Trusting Your Partners: A Chat With Celgene’s George Golumbeski
It’s no secret that biotech IPOs, for the first time in at least 10 years, are suddenly white hot. Companies with sparse evidence from clinical trials, or those with drugs that have failed such trials, are finding success raising cash from public investors.
But take a look at some of the best performing biotech IPOs of late, as well as some of the most anticipated coming ones, and you’ll find a common theme. Many of them struck partnerships in their earliest days with Summit, NJ-based Celgene (NASDAQ: CELG), the big cancer drugmaker.
Bluebird bio (NASDAQ: BLUE), the developer of gene therapies, has a $75 million up front, $225 million per-product deal with Celgene. The Cambridge, MA-based company priced its IPO at $17 per share last month, and now trades at close to $30. Now consider Epizyme (NASDAQ: EPZM). Before going public, that company struck a $250 million strategic deal with Celgene to develop targeted cancer drugs based on Epizyme’s work in epigenetics. Many expect the run of Celgene-validated startups to continue when cancer metabolism specialist Agios Pharmaceuticals, prices its IPO.
Those companies represent a few examples in the dealmaking strategy Celgene is using to shape its future pipeline. Over the past few years, Celgene has signed early-stage deals with a variety of innovative biotechs that tend to be customized for each company, rather than following a standard template.
Some of Celgene’s deals use a build-to-buy approach, like its arrangements with South San Francisco, CA-based Quanticel Pharmaceuticals and Seattle-based VentiRx Pharmaceuticals, through which Celgene paid upfront to collaborate on certain programs and got the exclusive option to buy the company down the road. Others, like its pact with Lexington, MA-based Concert Pharmaceuticals, include large per-drug checks tied to various milestones. And then there’s the Agios approach, in which Celgene laid out $130 million for an extendable three-year option to license and develop any of the company’s cancer drugs.
While Celgene is obviously not the only big drugmaker in the world that’s active in striking deals with startups, a few things make it stand out. For one, it has a hands-off approach, allowing its partners to steer the ship. For another, it molds a specific deal, in a specific way, for a specific company. This structural flexibility engenders a lot of goodwill among Celgene’s partners, according to Steven Tregay, the CEO of Watertown, MA-based Forma Therapeutics.
“Celgene stands out in my mind as being very willing to say ‘Ok, how do you approach drug discovery? Ok, we buy into that. We do it a little bit differently, but let’s let you try your approach,” Tregay says. Forma, of course, signed a $200 million upfront partnership with Celgene in April to discover cancer drugs via its work in protein homeostasis.
Celgene also has a habit of picking edgy, high-risk/high-reward fields of biology for its partnerships: epigenetics, cancer metabolism, protein homeostasis, gene therapy, and others. These aren’t low-risk/low-reward plays. Celgene’s going for home runs. Not singles and doubles.
“We tend to be looking a little more for things that could be transformative, truly step-ahead therapies, not just incremental gains,” says George Golumbeski, a molecular biologist by training, and Celgene’s senior vice president of business development since 2009.
And while the numbers in biotech tell you that most of these are likely to fail, it’ll be interesting to see just where Celgene stands about five years from now, when many of the early-stage deals it has made will either result in drugs with promising clinical results that it is hyping at industry conferences, or dollars that are written off.
I spoke with Golumbeski, a former Novartis and Elan executive, at length about Celgene’s partnering strategy, the constantly evolving landscape of biotech collaboration deal structures, and the importance of his close collaboration with Celgene R&D chief Tom Daniel.
Xconomy: How would you describe your early-stage dealmaking strategy?
George Golumbeski: It’s a long-term view. 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, and the word that comes up frequently in our quest for the appropriate target is ‘disruptive.’ And we do think the Agios cancer cell metabolism play, Quanticel’s ability to disrupt tumors down to single cells, can spawn a lot of biomarkers, a lot of new drugs. So when we talk about early stage things, we’re really looking for transformative deals, transformative technologies.”
X: How has that strategy evolved over the years?
