Celgene Emerges as Biotech’s Shrewdest, Nimblest Dealmaker

8/5/13Follow @xconomy

Celgene is best known for taking a notoriously dangerous compound, thalidomide, and turning a derivative into a hugely successful cancer drug. But what fewer people may realize is that it is fast building the biotech industry’s best network of partnerships with innovators.

This feels odd to say, even though Celgene (NASDAQ: CELG) has been a big success for a long time, and now has a market valuation of more than $60 billion. Celgene has just never been considered a hothouse of innovation, like Genentech or Genzyme. It doesn’t do much to blow its own horn. If you look at its quarterly reports, they’re boring. Celgene spent $1.8 billion on share buybacks in just the first half of this year—normally a sign of a company that has money to burn, and doesn’t have enough good R&D projects to invest in.

But appearances can be deceiving. While most major biotech and pharma companies have been sitting around in committees, debating what R&D projects to cut and which little companies to partner with, Celgene has been on its toes, stringing together deals with some of the most innovative small biotechs out there. And these strategic deals go way beyond its acquisitions of Pharmion, Abraxis Bioscience, Gloucester Pharmaceuticals, and Avila Therapeutics.

Take a look at some of the biggest biotech IPOs that have surfaced this year. They have Celgene’s fingerprints all over them. Epizyme (NASDAQ: EPZM), Agios Pharmaceuticals (NASDAQ: AGIO), and Bluebird Bio (NASDAQ: BLUE) are a few of its partners that have gone public this year after they struck deals with the big cancer drugmaker in Summit, NJ.

Most of those Celgene deals, and more, were inked when the smaller company in question had technology still in preclinical testing (see chart below). That’s where the risk is high, but the prices tend to be low for a company like Celgene. Dig deeper, and you’ll see that for these modestly priced deals, Celgene has gotten its hooks into some of the best venture-backed companies in the hottest areas of biomedicine. These young companies are leaders in epigenetic-based drug development, cancer metabolism, antibody drugs, gene therapy, immunotherapy, and regenerative medicine. If even one-fourth or one-fifth of these companies do what they say they are aspiring to do, Celgene will win big.

Company Location Date of deal Scientific niche Size of Upfront Payment
GlobeImmune Louisville, CO May, 2009 Cancer immunotherapy $40m
Agios Pharmaceuticals Cambridge, MA April, 2010 Cancer metabolism $130m
Foundation Medicine Cambridge, MA May, 2011 Cancer diagnostics, patient stratification undisclosed
Acceleron Pharma Cambridge, MA Aug., 2011 Anemia drug development $25m
Quanticel Pharmaceuticals San Francisco Nov., 2011 Identifies biomarkers for drug discovery $45m over three years
Epizyme Cambridge, MA April, 2012 Epigenetics $90m
AnaptysBio San Diego April, 2012 Antibodies for cancer & inflammation undisclosed
Inhibrx San Diego June, 2012 Undisclosed antibody drug candidate undisclosed
VentiRx Pharmaceuticals Seattle Oct., 2012 Immunotherapy $35m
PharmAria San Diego Oct., 2012 Small molecules for cancer, fibrotic disease undisclosed
Sutro Biopharma South San Francisco Dec., 2012 Antibody-drug conjugates, bispecific antibodies undisclosed
Bluebird Bio Cambridge, MA Mar., 2013 Gene Therapy $75m
Presage Biosciences Seattle Mar., 2013 Cancer drug discovery technology $13m
Forma Therapeutics Watertown, MA April, 2013 Small-molecule drug discovery $200m (includes research payments)
Concert Pharmaceuticals Lexington, MA May, 2013 Deuterium-modified drug candidates undisclosed
Morphosys Germany June, 2013 Antibodies for myeloma, leukemia $92m
Tengion Winston-Salem, NC July, 2013 Regenerative medicine for kidney disease $15m equity investment
Acetylon Pharmaceuticals Boston July, 2013 Histone deacetylase inhibitors $100m
Array Biopharma Boulder, CO July, 2013 Inflammation drug discovery $11m
–Company reports, Celgene regulatory filings

 

There are a few reasons why Celgene has been able to string together such an impressive run in business development. It makes billions of dollars off lenalidomide (Revlimid), for multiple myeloma, which makes it easy to write big upfront checks that little cash-starved companies crave. Celgene also has a clinical development team that’s proven it knows how to run late-stage clinical trials that can satisfy the FDA. But that’s nothing special—most every Big Pharma can brag about its prowess in those areas.

More than that, the entrepreneurs and venture investors I’ve spoken to over the past year say it’s about great people and good process (i.e., lack of excessive bureaucracy) at Celgene. George Golumbeski, Celgene’s senior vice president of business development, and Tom Daniel, the company’s president of research, are known for their shared curiosity in leading-edge science, their close working relationship, and their power to get deals done inside the company.

