For anyone wondering about the value that can be added by entrepreneurs and venture capitalists to the drug discovery and development process, look no further than Stromedix. This venture-backed company in Cambridge, MA, was acquired today by Biogen Idec for $75 million up-front and up to $487.5 million based on the achievement of certain development and approval milestones. The driver for the acquisition is a monoclonal antibody known as STX-100, about to enter Phase 2 in the tough indication of idiopathic pulmonary fibrosis (IPF), a nearly always fatal disease characterized by lung scarring. STX-100 is one of several early entrants in the race to apply modern biologic therapies to fibrosis and its challenging biology. [Disclaimer: Stromedix has been a CBT Advisors client.]
Now let’s consider the value-add. First the return. As of early 2011, Stromedix had raised $29.4 million plus at least an additional $5M in debt financing in September, 2011, most of which has likely not been drawn down. (Stromedix investor Bruce Booth of Atlas Venture states in his blog post that the total cash in, including the debt facility, was $38 million). That makes the up-front price worth about 2X to the Stromedix investment syndicate, which includes NLV Partners, Bessemer Venture Partners, Red Abbey Venture Partners, and Frazier Healthcare Ventures as well as Atlas Venture. Considering that most of this capital did not flow in until the 2008 Series B round, that’s not a bad internal rate of return for the investors. If STX-100 hits any milestones at all, that return will rise, of course, possibly to an impressive 5X or even, in the unlikely event that all milestones are achieved, 19X. For the venture investors, the combination of certainty of the initial exit and possible upside later—with no more board meetings to attend!—makes this deal a sweet one.
But the deal becomes even more impressive—and instructive—when one considers that the asset STX-100, which comprises essentially the full value of Stromedix, was in-licensed from Biogen Idec back in 2007 for a price that I’ve heard was less than $5 million and perhaps even less than $2 million up front. This would fit with the company’s financing history. Before the 2008 $25 million Series B round, less than $5 million had been raised, some of which went to pay salaries, rent, and development costs. So not much of this could have paid for the asset. One assumes that Biogen Idec had some milestones and royalties coming to it from the initial licensing deal and that these were negotiated away as part of the sale transaction. But the fact remains: Biogen Idec gave up the asset for a very low price and is buying it back for a much higher one. Why?
A little of the mystery disappears when one considers the old adage, “You can never stick the same foot in the same river twice.” When Biogen Idec let go of STX-100, a different team was in place. Stromedix CEO Michael Gilman, who is now returning to Biogen Idec, had resigned
