Celgene Nabs Option to Buy Acetylon for More Than $1.7B
In early 2012, Celgene (NASDAQ: CELG) made a seemingly innocuous investment in Acetylon Pharmaceuticals in a deal that didn’t give it any rights to the company, but rather, left it with a non-invasive observer’s seat on the Boston-based biotech’s board of directors.
Apparently, Celgene liked what it saw, because it’s prepared to throw around $1.7 billion more Acetylon’s way if things break right.
Acetylon has struck a deal with Summit, NJ-based Celgene that outlines a potential buyout at the hands of the big cancer drugmaker down the road. The deal has a few different steps. First, Acetylon will get a big $100 million up front payment. In return, Celgene is getting an option to buy Acetylon for a one-time cash price based upon a future independent valuation of the company done by an external source—but with a floor of at least $500 million. Acetylon CEO Walter Ogier wouldn’t specify how long this option period will last, but the company will keep control of its drug development programs for as long as it does.
Acetylon shareholders could reap much more from the deal, however: Celgene has tied another $1.1 billion—$250 million in regulatory milestones and $850 million in sales targets—to the transaction. All told, should Acetylon’s drugs prove to be winners in clinical trials and in the market—hardly a given, of course—the collaboration and buyout combined could potentially be worth $1.7 billion, or more.
At that price, Acetylon’s shareholders—an unusual mix of private financiers, non-profits, public companies, and federal grant sources including Celgene itself, Kraft Group (the holding company founded by New England Patriots owner Robert Kraft), Acetylon co-founder and chairman (as well as Dana-Farber boardmember and technology entrepreneur) Marc Cohen, and the Leukemia & Lymphoma Society—can expect a big return on $55 million in total they’ve invested in the company.
Ogier says that he considered taking Acetylon public prior to signing up for the Celgene transaction—and still might, if the option period expires with no deal—but that he preferred the non-dilutive, less-risky nature of Celgene’s offer.
“There’s just no assurance of pricing in the public markets, and $100 million in non-dilutive capital is clearly a major opportunity for the company,” he says. “And the price of the company will reflect the added value over time.”
Even so, Acetylon has a lot of work to do before its shareholders can see all that value. Acetylon’s most advanced drug, ACY-1215, is currently in a few early-stage clinical trials for multiple myeloma. For Acetylon to cash out completely on its deal, that drug—as well as two other drug candidates involved in the collaboration, a pre-clinical one known as ACY-738 targeting neurological diseases, and another that hasn’t been named—must all make it through clinical studies, win approval from regulators, and begin earning cash.
The $100 million will fund Acetylon’s operations “across the board,” according to Ogier, but largely will help propel ACY-1215 through clinical development. None of it will be paid out to the company’s shareholders, he says.
Acetylon was formed in 2008 out of work at Harvard University and the Dana-Farber Cancer Institute looking into drug candidates that target one of a class of enzymes known as histone deacetylases, or HDACs, which help regulate gene expression and are implicated in a number of cancers. HDACs are a well-known molecular target: Merck’s lymphoma drug vorinostat (Zolinza) is an HDAC inhibitor, and Celgene itself agreed to pay as much as $640 million in 2009 for Gloucester Pharmaceuticals because of its HDAC inhibitor for both cutaneous and peripheral T-Cell lymphoma, romidepsin (Istodax). That drug generated about $50 million in sales in 2012.
Earlier versions of HDAC inhibitors, however, attacked several HDAC enzymes at once—Acetylon’s drugs are homing in on those enzymes more precisely. ACY-1215 only blocks a specific enzyme known as HDAC6; ACY-738 targets both HDAC1 and 2. This type of specificity is important, because it is meant to keep Acetylon’s drug from messing with healthy cells and producing nasty side effects like nausea, vomiting, and diarrhea, and even severe ones like brain hemorrhages.
Celgene was attracted to Acetylon because of ACY-1215’s ability to potentially provide the cancer-fighting punch of an HDAC inhibitor without those toxicity issues. It jumped in with a $15 million investment in February 2012 and took an advisory role, nabbing a seat at the company’s board as a non-voting observer. Their relationship evolved as Acetylon began testing ACY-1215 in an early-stage clinical trial in combination with Celgene’s blockbuster lenalidomide (Revlimid), in patients with relapsed/treatment-resistant multiple myeloma. Acetylon is also testing the drug in combination with Takeda’s myeloma drug bortezomib (Velcade).
“That trial’s gone well, it’s been a collaborative, comfortable process for both companies,” Ogier says. “So that definitely helped open the doors to discussions.”
In June, Acetylon reported that none of the patients in the lenalidomide trial reported any serious adverse events, though it said one case of neutropenia—a depletion of infection-fighting white blood cells—was “possibly” related to the drug. Acetylon knows it will have to produce these types of safety results on a much larger scale to reach its potential, and ultimately saddle up to Celgene.
Acetylon’s plan is to position ACY-1215 as a combination therapy with either lenalidomide or bortezomib in multiple myeloma. It also plans to test it out as either a monotherapy or part of a combination regimen in non-Hodgkin’s lymphoma in patients who have failed prior therapy, according to Ogier.
As Xconomy readers well know, meanwhile, the deal fits right in with Celgene’s flexible style of early-stage business development, through which it tailors specific deal structures for specific companies based on their development needs. Celgene, for instance, already has nailed down a few other option-to-acquire transactions over the past few years, among them deals to buy South San Francisco, CA-based Quanticel Pharmaceuticals and Seattle-based VentiRx Pharmaceuticals.