Monday, November 28, 2011

2011 Alliance of the Year Nominee: Forma/Genentech

It's time for the IN VIVO Blog's Fourth Annual Deal of the Year! competition. This year we're once again presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (a half dozen in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees).

Strap yourselves in, it's The Race for the Roger™.

For years now, acquisitions of private biotech companies have more often than not resembled alliances, with their upfront-and-milestone deal structures. Isn't it about time alliances borrowed some characteristics of acquisition -- like liquidity for investors?

In fact, in 2011 we saw just that. And though it's not the first, the licensing agreement between private Forma Therapeutics and Roche's Genentech unit, announced in late June, is at least for now, the best specimen of the rare but intriguing species.

Forma's a drug discovery company. The kind of drug discovery company that goes after tough targets. The biotech's focus is on oncology, using its platform to generate compounds against targets in epigenetics and tumor metabolism. And its early progress -- the biotech emerged from stealth in early 2009 and had pulled in nearly $50 million in funding from Lilly Ventures, Bio*One, Cubist Pharmaceuticals and Novartis Option Fund -- attracted Genentech to take a look at the start-up's technology.

Though the large company has only licensed worldwide rights around Forma compounds targeting a single tumor metabolism target, the deal -- structured as an option-to-buy -- could provide Forma's backers with an exit, CEO Steven Tregay told START-UP this year. All while keeping the rest of Forma, and the additional value it may generate for investors, intact.

Genentech will pay the biotech an undisclosed up-front fee plus research funding and can acquire Forma's program against that undisclosed target, at a predetermined point for a predetermined sum. In the long run, the deal allows Forma to do what most biotechs cannot: build value by maintaining a focus on a potentially extremely lucrative platform while at the same time driving a solid exit for investors by pushing a single, promising program forward on someone else's dime.

And not just anyone else's. "Genentech is one of the best in the world in patient stratification and rapid clinical trials. There is no one better to do a deal with," said Tregay at the time. Meantime, Forma can stay centered on "what it's good at, without taking on the risk, cost, and burden of building a clinically focused organization," he said.

Forma's alliance with Genentech is more than a rare bird. It's a new, and potentially replicable, way to sustain a thriving, discovery-focused biotech company. And that's a rare opportunity --and worthy of a Deal of the Year nomination -- indeed. -- Chris Morrison & Ellen Licking

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