By Debbie Strickland

Special To BioWorld Today

Six-year-old Variagenics Inc. completed its largest financing to date, a $19 million private equity placement intended to carry the pharmacogenomics company to "cash positive" status as it ramps up corporate partnering efforts.

"We'd like to think this is the last financing we'll need until we are cash positive," said Rick Shea, vice president for finance, "and this will certainly take us at least through a couple of years."

Led by The Sprout Group, the financing round attracted new investor A.M. Pappas and Associates, as well as existing investors Atlas Venture, Oxford Bioscience Partners, Forward Ventures, Kummell Investments Ltd., Goldman Sachs & Co. and Advent International. Sprout general partner Phillippe Chambon will join the company's board of directors.

Still privately held, Variagenics is eyeing an initial public offering at some point, Shea said, though the Cambridge, Mass., company has not set a time frame. It has raised $32.5 million to date.

"The timing of the IPO," he said, "will depend on how quickly we can ramp up our activities and demonstrate the full commercial potential of pharmacogenomics."

The funds garnered in this latest financing will be used primarily for Variagenics' variance discovery program and to establish corresponding diagnostic genotyping assays that will enable clinical associations to be confirmed.

"This financing will take us into a commercialized phase," Shea said. "We're working actively with a number of pharmaceutical companies and are hoping to close some contracts within a few months."

The company has used its variance detection platform to study more than 15,000 genes to date, and has identified variances that may affect drugs for cancer, inflammatory, cardiovascular and central nervous system diseases. Variagenics also has rights to such genes as ApoE, which predicts response to drugs for Alzheimer's disease; MTHFR, a risk factor for atherosclerosis; and TPMT, which predicts toxicity and efficacy of certain drugs for cancer, transplantation and arthritis.

The company estimated the potential near-term market for contract pharmacogenomic services at more than $3 billion annually. In a move toward tapping into this market, the company formed an alliance last December with Quintiles Transnational Corp., a contract research organization based in Research Triangle Park, N.C., with 1998 sales of $1.2 billion.

"The Quintiles relationship is really a marketing relationship," said Lynn Sutherland, Variagenics' vice president for marketing. "They introduce us to their clients, and what they get out of it is the opportunity to add something new and high-value that they weren't able to offer before."

Variagenics, which is also seeking pharmaceutical partners independently of Quintiles, already has served clients through that alliance, she said. "We help companies in early stages of drug development make a go/no-go decision on targets and compounds."

As part of its maturing from foundation research to commercial applications, the company also promoted President Taylor Crouch into the CEO slot.

"When you reach critical mass you have to start taking care of business," Sutherland said.

Crouch joined Variagenics in April, following an eight-year stint at Parexel International Corp., where his last position was senior vice president for worldwide marketing and strategic development.

"My move to Variagenics reflects my strong belief that pharmacogenomics represents the most promising frontier in the healthcare industry and, as such will make a profound impact on the evolution of disease management in the coming years," Crouch said, in a prepared statement.

Crouch replaces as CEO Fred Ledley, who will continue to work with the company as principal scientific adviser.