Innova invests in arGentis project

Boost by venture capital fund will let local drug startup add staff

The Commercial Appeal
April 22, 2008
By Daniel Connolly

Memphis-based drug startup arGentis Pharmaceuticals LLC is the first company to receive funding from Innova Inc., a new venture capital fund targeting small science and technology firms.

Innova didn't release the size of its investment in an announcement Monday, but arGentis CEO Tom Davis said his firm has raised nearly $2 million from Innova and unnamed individual investors.

The money will help arGentis advance its experimental drug treatments for dry eyes and scleroderma, a rare and often deadly disease.

The Innova investment means arGentis, which has three employees, can hire six to 12 more people to run a small facility that will perfect techniques for making the purified cow collagen it needs for the scleroderma treatment, Davis said.

If the treatment wins federal approval, the firm would build a larger facility that could employ as many as 100, Davis said.

Innova's investment is significant because it represents a larger effort to build up the science and technology industries here and create high-paying jobs that improve the area's standard of living.

"Having something like Innova to make those kinds of investments is a significant step forward as we try to move the needle in terms of jobs and creating young companies," said Steve Bares, head of the Memphis Bioworks Foundation, a nonprofit group that plays a lead role in promoting science-based businesses.

The Bioworks Foundation works closely with Innova, which was founded last year to provide funds to back young, high-risk companies, Bares said.

It is slated to receive $11.55 million over five years from the economic development arm of the Memphis Fast Forward initiative. The money comes from businesses and government entities.

Innova's president is Ken Woody, a former sales executive for medical device maker Smith & Nephew. He has office space on the eighth floor of the Bioworks building Downtown.

So does arGentis.

Woody said that when he started his new job in November, arGentis leaders came down the hall and urged him to invest. But it took many meetings until he finally agreed.

Woody said he has seen dozens of potential deals in recent months, but picked arGentis as his first investment because it controls intellectual property developed at local institutions, has strong ties to Memphis and is an early-stage company with a lot of potential.

"They've got good plans, good drugs and good strategies to address those," he said.

The arGentis investment was also approved by Bares and Brandon Wellford, chief financial officer for the Memphis Bioworks Foundation, Woody said.

Woody will take a seat on the arGentis board, a common practice in venture capital deals.

"It basically positions us for our next stage of developing our technology, and we get Ken on the board, which is really good," said Davis, who founded arGentis in 2005 with Ted Townsend.

The pair aren't scientists, but they have executive experience leading firms in health care fields, including long-term care and medical staffing. They were joined later by former health care analyst Buddy Lyons.

Their strategy involves licensing and developing a diverse group of products.

The company's dry-eye treatments are based on research by Dr. Charles Conner and Dr. Charles Haine at the Southern College of Optometry. They have created two hormonal creams that can be rubbed on the eyelids to cause the eyes to moisten.

The firm hopes to license these experimental treatments to a larger company, Davis said.

The scleroderma treatment was developed by Dr. Andrew Kang and Dr. Arnold Postlethwaite at University of Tennessee Health Science Center.

For years, the two have studied scleroderma, a disease in which hard patches appear on the skin. The condition can also cause fatal damage to internal organs.

The disease mechanism involves type 1 collagen, a common protein in the human body. Researchers believe they can stop the progress of the disease by feeding patients purified collagen derived from the skins of fetal calves.

The treatment has passed two rounds of testing, and the firm now plans to work with federal authorities to run a large third-phase test, Davis said.

The firm got a boost earlier this year when the Food and Drug Administration granted orphan drug status to its scleroderma treatment. The FDA gives the status to companies that are developing treatments for rare diseases, and it could mean financial incentives and faster approval.

Woody said he and his colleagues might still invest in Genome Explorations, the Memphis firm featured in a Commercial Appeal article on venture capital Sunday.

Innova has already signed an agreement to invest in a second company, but can't announce it yet for legal reasons, Woody said. He said the firm will likely invest in a total of four companies by the end of the year.

"I think what you're going to find is Innova is going to seed a whole lot of entrepreneurship in this community," Bares said.

Contact Daniel Connolly at 529-5296. To read more stories by this reporter, click on "Contact Us" at commercialappeal.com, then click on the reporter's name.

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arGentis Pharmaceuticals LLC

President and CEO: Tom Davis
Employees: Three, plus consultants and collaborators
Address: 20 S. Dudley, Suite 806
Web site: argentisrx.com