Amid a flurry of stem cell news, Fate Therapeutics raised $12 million in a Series A financing to pursue in vivo and ex vivo modulation of adult stem cells.

Investors in the round included ARCH Venture Partners, Polaris Venture Partners, Venrock Associates and OVP Venture Partners.

Robert Nelsen, co-founder and managing director of ARCH, said all of those firms were skeptical of investing in the stem cell space, but Fate hooked them with an approach focused on using "actual small-molecule drugs" to influence adult stem cells rather than seeking to harvest the cells and create cell-based therapies.

Venture capitalists tend to roll their eyes at traditional stem cell business models, Nelsen said, but "we haven't been getting eye rolls; we've been getting lots of calls from pharmaceutical companies."

Fate's business model is twofold. On the one hand, the company plans to develop small-molecule drugs that will act in vivo to influence adult stem cells. That influence may include stimulating adult stem cells to repair damaged tissues or deactivating cancer stem cells to prevent metastases.

The approach depends on the ability of stem cells to react to their environment. Amir Nashat, general partner with Polaris, explained that stem cells have "a lot of natural mechanisms that tell them when to turn on and when to turn off," and that Fate's small molecules will provide an industrial way to "amplify this reaction." He compared the approach to RNAi, saying that in both cases, "the basic biology gives you a roadmap of how to make a product."

The other half of Fate's business model involves using small molecules ex vivo to convert adult stem cells into embryonic-like stem cells. Just over a week ago, papers published in Cell and Science created a flurry of excitement by demonstrating that delivering certain genes via retroviral vectors to fibroblasts transformed the adult cells into induced pluripotent stem cells. (See BioWorld Today, Nov. 21, 2007.)

Nashat said Fate will use small molecules to achieve "similar things that a gene therapy approach might do." Nelsen added that while the resulting embryonic-like stem cells are expected to be pluripotent, the creation of pluripotent stem cells "is not the only interesting goal" to which the technology can be applied.

Fate's ex vivo program is undergoing preclinical chemistry work, while the in vivo program is at the pre-lead selection stage. But a test case from each program is slated to begin clinical trials next year in the treatment of hematologic malignancies. The company declined to go into specifics, but Nashat said both test cases will seek to improve stem cell repair and regenerative function and will be "in the general area" of bone marrow transplants and other approaches in which stem cells currently are used.

Much of the intellectual property covering Fate's programs came from the company's all-star list of scientific founders and their respective institutions. The scientific founders include Philip Beachy, of Stanford University; Sheng Ding, of The Scripps Research Institute; Randall Moon, of the University of Washington; David Scadden, of Harvard University; and Leonard Zon, also of Harvard.

Nelsen said ARCH and Polaris had been talking since the JPMorgan Healthcare Conference last year about combining recent advances in stem cell biology with small molecules. The two firms were in discussions with separate groups of scientists, but they combined their efforts in "a classic coming together of people with similar ideas," Nelsen said.

Both Nelsen and Nashat serve on Fate's board of directors, along with Bryan Roberts, managing general partner at Venrock, and board observer Carl Weissman, venture partner with OVP. The team brought on Thomas St. John, who previously served as vice president of therapeutic development at ICOS Corp., as executive vice president of research and development.

ARCH associate Alex Rives is serving as founding president, but Fate is looking actively for a CEO. With headquarters in Seattle and offices in California and Boston, Nelsen said the company can be flexible in building its team.

With the Series A financing complete, Fate is looking to close a Series B sometime in 2008.

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