Forma Gets $225M More, And a Potential Buyout, From Celgene

4/1/14Follow @benthefidler

When Forma Therapeutics cozied up to Celgene last year, it looked like the Watertown, MA-based company had added another name to its list of partners and set itself up to potentially sell its own drugs someday, rather than just discover them for others.

As it turns out, though, Forma got one more thing out of that partnership: an introduction to what may be its future buyer.

Forma today is announcing a big deal with Summit, NJ-based Celgene (NASDAQ: CELG), adding on to the $200 million drug development partnership the two struck roughly 11 months ago. It’s a large, multi-stage transaction with various options baked in, but what it boils down to is this: Celgene is writing Forma a $225 million check to tap into its drug discovery engine once again, this time as part of a broader effort that could span various different fields of biology. Celgene could also fork over another $375 million in a few years to continue the work, and then buy Forma afterwards—for a price that escalates with Forma’s progress in developing drugs.

That means Forma, which has only needed $44 million in venture backing from the likes of Novartis Option Fund, Lilly Ventures, and Bio*One Capital of Singapore to get to this point, could be in line for a big payday without diluting its shareholder base—should Celgene sign on the dotted line, of course.

“What’s great is it’s up to us to deliver on that value,” says Forma CEO Steven Tregay.

Steven Tregay, CEO of Forma Therapeutics

Steven Tregay, CEO of Forma Therapeutics

Here’s how the deal will work. Celgene is paying Forma $225 million up front to get access to both its drug discovery engine and its network of academic collaborators for three and a half years. If Celgene likes what it sees, it can opt to start another collaboration—this one two years long—for more money, and then a third pact, also two years long, for a total of $375 million more (Forma didn’t specify how much cash it’ll get for each opt-in decision). During the third collaboration term, Celgene will decide whether to buy Forma.

The price Celgene would pay, which would be determined with the help of a third party, isn’t defined yet. There’s no floor and no ceiling to it, according to Tregay. Rather, it’s tied to the value Forma creates over the course of the partnership. This will be determined by things like the breadth of biology Forma explores, and the value of the company’s more advanced programs once it’s time to hammer out a deal. If Forma discovers and starts development of a potential blockbuster drug, its price would go up—enabling it to avoid the nightmare scenario of setting a price now and realizing later that it had sold its portfolio for pennies on the dollar.

“You really only know you have the next Gleevec when you have the clinical data,” Tregay says. “The 7.5 year [timeframe] was really set up to make sure that the pipeline could mature to a stage where we would have a good understanding of the value that’s created around some of the…programs.”

Of course, there are a lot of ifs in there. Option deals are no guarantee, and Celgene could say “thanks, but no thanks” to Forma after three and a half years and move on. The two companies have structured the deal, however, so that this type of decision wouldn’t cripple Forma, while still giving Celgene the chance to add prospects to its pipeline.

As part of the deal, for instance, while Celgene gets first dibs to … Next Page »

Ben Fidler is Xconomy's Deputy Biotechnology Editor. You can e-mail him at bfidler@xconomy.com Follow @benthefidler

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