Monday, December 14, 2009

2009 Exits/Financings DOTY Candidate: PanGenetics/Abbott

It's time for the IN VIVO Blog's Second Annual Deal of the Year! competition. This year we're presenting awards in three categories--that's 300% more fake prizes than last year!--to highlight the most interesting and creative deal making solutions of the year. The categories are: Big Pharma Deal of the Year, M&A/Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (roughly half a 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™.

The next time you hear about a biotech's shots-on-goal discovery/development strategy, spare a minute to consider the alternative. Asset-focused funding of early-stage projects has fallen in and out of favor over the years, but the success of PanGenetics November deal with Abbott for its nerve growth factor antibody may draw imitators.

Led by former Cambridge Antibody CTO Kevin Johnson, PanGenetics was seeded by Index in 2005 to find early stage antibody assets and quickly develop them to the point where pharma would step in and buy them. To date, the privately-held firm has raised about €38 million, the bulk of which has gone to fund the development of two separate compounds. (In addition to the NGF antibody, PanGenetics is also working on an anti-CD40 antibody in autoimmune indications.) In an interesting twist on company creation, the outfit was structured from the get-go as essentially two independent one-asset companies, of which Index still owns 40% apiece.

At first the Abbot/PanGenetics transaction looked like an oddly up-front-heavy licensing deal. But when Abbott paid $170 million up-front plus a potential $20 million milestone to access the biotech's PG110 Phase I anti-NGF project, it was in fact buying one of those PanGenetics companies. The $170 million went straight to PanGenetics' investors; it won't be ploughed into the anti-CD40 mAB program. Nor will Abbott pay any downstream royalties to the biotech or its investors.

Although this may be a formula for success it should be noted that there will always be plenty of attrition along the way. Assets will surely fail (either in the very early stages before a PanGenetics-like company grows up around it or after the molecule gains momentum and a bit of biotech infrastructure).

But funding assets, Index partner Francesco De Rubertis tells Start-Up in an article about the deal this month, removes wasted energy and capital from the system. “The key to having two molecules run independently means there are no portfolio decisions,” he says. Portfolio-based drug development (with the exception of platform based drug discovery operations) is inefficient from the perspective of early-stage venture investors, he says.

“We want every molecule to move forward on the basis of its own merits,” and though managers will deny it, he says, companies with multiple shots on goal can often become too relaxed. “If you always have something on the burner to make sure you can keep raising money, that’s terrible for returns,” he says.

So there it is: a clean deal, a hot target (NGF has been the subject of several deals and has captured the attention of Pfizer, Johnson & Johnson, and Sanofi, among others) and a unique business plan combine to create a smart return for Index and co.

A terrific venture deal, for sure. But is the asset sale the exit/financing deal of the year? We can think of 170 million reasons the answer is 'yes'.

image by flickr user peregrinari used under a creative commons license

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