Avalon Pharmaceuticals said yesterday that it has raised an additional $70 million in venture capital, an investment that is one of this year's largest private financings in the biotechnology industry.
The investment - which equals what was invested in the spring in San Diego-based specialty pharmaceutical company Xcel Pharmaceuticals Inc. - comes as the health care sector continues to attract heavy investment despite the recession.
It also amounts to a vote of confidence in Avalon, which opened in January 2000 with two employees and has ballooned to 50 as it uses computers to help find new drugs.
"When everything else goes south, investors say, `people are going to get sick and going to need drugs,'" said Tom Salemi, senior editor of Venture Capital & Health Care newsletter, explaining why biotech has been a haven for investors as the economy has slowed.
But he added that "it certainly is a lot of money for an early-stage company."
Gaithersburg-based Avalon, whose founders worked at Human Genome Sciences Inc., use a proprietary process to quickly identify genes that play a role in disease, then screen drug candidates against tumors in which the genes are active and key proteins are present.
Though many drug companies do the same, Avalon Chief Executive Officer Kenneth Carter said his company hopes to trim years off the time it usually takes to develop a drug - generally eight to 12 years - by skipping over one key step, essentially saving it for later.
Often, he said, drug companies become hung up as they do numerous experiments, trying to figure out exactly what site on a protein - known as the drug "target" - interacts with a particular drug. But Avalon steams right past target identification, leaving it for later.
Instead, he said, the company's technology allows its scientists "to monitor the state of tumor tissue and tumor cells" to see how the cells react when a drug is used against them.
A drug can then be selected and moved ahead while scientists simultaneously try to figure out exactly why it works.
That method has allowed Avalon to identify what Carter says are a "handful" of potential drugs for colorectal cancer in 18 months, a track record it was able to share with potential investors.
"I believe the investment community recognizes Avalon's approach is leading to a paradigm shift in the way drugs are discovered," said Alan Walton, Avalon's chairman and a general partner in Oxford Bioscience Partners, a firm that invested in the company.
"We cannot continue to focus on the current target-based approaches if we are to discover drugs faster, and Avalon is pioneering the invention of new and more productive approaches."
Carter said Avalon is in discussions with several large pharmaceutical companies that are potential collaborators with Avalon. The company, he said, intends to make a licensing deal with a partner within the next year, bringing in its first revenue.
Venture capital funds that focus primarily on health care have raised record amounts this year, pulling in $5.2 billion from investors, up from $4.3 billion in all of last year and $2.1 billion in 1999, according to figures tracked by Venture Capital & Health Care.
Though the funds have raised record amounts, they are shelling it out more slowly, taking care not to repeat the sloppy investing in technology companies that lost money for many.
Avalon raised $10 million in its first round of financing. Among the investors in that round and in the second one announced yesterday was the Maryland Department of Business and Economic Development. The department invested $250,000 in the second round.