Celgene/Agios Team Up In Long-Term Cancer Metabolism Pact

Agios will receive $130 million upfront, while Celgene gains the option to develop any drugs resulting from the biotech's cancer metabolism research platform for an undisclosed period of time.

Agios Pharmaceuticals - a young startup working in a novel area of cancer research but with no actual molecules in the clinic - has secured a long-term partner in Celgene. In a deal announced April 15, the privately-held Cambridge, Mass., biotech, not yet two years old, has secured $130 million upfront and a potential long-term revenue stream in exchange for giving Celgene the exclusive option to develop any drugs resulting from its cancer metabolism research platform for an undisclosed period of time.

The deal is noteworthy for a number of reasons. For one, the upfront fee is a significant amount, the largest thus far this year for a pharmaceutical alliance for which the upfront payments were disclosed, according to the Elsevier Strategic Transactions Database. It is particularly hefty given that none of Agios' drugs are yet in the clinic. Second, it shows how smaller biotechs are increasingly looking to big-sibling relationships with larger pharmaceutical companies to drive long term sustainability.

Indeed, the agreement is reminiscent of Regeneron's partnership with Sanofi-Aventis, in which the companies have a long-standing antibody discovery deal; that lucrative deal for Regeneron recently was renegotiated so that Regeneron feeds fully-humanized antibodies to Sanofi through 2017 (Also see "Regeneron Secures Sanofi-Aventis Antibody Funding Through 2017" - Pink Sheet, 11 Nov, 2009.).

In the Agios agreement, the upfront cash includes an undisclosed equity investment, which is "modest," according to the firm.

Under the terms of the deal, Celgene will have an initial period of exclusivity during which it has the option to develop any drugs resulting from the Agios cancer metabolism 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. Agios will lead discovery and early translational development for all cancer metabolism programs, while Celgene will lead and fund global development and commercialization of any licensed drugs. On each program, Agios could receive up to $120 million in milestones, as well as royalties on sales.

Agios, however, has ambitions to eventually extend its research beyond cancer to areas like inflammation and metabolic disease, areas that will remain, for now, unpartnered.

The deal structure represents a different financing path from that usually traversed by startup biotechs. Rather than opting to complete Series B or Series C financings and eventually out-license one or two clinical-stage candidates, the company has decided to lock in a long-term partner early. This decision secures Agios' financial runway for now, but also brings certain risks. It discourages an acquisition by anyone except Celgene, for instance, since the Summit, N.J.- based specialty pharma company owns rights to Agios' nearest-term opportunities. And that could hamper efforts to run an M&A auction should it be impossible to some day list the company on the public markets.

But CEO David Schenkein said the deal structure was one the company sought from the onset. "From the very beginning, we had a very bold vision, looking at a whole new area of cancer biology, cancer metabolism, which we believe could be a game-changer," he said. "As we thought about how we were going to build the company, we decided to go for a very different model rather than the more conventional mode ... and that meant looking for a single partner who, for a period of time, shared our passion and commitment to this space and was willing to invest in it."

As for any potential long-term drawbacks, Chief Operating Officer Duncan Higgons said a key impetus behind the deal was to maintain the company's independence. "We do not intend to be bought," he said. "We want to focus on long-term independence." Plus, he said, under the deal Agios retains "significant downstream value." Plus the sizable upfront means the company can devote most of its resources to pushing forward with its research programs rather than devoting time and energy to additional deal making.

At least one venture capital backer agreed. "Agios has one of those chances to be a game-changer," Third Rock Ventures partner Kevin Starr said. "They could keep using venture investment dollars, but that would mean smaller money and a smaller platform."

Agios Alliance Puts Celgene In The Forefront Of Emerging Science

For Celgene, the alliance gives the big biotech a foot in the door in an emerging area of cancer science, centered on the idea of inhibiting the metabolic enzymes that help cancer cells rapidly proliferate, thus starving the cancer. Though early, it's an exciting area of research that - if successful - will bolster Celgene's cancer pipeline.

Celgene's five-year business plan calls for significantly expanding its oncology portfolio beyond its Revlimid (lenalidomide) brand. During an R&D event April 8, Celgene's management outlined a plan to turn the firm into a diversified biotech by 2015, launching new drugs in its core hematology business, as well as in solid tumors and inflammation & immunology (Also see "Celgene Makes A Play For Inflammation & Immunology Stake With Apremilast" - Pink Sheet, 8 Apr, 2010.).

The company has completed two major acquisitions in the last two years aimed at expanding its marketed oncology portfolio: the acquisition of Gloucester Pharmaceuticals for $340 million in cash and $300 million in future potential milestones, completed earlier this year, and the $2.9 billion acquisition of Pharmion in 2008 (Also see "Celgene Pays $340 Million For Gloucester And Its New Drug" - Pink Sheet, 7 Dec, 2009.).

"Cancer metabolism is an area that has received attention lately," a spokesperson for Celgene said. "The deal gives us the option to partner early in research that we see as unique and groundbreaking."

For Agios, Celgene emerged as the right partner in a "competitive" process because of the company's biotech-like culture and entrepreneurial spirit, track record for bringing oncology drugs to the market, and a commitment to cancer metabolism, Schenkein.

The chief executive orchestrated the alliance just eight months after taking the helm at Agios in August after a high-profile exit from Genentech. Schenkein's departure from Genentech, where he served as senior VP of clinical hematology and oncology, was considered a loss for Roche, coming on the heels of the big pharma's buyout ). Prior to working at Genentech, Schenkein helped develop Millennium Pharmaceuticals' first-in-class proteosome inhibitor Velcade (bortezomib).

Agios debuted in July 2008 with one of the largest Series A fund raises of the year: $33 million from venture capitalists Third Rock Ventures, Arch Venture Partners and Flagship Ventures.

With the additional funding, Agios intends to expand aggressively, Schenkein said. The company, which currently has about 35 employees and an additional 50 workers at contract research organizations, plans to increase the number of employees in both areas "significantly" in the next 12 to 18 months, he added.

Thus far, Agios has only disclosed two of the cellular targets it is studying, isocitrate dehydrogenase 1 (IDH1) and pyruvate kinase M2 (PKM2), but said it is working on other multiple targets.

-Jessica Merrill ([email protected])