Celgene (NASDAQ: CELG) is paying $30 million for the right to acquire a brand-new biotech, Northern Biologics, that is the first product of a Toronto incubator that the big Summit, NJ, drugmaker has helped fund.
Northern is developing protein therapies, using monoclonal antibodies to treat cancer and fibrotic disease. It got its first funding in December, a $10 million injection, from Versant Ventures, a San Francisco-based life science investment firm that has moved quickly to scout for new companies and hire scientists in Canada. The expansion north has been part of a big strategic shift for Versant as it emerged from the recession that claimed many biotech investors as victims.
Versant founded the Toronto incubator, Blueline Bioscience, where Northern began, and Celgene quickly pitched in cash in exchange for early negotiating rights with companies that spin out from Blueline. Celgene had been exploring Toronto, home to a large medical research community, “in parallel” with Versant, said Celgene senior VP George Golumbeski. But Celgene, although it makes venture investments (such as the stake announced earlier today in CRISPR Therapeutics), prefers to let VC firms seed companies. With Blueline, Versant is the active seed funder, and Celgene can come in with capital later if it likes what it sees.
Celgene’s option to acquire Northern comes right after the consummation of a similar kind of deal between Celgene and Versant. In 2011, Celgene paid $45 million for the right to buy the Versant-funded Quanticel Pharmaceuticals, which the venture group created to develop a single-cell tumor analysis method based on work by Stanford University researchers. When Celgene’s trigger to buy arrived three and a half years later, the firm pulled it, paying $100 million immediately and potentially $385 million more.
Having negotiated the Quanticel deal—Versant calls the structure “build to buy”—Versant and Celgene had a blueprint for Northern. One difference, however, is that Celgene’s trigger to buy Northern is based not on elapsed time but development progress. Northern CEO Stefan Larson, who is also a Versant entrepreneur-in-residence, says Celgene can acquire the whole company when at least one of its drug programs is in “early clinical trials.” He declined to get more specific, but before the acquisition option matures, Celgene will have the right to license Northern drug candidates.
With Celgene’s broad right to negotiate with Blueline spinouts, the incubator adds a second source of potential build to buy deals to Versant’s portfolio.
“It took us a year to get Northern out the door, and we’d love to do another [spinout] this year,” says Larsen. But more than one or two companies a year for Blueline would be tough, he says.
Versant already has its wholly-owned incubator, Inception Sciences, a group of early-stage drug developers with labs in San Diego, Vancouver, and Montreal who find academic projects and, with the early backing of a big drug company, turn the projects into a biopharmaceutical possibility.
Celgene, meanwhile, has become well-known for doing creative deals with early-stage biotechs. The option to acquire deal has been a favorite—even aside from Quanticel and Northern, Celgene has buyout triggers on Forma Therapeutics, Acetylon Pharmaceuticals, VentiRx Pharmaceuticals, Sutro Biopharma, and Abide Therapeutics (though Celgene hasn’t bought these companies as of yet). Celgene also got in early and formed major alliances with upstarts like Agios Pharmaceuticals (NASDAQ: AGIO), Acceleron Pharma (NASDAQ: XLRN), Epizyme (NASDAQ: EPZM), and Bluebird Bio (NASDAQ: BLUE), each of which are now publicly traded. These deals and others have given Celgene at least partial rights to a number of therapies, among them potential treatments for acute myeloid leukemia, myelodysplastic syndrome, anemia, and Crohn’s disease.