Merck Buyout of SmartCells Could Exceed $500M

Xconomy Boston — 

Beverly, MA-based biotech startup SmartCells has found a big corporate buyer. Merck & Co. (NYSE:MRK), the Whitehouse Station, NJ-based drug giant, said today it has agreed to buy the developer of diabetes treatments in a deal that could be worth more than $500 million to the startup’s shareholders.

Merck, which announced the deal this morning, says it will pay SmartCell shareholders an undisclosed amount of upfront cash. The firm’s shareholders are also eligible for future payments based clinical development and regulatory milestones of products resulting from the startup’s technology, and the total payments in the buyout deal could exceed $500 million, according to Merck. The startup’s board has unanimously approved the deal, which the Wall Street Journal first reported yesterday.

There’s still a long way to go before SmartCells’s lead treatment for diabetics, dubbed SmartInsulin, reaches the market. According to the MIT spinout’s website, SmartInsulin—a once-a-day injectable form of insulin designed to make diabetes treatment more convenient and improve blood-glucose control—is still in pre-clinical development. I called SmartCells’ CEO and founder, Todd Zion this morning, but he was not available to speak to me.

“This acquisition positions our novel technology for success in the hands of a leading pharmaceutical company with proven expertise and exceptional resources to deliver breakthrough diabetes products to patients,” Zion said in a Merck press release.

Zion formed the company after working on its core technology during graduate school at MIT. That technology centers on a polymer that is designed to release insulin only in the presence of certain glucose levels in the blood—which could be a major improvement for diabetics who struggle to keep their blood sugar levels steady.

SmartCells appears to have operated thus far primarily with funding from the National Institutes of Health and angel groups. Its angel backers include Angel Healthcare Investors, Beacon Street Angels, Boston Harbor Angels, Cherrystone Angels, and Common Angels.

Merck is clearly making a bet that SmartCells’s technology will pay off in the future. Yet there’s a huge need for diabetes treatments today. National health estimates placed the number of Americans with diabetes at 23.6 million, or 7.8 percent of the U.S population in 2007.

Boston’s community of diabetes companies is likely to be buzzing about this one for a while.

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