GG: I think that the evolution probably pertains more to the deal structures. We, I think, do a really good job of listening to our partners, and trying to accommodate what they want while accommodating our needs. This is what has driven us to do some of the options to acquire, a build-to-buy in the case of Quanticel, and very broad, long-lived collaborations with the likes of Agios and Epizyme. And I think that we’ve probably evolved our thinking over the years from more standard-type collaboration structures to Agios, to Quanticel. And I think we will continue to evolve, because we want to work closely with small, innovative companies and enable them to bring their novel science and their step-ahead—not incrementally better—medications to patients. But, where possible, we would like to bring the fruits of those collaborations to Celgene. So a long-term, close relationship that leads to an M&A, [or] a long-term relationship that doesn’t but [lets us] secure first-class, highly novel and beneficial therapeutics, we’re always challenging ourselves to find better ways to accomplish that structurally.
X: What makes Celgene’s business development style differentiated from its Big Pharma and Big Biotech peers?
GG: Celgene is the only company I think I’ve ever been in where one didn’t have to fight a battle about how much [resources] we are going to devote to external [sources] versus internal [development]. We’ve never had those discussions. It’s just been understood that we will be disciplined, but in consistent fashion, we will access innovation from outside. We are a biotech company and culturally, I think there are some differences between biotech and large pharma in terms of how we view risk-taking and how we view the objective of bringing our pipeline forward, as opposed to all the other purposes one could use a strong financial position for. Also, [In my experience with large pharma] I would say that there were multiple formal committee presentations. In contrast, here, we talk so frequently internally that we don’t have a lot of bureaucratic internal committees. We’re decisive, and usually we take the alignment we have internally, go to our board, and that’s it. There’s not a lot of bureaucracy.
X: What attitude does Celgene take towards its partners in forming its early-stage collaborations?
GG: We have a thought out, affirmed strategy to go to the outside and leave [these companies] at the steering wheel of their programs while they fully focus. Most of these small companies are able to fully focus on an area of biology, drive for drug candidates, and drive for early- stage clinical trials more efficiently than large organizations. They’re focused, they’re experts, and 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 when we get into deal discussions. We can’t do everything that we’re asked to do, but we really try to listen to our partner to enable them, and I think the feedback I have from our partners is universally, unswervingly favorable.
X: How has the industry’s dealmaking style changed, and what do you have to do to stay a step ahead?
GG: There’s been a real shift from ‘let’s do a licensing deal with up front payments’ —milestones, royalties—to ‘let’s just do an M&A, or a structured M&A,’ transaction. And that’s been a very noticeable shift. Now we don’t know if this recent IPO window is just a blip, or if this here to stay for the medium or long-term—that could shift the dynamics a little bit—but I think in the time when the public market was closed there was a heavy premium and shift towards M&A transactions. We’ve also shifted away from plain, vanilla licensing deals, or licensing deals for three targets for example, to an Agios or Epizyme-type deal where we say along with our partner that this is an incredibly compelling area of biology that may be transformative for patients in the long term and may produce the more important medicines of tomorrow. When we find such a company, we’ve tended to say that we don’t want to name one or two or three targets, because the area of biology is so rich, this is a ‘green field.’ We don’t know where it’s going to go, so we want to be very broad. That helps us and our partner cover the risk. We believe our chances of getting a drug with our partner go up by working within a broad, novel arena.
X: What leads you to decide on a structured M&A type partnership rather than a broad collaboration?
GG: At the time when the public markets were constrained or closed, it was that investors and small company leadership were seeking exits. Many times those companies are working on an asset which has some very exciting data but the asset is very early or quite risky, and this is where we’ve gone to options to acquire. For us, this type of transaction makes a lot of sense. We fund the company well enough to get through a study, at the end of which is an inflection point. We help them design the study, and if the data come in positive, we’ll be happy to buy the company for a set of prearranged conditions.
X: Epizyme has, to date, been the most successful biotech IPO this year. What led to your interest in Epizyme, and why did you structure the collaboration in the way that you did?
GG: We arguably are the leader in epigenetic therapies, and we basically want to increase the importance of that in our company because we believe that the science is pointing to this being an incredibly important modality in the future. Therefore, we scoured the universe and went for what we thought was the highest science among such companies and that, for our reckoning, was Epizyme. The focus of this collaboration is actually Histonemethyltansferases, and there are 90 of these targets. This is clearly a large “green field” where the biology is rapidly emerging. As a result, no one can know which of the 90 targets would yield important drugs. In such cases, we want to take a broad, long-term view, which also worked out well for our partner.
