St. Louis, Missouri (January 16, 2004) - Divergence Inc. closed this week on more than $4 million in what may be the largest round of angel investments ever made in a St. Louis-based life sciences company.

Prolog Ventures LLC, a St. Louis-based venture capital firm, is the largest single investor in the 6-year-old company and was the largest investor in the latest round of financing. But a group of more than 30 individual investors collectively supplied a majority of the funds raised since last spring, said Derek Rapp, Divergence's chief executive.

"The reality is that angel investing in St. Louis is still a pretty tough sell, which makes the Divergence round all the more exciting on an angel level," said Andy Hoyne, a partner at St. Louis-based Armstrong Teasdale, who represents Divergence and monitors local angel and venture capital investments. "This is the largest angel investment round in life sciences in St. Louis that I can remember."

Angels are individuals who make personal investments in private start-up or early-stage companies, as opposed to incorporated venture capital firms, which usually invest in companies at later stages of development.

Among the current angels in Divergence are the company's two newest board members: Tom Urban, former chairman and chief executive of Des Moines, Iowa-based Pioneer Hi-Bred International Inc., and Stan Goldblatt, a partner at the Chicago-based law firm Winston & Strawn LLP and head of its private equity practice. Urban and Goldblatt joined the Divergence board last fall. Each invested an undisclosed amount in the company for the first time during the latest round.

Divergence has raised nearly $9 million in private equity investment since it was founded in 1998 by Dr. James McCarter, president and chief scientific officer. It also has been awarded more than $1 million in research grants from the National Institutes of Health, National Science Foundation and National Corn Growers Association, according to the company.

Divergence applies the study of gene sequencing to discover and develop products to control parasitic diseases.

Prior angel investors in the company include Roy Vagelos, former chairman and chief executive of New Jersey-based Merck & Co. Inc.; Bill Gantz, former chairman and chief executive of Seattle-based PathoGenesis and now chief executive of Chicago-based Ovation Pharmaceuticals; and Bob Shapiro, former chairman and chief executive of St. Louis-based Monsanto Co., Rapp said.

Prolog remains Divergence's biggest single supporter, with about $2 million invested in the company since 2002.

"Divergence has been able to attract several CEOs among major companies, the kind of people who are well informed and connected in the industry," said Prolog's Ilya Nykin, who sits on Divergence's board and manages the venture firm's investment. "The vote of confidence is impressive, and connections like this can become strategic assets."

Angel investors often make decisions based on their comfort with, and sometimes proximity to, a company's management team, Armstrong Teasdale's Hoyne said. But in Divergence's case, any suggestion to relocate the company closer to an out-of-state investor probably would have been decided before investments were made, he said.

"The company's most important resource is its people," Hoyne said. "It isn't as if the company would benefit from relocating to be near an individual investor. Plus, Prolog remains the company's largest investor."

The Prolog venture fund received Missouri tax credits, so companies such as Divergence that receive money from Prolog are required to stay in Missouri for at least three years from the time of an investment, Hoyne said.

Divergence's 14 employees work out of the Nidus Center for Scientific Enterprise, a nonprofit business incubator for local biotech companies. Their research focuses on genome sequencing and the development of treatments to make plants, animals and humans resistant to parasitic nematodes.

Nematodes are roundworms that cause damage to dozens of major crops, can infect livestock and pets, and infect about 3 billion people around the world, primarily in developing countries, Rapp said.

Agricultural applications are the most likely to grow out of Divergence's research because of the financial benefits new nematicides would offer food producers, Rapp said.

"If my yield will improve a certain percentage, I can calculate the economic benefit and should be willing to pay a substantial percentage of that benefit for the technology," he said.

The company's 12 scientists will continue several projects with the funds raised. Four different families of chemistry are at different stages of development.

"We've had successful in vitro and greenhouse testing of all four families," Rapp said. The company will fine tune some of the molecular treatments it has created and perform toxicology tests.

"Our business plan has never called for us to become a company that tries to have lots of commercial products and a big sales force," Rapp said. "We will focus on science where our team excels and set up relationships over time that will allow our products to reach the market in optimal fashion."

Divergence has no commercial partnerships in place, but "many parties are interested in the types of products we are developing," Rapp said.

RELEASE: ©2004 St. Louis Business Journal