Genentech Scoops Up Tumor-Starving Drug Program From Forma Therapeutics In Rare Deal

6/27/11Follow @xconomy

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about 90 people who do things like X-ray crystallography work to characterize 3-D structures of protein targets; high-throughput screening of drug candidates; and synthesize new experimental drugs—as well as form a computational group and pharmacology team. By getting all those people together in one company, Forma has bucked the industry trend, in which many Big Pharma and biotech companies have turned to low-cost outsourcing firms. By putting together its own discovery team, Forma been able to develop drug programs against 8-10 new and different cancer metabolism targets, and identify new targets that work against protein-protein interactions, Tregay says.

By forming an integrated discovery team—at a moment when Big Pharma has been hungry for truly innovative new drug candidates—Forma put itself in a strong bargaining position. In this case, Forma juggled multiple offers for its cancer drug metabolism program and got the asset-buyout structure it wanted, with a partner that has a strong track record in developing cancer drugs, Tregay says.

Certainly, this deal like anything else, has its trade-offs. If Genentech goes on to develop this compound into a multi-billion product like bevacizumab (Avastin), then Forma won’t have any piece of the action in royalties, and the asset buyout terms will probably look small, Tregay acknowledged. Essentially, the deal caps Forma’s upside potential with this drug. But that concession was worthwhile when considering the returns it can earn, while retaining flexibility to discover and develop other innovative drugs, Tregay says.

The structure of this deal, which Tregay worked on with Sabry, is something you can bet other entrepreneurs will be inquiring about how to duplicate. I’ve written here about some of the different models biotech companies are experimenting with, as a way to keep innovation humming along in a period when the IPO market is lackluster and acquisitions are rare, making it extremely tough for investors to get any realistic shot at a decent return.

The fact that a deal got done on a drug that’s just been tested in mice—and still doesn’t have a target date to enter clinical trials—suggests that biotech companies like Forma are suddenly holding a better set of cards at the negotiating table than they did a year or two ago. Tregay offered up an amusing riff on how the dealmaking environment has heated up in the past few months. Essentially, Big Pharma doesn’t care how much money a biotech company needs to get to provide a return to investors—but it does want innovative drugs to fill up its pipeline, and it will pay for them.

“They won’t look at you and say, ‘Yeah, I feel your pain, I’ll pay up.’” Tregay says. “You have to be in a situation where you have multiple parties who are highly interested in a highly differentiated asset. It has to be one where they feel like if they don’t get it from you, they can’t just get it from the next guy. Or, they can’t already have something like it in-house, and just want to see if yours is better. You really have to bring true innovation and value to them. If you bring that value proposition to them, you can let market forces set the price.”

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