You often hear about option-to-buy deals in biotech, where a big firm will pay a fee for the right to acquire a smaller company later on. But as the phrase suggests, it’s no guarantee that a buyout will take place. Sometimes, for one reason or another, talks break down, and the little guy has to regroup and come up with a Plan B. That’s the path Waltham, MA-based Proteon Therapeutics finds itself on after a potential buyout from Novartis fell apart last year.
Sometime in the next few months, Proteon will likely raise a Series C round of cash, according to CEO Timothy Noyes. It’ll use that money to take its only drug candidate, a recombinant protein called PRT-201, into a late-stage clinical trial that the company just might run on its own. A trek to the public markets, assuming they’re still hungry for biotech, could follow. The reason Proteon is considering those alternatives? After a series of negotiations over the summer, Novartis declined to exercise its option to buy Proteon, a right it secured in 2009 when it cut a deal with the Massachusetts company worth up to $550 million in various upfront, acquisition-related, and milestone payments.
When it came time to move forward—or not—with an acquisition, “we talked for a long time about a deal structure, and at the end of the day we just couldn’t reach [one] that made sense to both sides,” Noyes says.
Novartis declined to comment.
For those unfamiliar, Proteon was formed in 2006 based on work interventional radiologist Nicholas Franano did at Johns Hopkins University. (Franano has since gone on to found a second company, Novita Therapeutics.) The concept behind Proteon was to use an engineered form of a human enzyme called elastase to help improve the outcome of a surgical procedure often used to prepare patients with kidney failure for hemodialysis.
For the roughly 100,000 people in the United States each year who develop end-stage kidney failure, hemodialysis is one of a very short list of treatment options. Patients typically must undergo the procedure three times a week; in it, they’re hooked up to a machine that filters their blood, removing waste products that would normally be excreted by the kidneys. To prep a patient for such treatment, a surgeon often has to create a safe access point, typically in a person’s arm, to connect the dialysis machine to the patient’s blood vessel.
The most common way to do so is by creating what’s known as an arteriovenous fistula, or AVF. In this procedure, a surgeon makes a connection between an artery and a vein in a person’s arm. This boosts the blood flow through the area, eventually thickening the walls of the vein, which helps it stand up to being repeatedly punctured by the very large needles used in dialysis.
Noyes says at least 50 percent of AVFs will fail in the first year after surgery. This is largely because while the blood vessel is healing, a bunch of cells head to the inside of the vein and stay there. This cuts blood flow significantly, making dialysis all but “impossible,” he says.
“It’s still a very challenging surgery that is fraught with some very poor outcomes,” he says.
This is where PRT-201 comes in. Right after an AVF procedure, a surgeon would administer the drug by injecting it around the outside of the newly connected blood vessel. The drug is absorbed into the outer wall of the blood vessel, and breaks up the tiny elastin fibers that line that wall into fragments. These little elastin pieces are supposed to act like a magnet, attracting the cells that would otherwise build up on the inner part of the vessel. This, in turn, is supposed to leave the blood flow unobstructed, and the AVF intact.
“We want people to be able to get an [AVF] that works, that works longer, and works without the need for [corrective procedures],” he says.
This vision is what brought Novartis, as well as other investors, to the table. Just after starting an early-stage trial, Proteon raised a $38 million Series B round led by MPM Capital that was later expanded to $50 million (the company has raised $78 million in VC funding to date). Proteon simultaneously announced that it had sold Novartis an
