Friday, December 10, 2010

2010 Alliance DOTY Nominee: Celgene/Agios Pharmaceuticals

It's time for the IN VIVO Blog's Third Annual Deal of the Year! competition. This year we're 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 (four or five 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™.

In terms of licensing dollars, Reata/Abbott may have garnered the numero uno spot in 2010, but just because the tie-up was one of the largest EVAH, doesn't mean it should win a Roger. Come on, peeps, absent the dollar signs (and really, couldn't that just be desperation), this is pharma doing what its always done--in-licensing a product at proof-of-concept to bolster a pipeline that's going to suffer when a juggernaut (in this case the TNF-alpha Humira) goes generic.

For sheer creativity and chutzpah--and proof that big platform deals still occasionally happen--one must vote for the now joined at the hip Celgene/Agios.

Why? Let this IN VIVO Blogger count the ways.

For starters, the $130 million upfront (which include an $8.8 million equity component according to Celgene's 10K filings) is a hefty sum for a biotech that has published a couple of scientific papers but hasn't yet put a drug into a clinic. Second, it's the latest iteration of the big sib/little sib concept, in which smaller companies hitch their wagon to a larger, better funded entity to better weather the ups and down of biopharma drug development. Third, it's a welcome evolution in option-based deal-making, and shows that some companies really are serious about change, with both parties giving up something in the hopes of reaping a larger upside down-stream.

Recall the deal's basic terms: in exchange for the sizeable upfront, Agios, one of the leaders in a happening scientific space called cancer metabolism, gives Celgene an exclusive option to develop any drugs resulting from its research platform at the end of Phase I. Celgene can extend the exclusivity period – if Agios agrees – but it will have to provide additional funding for the privilege. On each program Celgene licenses, Agios could receive up to $120 million in milestones, as well as royalties on sales.

Sounds pretty good. What did Celgene give up? The considerable upfront cash can't be overemphasized. At a time when most big pharma are inking low-cost option-based deals, Celgene is clearly doubling-down, giving Agios sufficient dry powder to push its platform forward, meaning that even if the first one or two targets don't pan out, the biotech has enough capital to try, try again.

But Celgene also gave up control. Note that Agios remains the one running the discovery and early translational work until an option is exercised--and the biotech has a say if Celgene wants to delay bringing a program in house. (At that point Celgene will lead and fund global development and commercialization of any licensed drugs.) The hope, of course, is that an independent but not cash-constrained Agios can harness its entrepreneurial spirit and spin-off multiple products to bolster the specialty pharma's growing oncology pipeline as it expands beyond Revlimid. To cite an overused and oversimplistic truism, it's the "win-win" that comes from admitting you can't own it all.

Joining hands for mutual benefit is a structure Roche and Genentech both benefited from. It's helped Regeneron and Infinity, both past DOTY nominees for their big sib alliances with Sanofi and Purdue/Munidpharma respectively, pursue their individual goals. But there's a twist to the Celgene/Agios hip-joining and it's directly related to Agios' privately-held status. Truly, the deal structure represents a different financing path from that usually traversed by start-up biotechs. Rather than opting to complete Series B or Series C financings and eventually out-license one or two clinical-stage candidates, Agios has decided to lock in a long-term partner early. In return, Agios gains a secure financial runway, building on its not insignificant 2008 $33 million Series A.

But Agios also gives up considerable freedom to operate. Oh, we know the start-up can pursue outside deals for products that aren't in the cancer metabolism bailiwick, but that seems unlikely in the near-term given management has publicly stated its priority will be churning out INDs in this particular therapeutic arena. And, given the moribund IPO market (where firms with late stage or marketed products are having to take haircuts to get out), such close ties to Celgene could seriously limit Agios' exit opportunities. Indeed, would a company like GSK or Pfizer bid hundreds of millions to take out Agios with Celgene owning the biotech's nearest term clinical opportunities?

Two years ago, when GSK took out Sirtris for the unbelievable sum of $720 million, such a notion would have been heresy. But Agios has big dreams--and big dreams require big bucks. Kudos to both it and Celgene for realizing you get what you pay for.

Image courtesy of flickrer wwarby via a creative commons license.

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