Genentech Pours $95M Into Constellation's Epigenetic Drug Platform

1/17/12Follow @arleneweintraub

Cambridge, MA-based Constellation Pharmaceuticals is announcing today that it has formed a major partnership with Roche’s Genentech unit, based in South San Francisco, to develop treatments for cancer and other diseases. The deal is worth $95 million to Constellation in the form of an up-front payment and research support over the next three years. Constellation—which was founded in 2008 and backed by Third Rock Ventures and other leading VC groups—may also receive milestone payments and double-digit royalties on any products that come out of the alliance.

This is by far Genentech’s biggest bet to date on epigenetics—the science of understanding and addressing molecular changes in cells that activate or de-activate disease-causing genes—says James Sabry, vice president of Genentech Partnering. “This is a a once-in-a-decade type of deal for us,” Sabry says. And while there are plenty of other startups working in the field, Genentech chose Constellation for the quality of its scientific progress so far, Sabry says. “Epigenetics is a huge evolving area of biology representing hundreds of new targets,” he says. “We actually sat down on the bench with Constellation’s scientists and we felt the quality of their work was akin to ours.”

For Constellation, the deal is a stamp of approval on a broad-based strategy that the company put in place the day it was founded, says CEO Mark Goldsmith. Constellation is pursuing three classes of enzymes that affect chromatin—the combination of DNA and the proteins that the DNA is wound around in the cell’s nucleus. Those enzymes are commonly referred to as “writers,” “readers,” and “erasers,” because some place chromatin markers that control the epigenetic process, others read those marks, and still others erase them. While several startups have targeted one or another of the classes, Constellation has developed a platform that can uncover drug candidates in all three of them. “From the outset we have emphasized breadth and depth as a differentiating approach,” Goldsmith says.

Genentech's James Sabry

The two companies will collaborate to identify drug targets and lead molecules in a joint steering committee. The initial focus will be oncology, though the companies expect to identify other disease targets as they learn more. A team of Genentech scientists will work closely with Constellation’s researchers, with the common goal of moving as many drug candidates forward as possible, Sabry says. “They will feel like we’re all one company,” he says.

Goldsmith adds that Genentech’s input will be invaluable to furthering the startup’s progress. “The momentum we already established in R&D is now married with the rigorous scientific input of Genentech, which is well known for its ability to translate scientific benefits to patients,” he says.

There are two features of Constellation’s deal with Genentech that make it stand out from other such drug-discovery alliances. First, Constellation will retain exclusive rights to its two most advanced programs, which focus ondeveloping drugs that target BET, a member of the reader class, and EZH2, a member of the writer class. But Genentech won’t be completely excluded from the potential to benefit from those programs. That’s because the second major feature of the deal is that it enables Genentech to acquire Constellation outright if certain pre-negotiated terms are met. Such “hybrid” deals—which include both up-front capital and the potential for a future exit strategy for the smaller player—offers a win-win for both parties, Sabry says. “It solves the liquidity problem for them and it allows us to buy a future cash-flow stream at a price that works for us,” Sabry says.

For Constellation, retaining the rights to its lead programs until such time as Genentech decides to buy out the company is particularly satisfying, Goldsmith says. “It’s a way to monetize the programs without ceding rights to them,” he says. At the same time, pre-arranging a potential buyout “creates inherent value,” Goldsmith says. “It provides all our shareholders the possibility of liquidity under attractive terms.” For Genentech, it’s at least the second time in the past year that it has been willing to strike a creative deal with a Boston-area startup, following its June partnership with Forma Therapeutics.

Prior to today’s announcement, Constellation raised a total of $70 million in venture funding from Third Rock, The Column Group, Venrock Associates, SR One, and Altitude Life Science Ventures. Goldsmith says the company is on track to move a drug candidate from its BET and EZH2 programs into the clinic by the end of this year. With that much suppor and this new Genentech deal, Goldsmith says, the mood amongst the company’s 60 or so employees is giddy. “We’re very excited,” he says. “This is a fantastic validation of our strategy.”

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