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™.
Time was, the only words scarier than "carried interest tax" to a venture capitalist were "capped upside." So when Versant Ventures launched its latest portfolio company, Quanticel Pharmaceuticals, in early November, it was obvious we had entered a new era.
Incubated for more than a year at Versant, Quanticel is a genomic analysis firm spun out of two Stanford University labs, and Celgene has not only signed up for exclusive three-and-a-half-year rights to the technology but also has options to buy Quanticel outright. All for an upfront fee of $45 million.
In other words, Versant, the only venture investor in the company, is taking a higher ownership stake in exchange for a prenegotiated acquisition price -- a capped upside. Brad Bolzon, the Versant managing director involved in the deal, calls it a "different risk-reward ratio" than the traditional venture model, and he says he's looking to craft similar upfront arrangements with potential acquirers. Celgene could owe more milestone payments beyond the initial outlay; the triggers and conditions for their acquisition options are undisclosed.
To sweeten the lure, Quanticel wants to build its own pipeline in oncology indications unclaimed by Celgene. Their single-cell genomic analysis technology aims to shed light on the role of drug resistance due to tumor cell heterogeneity, which is the increase in the genetic diversity of cells as the tumor expands from a single ancestor. The aim is to learn which cells grow resistant to a drug regimen over time, and target new drugs, or combinations of existing drugs, accordingly. A top Celgene executive says the company has already chosen a number of cancers to which Quanticel's analysis should be applicable (but wouldn't disclose details).
The drumbeat for biotech investors and entrepreneurs working more closely with potential pharma acquirers is growing louder. Until the IPO returns as a viable exit strategy, if ever, drug companies with cash will have leverage to shape early-stage R&D and company formation, and investors still interested in company formation are wising up. (We were going to say "caving in," but we'll only go so far for a cheap joke.)
Celgene knows the score, too. In 2010 it paid handsomely ($130 million) to grab exclusive rights to much of the still-preclinical work at the cancer metabolism research firm Agios Pharmaceuticals, a tie-up that won last year's Roger for Alliance Deal of the Year. Agios isn't necessarily tied to Celgene's hip, however; it closed a $78 million C round in November to fund a rare genetic disorder program beyond the scope of the Celgene alliance.
Not so with Quanticel, with platform and pipeline bound tightly to its potential acquirer from the get-go. "We hope it ends in an acquisition by Celgene," Quanticel CEO Stephen Kaldor told us. "That's the design."
Photo courtesy of flickrers robstephaustralia via a Creative Commons license.