Celgene Teams Up With Agios In Long-Term Cancer Metabolism Pact

The April 15 deal between Agios Pharmaceuticals Inc., a start-up barely two years old working in a novel area of cancer research, and Celgene Corp. is noteworthy for a number of reasons, among them its sheer size: the $130 million up-front payment associated with the deal is the largest year-to-date for a pharmaceutical alliance for which metrics have been disclosed, and is particularly hefty for a start-up that has yet to put a molecule in the clinic.

The April 15 deal between Agios Pharmaceuticals Inc., a start-up barely two years old working in a novel area of cancer research, and Celgene Corp. is noteworthy for a number of reasons. [See Deal] The $130 million up-front payment associated with the deal is the largest year-to-date for a pharmaceutical alliance for which metrics have been disclosed, and is particularly hefty for a start-up that has yet to put a molecule in the clinic. The alliance also demonstrates how smaller biotechs are increasingly looking to big-sibling relationships with larger pharmaceutical companies to drive long term sustainability. Indeed, the agreement is reminiscent of Regeneron Pharmaceuticals Inc.'s partnership with Sanofi in the antibody discovery space or Purdue Pharma LP/Mundipharma International Corp. Ltd.'s alliance with oncology player Infinity Pharmaceuticals Inc. [See Deal] [See Deal] ( See "Sanofi Makes its Biggest External Play Yet With Long-Term Regeneron Deal," IN VIVO , December 2009 (Also see "Sanofi Makes its Biggest External Play Yet With Long-Term Regeneron Deal" - In Vivo, 1 Dec, 2009.) and "Infinity/Purdue: The Challenge of Reprising Roche/Genentech," IN VIVO , January 2009 (Also see "Infinity/Purdue: The Challenge of Reprising Roche/Genentech" - In Vivo, 1 Jan, 2009.).) Given Agios' status as a private company, it's also surprising that the start-up's backers would consider tying the high flying biotech so closely to one potential acquirer so early in its life cycle.

In exchange for a significant up-front cash payment, which includes what Agios management describes as a "modest" undisclosed equity investment, the deal gives Celgene the exclusive option to develop any drugs resulting from Agios' cancer metabolism research platform at the end of Phase I. Celgene can extend the exclusivity period – if Agios agrees – but it will have to provide additional funding for the privilege. Agios retains control over the discovery and early translational work until an option is exercised; at that point Celgene will lead and fund global development and commercialization of any licensed drugs. On each program, Agios could receive up to $120 million in milestones, as well as royalties on sales.

The deal structure represents a different financing path from that usually traversed by start-up biotechs. Rather than opting to complete Series B or Series C financings and eventually out-license one or two clinical-stage candidates, Agios has decided to lock in a long-term partner early. This decision secures Agios' financial runway for now, building on the $33 million Series A the firm raised in 2008 from Third Rock Ventures, Arch Venture Partners and Flagship Ventures. [See Deal] Still, it also brings certain risks. The alliance discourages an acquisition by anyone except Celgene, for instance, since the Summit, NJ-based specialty pharma company owns rights to Agios' nearest-term opportunities. And that could hamper efforts to run an M&A auction should it be impossible to some day list the company on the public markets.

But Agios CEO David Schenkein, MD, notes the deal structure was one the company sought from the onset. "From the very beginning, we had a very bold vision, looking at a whole new area of cancer biology, cancer metabolism, which we believe could be a game-changer," he says. "As we thought about how we were going to build the company, we decided to go for a very different model rather than the more conventional mode ... and that meant looking for a single partner who, for a period of time, shared our passion and commitment to this space and was willing to invest in it."

As for any potential long-term drawbacks, chief operating officer Duncan Higgons maintains a key impetus behind the deal was preserving the company's independence. "We do not intend to be bought," he said. "We want to focus on long-term independence." Plus, he said, under the deal Agios retains "significant downstream value," including the ability to participate in the commercialization of drugs for the valuable US market. The company's venture backers concur. "We are not concerned that the deal makes Agios captive [to Celgene]," maintains Doug Cole, MD, a partner with Flagship. "This is a win-win for both companies," he says.

Certainly, the sizable up front means Agios can devote most of its resources to pushing forward with its research programs rather than devoting time and energy to additional deal making. "There was a window of opportunity to consolidate a real leadership position in the field," says Cole. "The deal with Celgene provides the financial resources and expertise necessary to attain critical mass," he says. Kevin Starr, a partner with Third Rock Ventures and a co-investor in Agios, agrees. Agios "could keep using venture dollars but that would mean smaller money and a smaller platform," he says.

For Celgene, the alliance gives the big biotech a foot in the door in an emerging area of cancer science centered on the idea of inhibiting the metabolic enzymes that help cancer cells rapidly proliferate. Though early, it's an exciting area of research that – if successful – will bolster Celgene's cancer pipeline. The specialty pharma's five-year business plan calls for significantly expanding its oncology portfolio beyond its Revlimid (lenalidomide) brand. During an R&D event April 8, Celgene's management outlined a plan to turn the firm into a diversified biotech by 2015, launching new drugs in its core hematology business, as well as in solid tumors and inflammation & immunology. In order to more quickly bolster its pipeline, Celgene has been an aggressive dealmaker in recent years, acquiring Gloucester Pharmaceuticals Inc. in an earn-out heavy deal in 2009, and Pharmion Corp. in 2007. [See Deal] [See Deal]

According to Agios' Schenkein, Celgene emerged as the right partner in a "competitive" process because of the company's biotech-like culture and entrepreneurial spirit, its track record for bringing oncology drugs to the market, and a commitment to cancer metabolism. Given Schenkein's association with Genentech Inc. – he was SVP of clinical hematology at the San Francisco biotech before taking the top spot at Agios – it's not too surprising the Celgene/Agios tie-up mirrors the decades-long Roche/Genentech symbiosis in spirit. After joining Agios, Schenkein and his team examined a variety of deal models as they considered the company's partnering options. "The model that came into my head was Genentech's experience with Roche in the therapeutic antibody space. The collaboration paid off," because the ownership structure allowed the smaller biotech to preserve its independence. "From day one with Celgene, we also have the necessary independence," he says.

With the additional funding, Agios intends to expand aggressively. Schenkhein says the company, which currently has about 35 employees and an additional 50 workers at contract research organizations, plans to increase the number of employees in both areas "significantly" in the next 12 to 18 months. Thus far, Agios has only disclosed two of the cellular targets it is studying, isocitrate dehydrogenase 1 (IDH1) and pyruvate kinase M2 (PKM2), but said it is working on other multiple targets.— Jessica Miller and Ellen Foster Licking