VLST was the first startup to "graduate" from Accelerator, the Seattle biotech incubator, and raise a large outside round of funding. Now it's become the first Accelerator startup to partner with Big Pharma.

VLST is today announcing a broad collaboration with Novo Nordisk, the Denmark-based drug company. As part of the deal, Novo Nordisk will pump $12 million into the startup, and get a 10 percent ownership stake in the company.

The two firms will collaborate on developing drug candidates for autoimmune and inflammatory diseases, with Novo Nordisk getting first dibs on future therapeutic targets developed by VLST.

"It allows us to really move to the next level as an organization, to get into the development stage," said VLST CEO Martin Simonetti.

VLST is using the logic of viruses, and how they block the immune system of their host, to develop drugs that can regulate or modulate autoimmune conditions, when a person's immune system goes awry and attacks the body's own tissues (common autoimmune conditions include rheumatoid arthritis and Krone's disease).

The startup is identifying "virulence factors," which are secreted by viruses to regulate their host's immune system, and their cellular targets, with the goal of creating a human therapeutic product to control immune response.

The collaboration with VLST is another sign of Novo Nordisk's growing interest in the Seattle market. The pharma company is planning a Seattle research center focusing on autoimmune and inflammatory disorders that will employ 80 people by the end of 2010, Simonetti confirmed.

The center is headed by Don Foster, a former executive at ZymoGenetics, according to Simonetti. Novo Nordisk and ZymoGenetics, one of Seattle's flagship biotech companies, are closely linked. Novo owns 30 percent of Zymo common stock, according to Zymo's last quarterly statement.

VLST in 2006 raised $55 million from Texas Pacific Group, MPM Capital, Arch Venture Partners, OVP, Amgen Ventures, MedImmune Ventures and WRF Capital. Simonetti said the company has received the first two tranches of that investment totaling $35 million. The remaining $20 million is dependent on VLST meeting future milestones, which Simonetti declined to specify.

The $12 million deal with Novo Nordisk gives VLST more runway. Novo will make additional milestone payments to VLST if it takes any of the startup's therapeutic candidates through the development and clinical trial process, and pay royalties if any of those products make it to market. VLST has reserved 25 therapeutic candidates, identified prior to the Novo deal, for itself.

Simonetti said his company's success at attracting a big established partner is proof that Accelerator's model of incubating biotech startups is working.

"We were the first company to graduate, the first to raise a Series B with outside investors and now the first company to successfully bring a large pharma collaborator on board," he said. "It validates the technology platform and approach."

VLST was founded in 2004 and has a notable scientific pedigree. Its co-founders, Craig Smith and Steven Wiley, are veterans of Immunex Corp., which produced the blockbuster arthritis drug, Enbrel.