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Lilly backs a biotech’s spinout and places a small bet on protein degradation

Eli Lilly has formed a collaboration with a newly spawned biotech, Seed Therapeutics, giving the pharma entrance to an increasingly competitive field of drug research known as protein degradation.

Lilly aims to use the biotech’s technology to get after targets that are “undruggable” by traditional methods. It’s paying Seed just $20 million — half in cash and half in an equity investment — to kick off the alliance. But the deal could be worth up to $780 million if a number of programs progress and hit various milestones.

Protein degradation has attracted significant interest from pharmaceutical companies over the past several years, leading to a string of partnerships and lucrative initial stock offerings. Lilly has shown interest in the field before, but the Seed alliance marks its first attempt to develop drugs with the help of the technology. The startup was spun out of cancer drug maker BeyondSpring in October.

Despite all of the advances the pharmaceutical industry has made over decades of research, most drug targets within cells remain intractable, tantalizingly beyond the reach of traditional medicines.

Over the past several years, so-called targeted protein degradation has emerged as one potential answer. The concept is to use drugs not to block harmful proteins directly, but make the cell’s internal garbage disposal system, the proteasome, get rid of them. The hope is by doing so, drugmakers can use tools they know well — small molecules — to indirectly eliminate the disease-causing proteins they previously couldn’t touch.

A number of biotechs have formed to advance protein degradation drugs, touting similar takes on the approach: tie a disease-causing protein to a signaling molecule that “tags” it for destruction by the proteasome. Several of these biotechs have gone public over the past few years. Kymera Therapeutics, C4 Therapeutics and Nurix raised $565 million combined in three separate initial public offerings since July.

Those three, along with rival Arvinas, have formed alliances with larger drugmakers like Vertex, Roche, Pfizer and Sanofi, targeting cancer, autoimmune diseases and more.

The field is still in its early days. Targeted protein degradation hasn’t yet produced a drug in late-stge trials, let alone an approved product. But several, like an Arvinas prostate cancer drug, are in earlier-stage testing or getting there.

New startups are still popping up too. Monte Rosa and Lycia Therapeutics, for instance, arrived in the last couple years, and both raised funding rounds this past summer. BeyondSpring spun out Seed just one month ago, becoming the latest to join the fray.

Lilly has shown interest in protein degradation for a few years already. Its venture arm invested in Kymera in 2017 and still held nearly 6.5% of the biotech when it went public in August.

But Lilly hadn’t aligned itself with a protein degradation company until Friday, when it cut a deal with Seed. Not including the cash payment, Lilly has committed to buying about 4 million Seed shares at roughly $2.50 apiece, according to a regulatory filing.

Seed aims to develop drugs for cancer, neurodegenerative and infectious diseases. All of its work is preclinical.