capital firms. And Zion has never tried to generate hype about the potential benefits of the company’s lead drug, a formulation of insulin that could provide greater convenience and control over blood sugar for diabetics.

Rather, SmartCells has raised just $9.8 million in equity investments from angel groups and individuals since 2004, Zion said. Its most recent round was $4.1 million in June from Boston Harbor Angels, Angel Healthcare Investors, Beacon Street Angels, Cherrystone Angels, and members of Common Angels.

The firm has received more money via grants from the National Institutes of Health than it has from private investors.

“We’ve always had a philosophy here that we let our operating plan dictate our financing plan, and not the other way around,’’ Zion said.

SmartCells wanted to avoid raising more money than necessary so its team could retain a significant ownership share, Zion said.

Merck’s upfront payment has not been disclosed, and SmartCells’s CEO also declined to reveal the amount of guaranteed cash in the agreement. But the firm’s 17 employees “have been rewarded very well for their efforts,’’ he said.

The conservative fund-raising strategy appears to have benefited the angel backers. Start-ups typically need to be bought for a lot more than they have taken from investors so they can provide returns to shareholders. If SmartCells had raised lots more cash, Zion said, it would have been much harder to see a lucrative return.

SmartCells began pursuing business development opportunities in earnest about nine months ago, Zion said.

“We’re on the doorstep of running human clinical studies,’’ he said, “and at this point it really does make sense to transition [our technology] to a large pharmaceutical company that can provide the type of resources you need to get a potential blockbuster diabetes drug like this . . . onto the market.’’

SmartCells’s SmartInsulin candidate is designed to work much differently than Januvia, an oral pill from the class of medications known as DPP4 inhibitors. The SmartCells treatment uses a polymer designed to release insulin only in the presence of certain glucose levels in the blood.

RYAN MCBRIDE

The Cambridge company Quanterix Corp. has announced that Martin Madaus, former chief executive of Millipore Corp., of Billerica, has joined the start-up’s board as executive chairman. Millipore, a giant supplier of diagnostics and lab equipment to biotech companies, was acquired by Germany-based Merck KGaA for about $7 billion in July. Madaus is getting on board with a company that’s seeking to develop much more sensitive diagnostic tools to spot disease earlier and help doctors improve how they monitor the progression of disease. “This is a game-changing technology,’’ Madaus said in a statement.

Sage Science, a Beverly-based provider of genetic research tools, has raised $2 million in an equity funding round, according to documents filed with the Securities and Exchange Commission. The investors were not named. The firm’s systems are used for DNA sample preparation with next-generation sequencing platforms. Last month, the company announced its agreement to provide its systems to the Broad Institute of MIT and Harvard in Cambridge.

This report was compiled by the editors of Xconomy, an online news website focused on the business of technology and innovation. For more New England coverage, visit www.Xconomy.com/boston.