Genentech doesn’t acquire many drugs from other people, partly because it has a prolific internal R&D operation. But the South San Francisco-based unit of Roche, the world’s biggest maker of cancer treatments, is announcing an unusual deal today in which it is paying to get an early-stage cancer drug program from Cambridge, MA-based Forma Therapeutics that could enable Forma to generate returns for its investors without going public or getting acquired.
Here’s the deal: Forma is handing over the exclusive worldwide rights to a small-molecule drug program—still in early-stage animal testing—that’s designed to starve tumors by blocking a molecular target involved in cancer cell metabolism. In return, Genentech is making an upfront payment, providing support for research, covering all the development costs, and agreeing to make milestone payments if the drug hits certain development goals. That’s not unusual, but what comes next is: If the Forma drug reaches its development goals, Genentech has the option to acquire the full rights to the asset, leaving Forma with no royalty stream. If Genentech exercises that option, it would make an asset buyout payment that would be distributed to Forma’s investors, plus further milestone payments to Forma if certain sales goals are met.
What it means is that if this drug pans out, Forma essentially would be able to deliver returns to its venture backers by selling off just one of 8-10 cancer metabolism targets it has discovered so far, and remain an independent company free to discover and develop as many other drugs as it can. What’s more, in this scenario, investors will get a return on their investment from Genentech without having to hand over their equity stakes. So it’s conceivable the VCs could get a return on one of Forma’s drugs, and then potentially an even bigger payday if the startup goes public or gets acquired. The agreement is also another sign of emerging interest in the cancer metabolism field, which many Big Pharma companies are pursuing, and which sparked a big deal last August when Cambridge, MA-based Agios Pharmaceuticals secured a $130 million upfront payment from Summit, NJ-based Celgene (NASDAQ: [[ticker:CELG]]).
“This deal gives us the best of both worlds,” says Forma CEO Steven Tregay. “It gives us near-term funding to continue to build our capabilities up for our pipeline, while at the same time giving us a well-defined exit for our investors down the road.” Tregay wouldn’t divulge any specific financial terms, but he said Forma was burning about $10 million a year in cash prior to the Genentech deal, and that “we now have a pretty nice cash horde going forward.”
James Sabry, the vice president of Genentech Partnering, said in a statement that Genentech “is very pleased to enter into this structurally innovative agreement with Forma. The program represents a promising addition to our portfolio.”
This deal is the latest sign that Forma was onto something when it staked out a contrarian drug discovery strategy when it was founded about three years ago, at a time other companies were cutting research in the depths of the recession. Tregay, a former managing director at the Novartis Option Fund, teamed up with scientists from the Broad Institute to put together a startup with specialized skills needed for a soup-to-nuts drug discovery operation. The company has secured about $33 million in equity financing from the likes of Novartis Option Fund, Lilly Ventures, and Bio*One Capital of Singapore, plus another $45 million in non-dilutive cash from Cubist Pharmaceuticals, Eisai Pharmaceuticals, the Leukemia & Lymphoma Society, and the Experimental Therapeutics Centre of Singapore, Tregay says.
The money has given Forma enough of a cushion to hire
