By Mary Welch

Thanks to a $15 million round of private financing, Kosan Biosciences Inc. can put a little meat on its two-year-old bones.

"This financing allows us to build our group and expand," said Daniel Santi, chairman of the Burlingame, Calif., company. "The technology we've developed is quite powerful and there are numerous opportunities to apply it. Now we'll have the horsepower to transform the technology to specific compounds in each of our five therapeutic areas of interests. This will accelerate everything we're doing."

The privately held company intends to increase its number of scientists to 20 and fatten up its managerial ranks on the business side.

"There will be several major announcements about personnel in the next few months. We'll at least double our size," said Michael Ostrach, vice president of corporate development. "We're filling out the company and are on a recruiting binge. After that, we'll be poised to fly."

New investors were led by S.R. One Ltd., of Wayne, Pa., and included the Goldman Sachs Group, of New York; Lombard Odier, of Geneva, Switzerland; and AG.-Biotech Capital, a division of Pulsar Internacional SA de CV, in Mexico.

Also participating in the $15 million offering of convertible preferred stock were previous investors Alta Partners, of San Francisco; Sofinnova, of Paris; Walden, of San Francisco; and Santi, the company's cofounder.

Kosan is developing new pharmaceuticals through combinatorial biosynthesis — the generation of analogs of natural products (such as soil bacteria) by genetic engineering of biosynthetic pathways.

Polyketides are small organic molecules synthesized by bacteria. Naturally occurring polyketides are a gold mine for bioactive molecules and pharmaceutical products. So far some 10,000 polyketides have been isolated in nature. Streptomyces, for instance, is a soil bacteria with several hundred species that produce more than half of all antibiotics.

Kosan makes new polyketides by creating variations of those already isolated. It is creating libraries of polyketides and compounds aimed at specific therapeutic targets.

The company, for example, is seeking a replacement for erythromycin, whose effectiveness against some bacterial infections is waning. Kosan is focusing its drug discovery efforts on respiratory inflammation (such as asthma), heartburn, cancer, central nervous system disorders and infectious diseases.

As Kosan starts to "take off," Santi said, it expects to move compounds toward clinical testing and seek corporate partnerships within the next two years. *