Thursday, December 09, 2010

2010 Exit/Financing DOTY Nominee: Ablexis/Pharma Five

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 the Exit/Financing category of this year's DOTY competition, there's no question Ablexis & the Pharma 5 (Pharma 5ive?) deserves your vote--and NOT because it hearkens back to a Motown dynasty. Hang on! Isn't Ablexis/Pharma 5 an alliance--with mysterious deal teams and even more mysterious participants? (Pfizer, being the only big drugmaker brave enough to link its name to the deal.)

Yes and yes. But, in truth, this alliance is also both a financing and an exit. Let me explain.

It's no secret the emphasis within the industry is on capital efficiency-- in other words , finding mechanisms to cut the burn rate while building enough value to move a company to that highly elusive "inflection point." For VC-backed companies that certainly means doing more with less, and making hard choices early-on. In some cases, it's led to what can only be called a heretical choice: eschewing drug development in favor of cutting platform-related deals. Ablexis (alongside Adimab) falls into this very select group.

The problem, of course, is the value of platform deals have been steadily falling since the heady days when Alnylam was inking RNAi deals with the likes of Roche and Novartis. That certainly makes it tough to build a viable revenue stream. But its an even bigger problem for venture-backed companies. Indeed, the absence of a healthy IPO market and the shift in deal making from acquisitions to alliances means providing investors with the opportunity of a near-term exit is nearly impossible for these so-called platform-only, no development (POND) cos.

Unless you manage to strike a deal that provides the said-exit. And that's exactly what Ablexis' non-exclusive tie-up with the fab unnamed pharmas provides.

Ablexis, which is developing a next-generation antibody-discovery platform around its proprietary AlivaMab mice, was founded in December 2009 and raised a $12 million Series A from Third Rock and--interestingly--Pfizer Venture Investments in June 2010. An evolution of the Abgenix strategy (take a look at the biotech's management and board), Ablexis aims to be a technology provider, making its souped-up mice available to all-comers, regardless of the specific antibody target of interest.

Regarding the consortium, recall participating drug makers had to pay an undisclosed and COMPLETELY NON-REFUNDABLE seven-figure fee just to get into the consortium. Furthermore, once Ablexis delivers the mice--an event on which CEO Larry Green declined to comment--each participating pharma co owes an additional eight-figure sum. Even if the upfront and milestone payments were $1 million and $10 million respectively, bare minimum the consortium deal should pull in $55 million for Ablexis.

And when it does, investors can head for the exit sign--if they want to. As Green said in an interview “the back-end obligatory payments by licensees provide a very attractive return for our investors.” In other words, Green and co aren't waiting for a traditional "exit" event to disburse investors' cash, but will return the money based on investors' relative ownership stakes. (In case you are wondering that's one reason Ablexis was structured as a limited liability company as opposed to a "C" corp. Had the biotech been a standard corporate, the cash distributions would have been taxed heavily.)

It's surely no accident Pfizer Venture Investments played a role in Ablexis' financing while Pfizer signed on to the consortium. Even before it pulled in the Series A money, the biotech was talking up the consortium idea in an effort to convince would-be investors that "platform" doesn't always mean years of investment until a value-creating event. Now Barbara Dalton's group and Third Rock stand to benefit for taking the plunge and having faith in Ablexis' management team.

There are additional reasons Ablexis deserves to win in the Exit/Financing category, including it's emphasis on sticking to what it knows (it's the platform, stupid) and its unwillingess to exclusively license the AlivaMab mice. But assuredly it deserves to win for linking its Series A to the consortium to the exit, and thereby solving a chicken-and-egg problem that has bedeviled entrepreneurs interested in starting privately-held platform outfits.

Image courtesy of flickrer lucianvenutian used with permission under a creative commons license.

No comments: