By Mary Welch

Phylos Inc. entered into a $27 million, five-year collaboration with Hoechst Research and Technology Deutschland GmbH & Co. (HRT), a subsidiary of Hoechst Marion Roussel AG, to develop applications for Phylos' directed protein evolution technology.

What is interesting about this deal is that Phylos, of Cambridge, Mass., is less than a year old and, with the exception of a $500,000 private placement, this is the first money raised. The agreement doesn't come with a lot of stipulations, such as meeting product development milestones, either.

Richard Wagner, Phylos' vice president of research and development, said the company's cofounder, Jack Szostak was key to signing the deal. Szostak is a professor of genetics at Harvard Medical School and of molecular biology at Massachusetts General Hospital, both in Boston.

"Jack had a relationship with HRT before he started Phylos. Hoechst already was interested in platforms as the way to prove new novel proteins. They were excited about the proteins and our relationship really came out of a personal relationship the company had with Jack," Wagner said.

In fact, discussions of a financial and equity relationship between the two were under way shortly after the company was conceived. "It has allowed us the luxury of not seriously having to look at venture capital funding to date," said President Ashley Lawton. "It is likely that we will in the not-too- distant future. This collaboration gives us a solid platform to build a business — and keep more of the business."

While HRT will have an equity position, it is not a majority one. The big pharma unit does, however, get co-exclusive rights to the technology. HRT and parent Hoechst Marion Roussel are located in Frankfurt.

New Proteins Evolve In Test Tubes

Phylos, now with 20 employees and growing, has developed technology with the ability to produce designer proteins at will using test tube evolution — a sort of create-your-own protein.

"We prefer an evolutionary theme," said Wagner. The company simulates an organic soup of a vast number of protein molecules and then uses a selector to isolate individual proteins that are of interest to researchers.

"We then simulate evolution by introducing a low mutation frequency into the selective proteins," he further explained. Several "evolutions" later of selection and mutation, a new protein sequence is fabricated.

"These protein sequences are created by the criteria given to us by scientists. They are custom-made proteins, if you wish," said Lawton. The molecules are then supplied to clients for evaluation and further development.

Phylos was founded by Szostak and Brian Seed, also a professor of genetics at Harvard Medical School and of molecular biology at Massachusetts General Hospital. Seed is a founder of Connetics Corp., of Palo Alto, Calif., and Edge Biosystems Inc., of Gaithersburg, Md.

The third founder of Phylos is Richard Roberts, an assistant professor of chemistry at the California Institute of Technology, in Pasedena. He designed and implemented Phylos' fusion technology, the firm's core intellectual property.

The executive ranks consist of Lawton, former vice president of operations at Genzyme Corp., of Cambridge, Mass.; and Wagner, former director of cell biology at Gilead Sciences Inc., of Foster City, Calif., where he concentrated in the field of antisense technology development. *