X: On the opposite end of the spectrum, why is the Quanticel deal structured as an acquisition?
GG: On a transaction like Quanticel, for us to realize the maximum value of the technology, we needed to share with them some of our investigational drugs so they could work on them looking for biomarkers. We needed, therefore, to give them certain samples we had from clinical trials or from the research laboratory. And the only way to do this was to work really closely with them and do effectively a build-to-buy. We ended up putting so much expertise and potential IP into that collaboration that the only way to support the science and the medical objectives of that collaboration was to do a build-to-buy. We take it all, or we don’t, and we have certain protections for what we put in. This also worked well for the Quanticel management and their VC investors, Versant Ventures.
X: What makes you decide on a broad collaboration style, versus a more targeted licensing deal?
GG: It tends to be driven out of a mutual agreement, right up front between us and our partners, that this is a green field, it’s going to take a lot of time. We’ve built most of these long term collaborations with a three or four-year initial period extendable to a total of five or six years not because we want to control [these companies] or own them, but because we think it might take that long to get the compounds and the medications out of the discovery labs and into the clinic. For really important areas of emerging biology, we think it makes more effective collaborations to work on a galaxy instead of a single planet.
X: What’s the biggest mistake you see made in these partnerships, and how do you avoid them?
GG: If we go through a process where our research and early development organization has fully bought in that this is a top drawer, blue chip program, or a disruptive area of science, then almost de facto we say that this company or potential partner is at the top of the heap of those working in this space. And we’ve gotten very comfortable letting them have control. If we’re working with the best player in a given space, why on earth would we want to make every decision? We collaborate incredibly closely with them scientifically, and we tend to have an agreement in principle and contractually that we will really work hard to build a consensus. But generally if push comes to shove up until the time we take the program in house—usually at the end of Phase 1, sometimes at the beginning of Phase 1—-they’ll make the final decision. This is unusual and not the norm in the industry. Big companies tend to say ‘we’re paying the bills and for heavens sake we’ll have the final say.’ I think the first couple of these that we did, we probably held our breath a little bit, but it’s actually worked out brilliantly. Our partners feel empowered—they’re the experts in a given area, they’re lean and mean. So that’s been a great learning experience for us.
X: Some of these early-stage partnership deals have massive upfront payments, in the nine-figure range. How do you go about valuing a transaction like that?
GG: For the early-stage things, it’s really hard to value. I’d argue you can’t calculate something like a firm net present value that really makes any sense. And the error bar on that would be something like 300 to 3,000 percent. So we tend to look more at what it’s going to cost to build this, and is that a number that really is sensible to our business and to our industry? For any deal, an Epizyme or a Bluebird, there’s a period where we are funding the programs totally at risk. It’s preclinical. We don’t know when we’re going to get into the clinic. So there’s definitely a discussion of how big that number is, how big the partner’s needs are. There’s a lot of negotiation back and forth because, of course, we don’t want to fund infinitely when we’re at the riskiest stage. But because so much of that upfront initial investment is based on what funding the project actually needs or requires to succeed, there’s probably less negotiation about that than the things that come after that—where are we going to build the milestones, what are we going to pay on approval, those kinds of things.
X: How do you and Tom Daniel, Celgene’s head of research and early-stage development, work together in crafting these partnerships?
GG: Tom and I have a unique working relationship that has been a key component of our success. We’ve had it from almost day one and it’s improved from constant dialogue and discussion. He has great business instincts; I’m a trained scientist. I have thoughts on some of the science, but it’s his group ultimately that selects these, and my team that helps build a structure that is supportive of our goals, the partner’s goals, and the science. To me, and I think to Tom, there’s nothing more motivating and self-sustaining than setting your sights on a goal of building a pipeline, identifying a couple of great companies, building a collaboration with them, and then seeing that start out well and that the science is producing good results. It just fuels you to do more.
X: What fields are you looking at as the hot emerging fields of biology going forward?
GG: The whole field of epigenetics, cancer metabolism, we see some of that converging. We do have a few other areas that we think are emerging. Tom and I deeply wish that there were 5 or 10 Agioses and Epizymes out there, and we will continue to look for them. But the field of such companies is not infinite. That’s probably my greatest challenge at the moment—finding more companies that have the science that can ultimately produce things that can make a significant difference.