from the March 2010 issue

GSK to invest $2.5m in Teva startup Proteologics

International drug manufacturer GlaxoSmithKline will take part in the initial public offering of Israeli startup Proteologics. GSK will pay $2.5 million for 7% of Proteologics' shares, and is dependent on the company's raising at least $7.5 million.

Proteologics plans to raise a minimum of NIS 35 million in its IPO, valuing the firm at NIS 104 million, after the money. Teva Pharmaceuticals owns a 51% share of Proteologics, before the IPO, and announced it would buy NIS 2.8 million of shares in the IPO.

Proteologics is a biopharmaceutical company that discovers and develops drugs exploiting the body's ubiquitin system, the discovery of which earned professors Avram Hershko and Aaron Ciechanover the 2004 Nobel Prize in Chemistry. The two sit on the company's scientific advisory board. Ubiquitin is a protein involved in cellular regulation.

The company signed an agreement with GSK at the end of last week in which the two firms would cooperate on six research and development programs over the next three years. Proteologics receive $3 million from GSK immediately upon signing and another $2 million in the first year and $1.7 million in each of the following two years.

GSK will make additional payments based on milestones in each of the research programs, such as identification of molecules as candidates for drugs, progress in testing the drugs and approval of the drugs by regulatory authorities. These further payments can vary from $3 million to $176 million per drug - based on the various milestones. If all six projects succeed (an unlikely possibility), the sum could reach $1 billion. The lion's share of the payments would only come if the drugs are approved for sale. In addition, Proteologics would receive 4% royalties on sales of drugs developed from the projects with GSK.

Proteologics was founded in 1999. The ubiquitin system controls the breakdown of proteins in the body and allows their reuse.

Besides Teva, other investors in Proteologics are Concord Ventures, the Challenge Fund and Giza Venture Fund.

The GSK deal follows an agreement signed in December 2009 with French pharmaceutical firm Prestwick Chemical on developing cancer drugs, a similar deal to that signed with GSK.

Proteologics has been working with Teva since March 2005. The company has lost a total of NIS 52 million since it was founded. It last raised funds in September 2008 when Teva invested $2.5 million at a company value of $8 million.

Reprinted from the Israel High-Tech & Investment Report March 2010

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