Pappas Capital Announces the Passing of…

They came from all parts of North Carolina’s Research Triangle, and several of them from far beyond, to hear the story of how a small biotechnology company developed a breakthrough cancer treatment, blazed a path for future development of personalized medicine treatments and was purchased in a deal valued at $935 million — the biggest venture-backed acquisition this year.

The company is California biotech Plexxikon. And one of its investors was Durham, North Carolina-based Pappas Ventures, which saw a return greater than 10 times its original investment. Plexxikon President Kathy Glaub was the guest speaker at a packed house for Pappas Ventures’ annual life sciences symposium. Pappas was one of Plexxikon’s early investors, pumping money into the company shortly after its 2001 launch. Art Pappas, founder and managing partner of the firm, said the investment was as much in founder and CEO Peter Hirth as it was in the science. Pappas said he thought Hirth could do with Plexxikon what he had done with previous company Sugen, whose cancer drug Sutent is now a blockbuster drug for Pfizer (NYSE:PFE).

Plexxikon’s breakthrough melanoma drug Zelboraf received U.S. Food and Drug Administration approval in August. But buzz about the drug started building years before while the drug was still in clinical trials.

Zelboraf was discovered through Plexxikon’s proprietary drug-discovery platform that develops families of protein targets. The technology allows researchers to see the way a compound binds to a particular target. That information guides Plexxikon on where to go. Cancer was not Plexxikon’s overall goal. If you’re looking for cancer drugs, you’re not going to see the diabetes drug staring you in the face, Glaub said.

Diabetes was in fact Plexxikon’s first target. PLX204 showed promise as a diabetes treatment and in 2004 the company partnered with Wyeth to develop the compound. But emerging safety concerns around GlaxoSmithKline‘s (NYSE:GSK) diabetes drug Avandia made development of all diabetes drugs a riskier endeavor. Glaub said that while PLX204 showed safety and efficacy, the partnership was terminated because of economic risks.

PLX4032, the compound that would become Zelboraf, was next in the drug pipeline. Here the company sought to continue its strategy of “ongoing partnering.” In 2006, the company entered into what would be its first partnership with Roche (OTC:RHHBY). In clinical trials, results were dramatic with some patients even being able to return to work after just two weeks of treatment.

“You hear patients saying, ‘I can see the lesions melting before my eyes,’” Glaub said of patients in phase 1 studies.

PLX4032 works only for patients whose tumors express a particular gene mutation. Plexxikon also sought to develop a test to identify patients that would respond to the treatment. When the FDA approved Zelboraf in August, the agency also approved a Roche companion diagnostic for the drug.

Plexxikon raised just $67 million in venture funding, the last round coming in 2006 before the company’s first deal with Roche. Partnerships have yielded more money: $243 million to date. Ten years is a long time for venture capitalists to hold on to an investment and Glaub said that last year, as the company weighed financing options, it considered going public. The company also sought bids from pharma companies, an effort complicated by the fact that its lead melanoma drug candidate was already committed to Roche’s oncology unit Genentech in a co-promotion agreement.

Daiichi Sankyo‘s acquisition of Plexxikon was announced in February. The Japanese pharma paid Plexxikon shareholders $805 million up front with up to an additional $130 million to be paid upon achieving milestones. As for Zelboraf, Daiichi Sankyo gets Plexxikon’s rights to co-promote the drug with Genentech.

The deal also allows Plexxicon to continue as an independent operation for two years. Plexxikon’s pipeline has so far turned out eight new chemical entities, all of which Glaub says are blockbuster drug opportunities. Glaub said that Plexxikon believes the personalized medicine approach taken with Zelboraf can also be applied to its other compounds.

“We love personalizing medicine,” Glaub said. “We think this is the way to go for patients.”