To hear Golumbeski tell it, the company needs to stay nimble, because it is going to need to pick up lots of groundbreaking treatments if it wants to keep its revenues growing in a few years.

“It’s a long-term view,” Golumbeski recently told my Xconomy colleague Ben Fidler. “We’ve thought very deliberately and deeply about what Celgene might look like then, and what our growth needs might be—we need a healthy, big pipeline to fuel us at that time. We are really looking for absolutely the highest science, novelty. The word that comes up frequently in our quest for the appropriate target is ‘disruptive.’”

While entrepreneurs like to complain about how long Big Pharma companies sometimes take to make decisions, you don’t hear that said often about Celgene.

Katrine Bosley, the former CEO of Bedford, MA-based Avila Therapeutics, said the working relationship between Golumbeski and Daniel is part of what’s different. Bosley, whose previous company was acquired by Celgene in January 2012, said Celgene does careful scientific due diligence that takes time. That’s just like every other big company scouting a prospective partner.

But the senior people at Celgene are known for being involved and decisive. And when these two decide on something, the decisions can quickly be put in front of the board for approval.

“The partnership of Tom [Daniel] and George [Golumbeski] is pretty special. They work closely together,” Bosley says. She adds: “I don’t see that kind of partnership elsewhere. I see lots of good individuals, but it feels like at other companies, a decision goes to a committee. At Celgene, Tom and George are empowered to make it happen, they feel accountable, and they do make it happen.”

Katrine Bosley, former CEO of Avila Therapeutics

The other thing you hear entrepreneurs talk about with Celgene is “flexibility,” which is actually a sign of healthy humility for a big company. It means Celgene doesn’t have a standard deal template, with one-sided terms in its favor, that it constantly tries to impose on little companies.

“Celgene is willing to explore the biotech’s approach to accomplishing the objectives, as opposed to, ‘This is how we would do it—please do it our way,’” says Steve Tregay, the CEO of Watertown, MA-based Forma Therapeutics.

Celgene has shown it’s willing to strike deals in all kinds of shapes and sizes—strategic equity investments, option licensing deals, structured acquisitions—that are tailored to fit the little company’s needs at the time. Celgene is often comfortable making these deals and allowing its partner the flexibility to control its own destiny, while providing assistance from its own labs when needed. That’s a lot better than arrogantly dictating strategy to a little partner, or worse, bringing its assets in-house and then letting them fall through the cracks as internal R&D priorities shift.

Golumbeski, in his recent interview, said Celgene essentially doesn’t want to behave like the rich uncle who thinks he knows it all. “They’re focused, they’re experts,” Golumbeski said of Celgene’s partners. “We want to use as much as of that expertise as we can. Celgene does an outstanding job at listening to what its partner is saying.”

Of course, Celgene isn’t interested in every single disease, so it’s not a great partner for every little biotech company out there. Its main focus is cancer and inflammation. But this is clearly a smart strategy at work, especially the part about being flexible on deal terms. After all, if you structure deals that are so one-sided that the little company can barely survive, how do you expect them to produce anything valuable for you?

The fact that Celgene is willing to strike deals on fair terms is good news for everybody who has a role to play in life sciences innovation. Too often over the past few years, I’ve heard stories of pharma companies sticking it to little biotech companies on deal terms, and then complaining about how there aren’t enough innovative products to acquire anymore.

Bob Nelsen of Arch Venture Partners

“They [Celgene] are clearly better at understanding that the small company needs to win,” says Bob Nelsen, a managing director with Arch Venture Partners and an investor in several of Celgene’s partners. “This means allowing the small company to retain some of their own products, and also using market mechanisms that do not cap the financial upside that the company may obtain from its products. Pharma is now trying to emulate this because their old model of trying to control everything is clearly broken, and they are being outmaneuvered on the hot deals by companies like Celgene.”

Of course, most of the hopes Celgene has pinned on these companies will be dashed. Science is a humbling thing. As time goes on, we will learn more about all these experimental drugs that Celgene has bet on, and begin to see some warts.

But when a company bets on this many promising fields of science, this many talented management teams, and this many flexible deal structures, I believe it is tilting the odds of success in its favor. We won’t know the definitive answer for another five to 10 years. But I suspect by then Celgene will be known for more than doing a bunch of share buybacks.

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  • http://www.hollyip.com/ Suleman Ali

    Humility is an important asset in any organisation, and it’s nice to see Celgene has it. It is always tempting use any power that one has, especially if one labours under the impression that one somehow has a special expertise due to past success. Any constraint that funders apply to small biotechs will probably hinder their performance, and so is self-defeating ultimately.