Wednesday, December 05, 2012

Deals of the Year Alliance Nominee: Epizyme/Celgene

It's time for the IN VIVO Blog's Fifth 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™.

Epizyme’s tie-up with Celgene in April 2012 capped a hectic year of deal-making for the Cambridge start-up. It also served notice that for the handful of companies like Epizyme – working in a big, oncogenic target class with a powerful discovery platform, an expansive IP estate, and an A-List of backers that were ready, in the words of NEA’s Dave Mott, “to finance them to the promised land” – the transactional climate clearly favors the seller. Will the DOTY votes favor this latest variation on the Roche-Genentech style tie-up?

Epizyme was so boldened by the tailwind at its back that it could ask, and get, full U.S. rights to any of the 96 targets in its pipeline that Celgene selected. It also got $90 million upfront (including a minority equity investment), $160 million in potential milestones per ex-U.S. program that Celgene picks, and double-digit royalties on ex-U.S. sales. Oh, and Celgene foots half the bill for post-IND development.

... but will DOTY voters?
Epizyme has demonstrated that the class of epigenetic modifiers it specializes in, histone methyltransferases (HMTs), have tight genetic disease associations. That means speed to proof-of-concept and value creation. It means that in a post-Zelboraf, post-Xalkori world, investors could visualize a path to market. It means a relatively low clinical spend and regulatory favor from an agency on record endorsing biomarker-guided therapeutics.

It means all the things that make the eyes of hardened investors and jaded pharma partners light up with joy. It means (Mott again) you play for “the long ball.”

The Celgene deal came on the heels of smaller pacts with GSK (Jan ’11) and Eisai (March ’11). The GSK deal was typical R&D alliance material, carving out a small set of HMT targets and doing the work for a Big Pharma partner. With Eisai, Epizyme held onto a U.S. profit share.

We’re nominating the Celgene alliance as the culmination of a carefully calibrated sequence of deals. It closely ties Epizyme to a world class cancer specialist with deep resources in epigenetics, but it didn’t betroth them. Unlike another exciting epigenetics deal, the January '12 Genentech and Constellation Pharmaceuticals alliance, Celgene doesn't have an option to acquire Epizyme. And so Epizyme’s upside is not capped at a pre-negotiated price.

All along, Epizyme’s plan has been to model itself on Genentech, specifically the biotech’s 1992 deal with Roche wherein Genentech secured U.S. rights and went on to build a legendary business on that foundation. Epizyme’s deals to date, most importantly its deal with Celgene, are steps toward that overarching goal.

That said, it’s all about optionality, even without the formal option-to-acquire. Epizyme’s wish is to become a U.S. cancer FIPCO. But wishes sometimes don’t come to pass. So it’s also positioned to fall into the arms of Celgene. George Golumbeski, Celgene’s SVP bus development, suggested to IN VIVO this year that “if everything works out rosy, we probably have an inside track to do a different kind of deal.”

--Michael Goodman

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