The option-to-buy deal, in biotech, is a way to hedge a bet. A big firm will pay a fee for the right to acquire a smaller company later on, with the big bucks coming only if the acquisition is triggered.
An option isn’t a guarantee, however; a big company can always pass on a buyout, leaving the smaller biotech to chart a new course. This has happened a handful of times over the past few years, and a partnership between Celgene and Acetylon Pharmaceuticals has become the latest example.
According to a regulatory filing, Celgene (NASDAQ: CELG), of Summit, NJ, recently passed on an option to buy Acetylon, a privately held startup based in Boston developing blood cancer drugs. Celgene remains an investor in the company—it first invested $15 million in Acetylon back in 2012—but the filing shows that the collaboration between the two companies has ended, and Celgene is no longer on the hook for any future payments related to the big deal the two companies signed in 2013.
An Acetylon spokesman confirmed that the deal had expired, but said the company declined to comment further. Celgene wouldn’t comment beyond its regulatory filing.
Three years ago, Celgene paid Acetylon $100 million for the option to buy it outright for at least an additional $500 million (the actual price was to be tied to an independent valuation). The deal included another $1.1 billion in “bio-bucks,” future payments tied to clinical progress that may or may not materialize. All told, that meant the Celgene deal could have been worth $1.7 billion to Acetylon and its shareholders—an unusual mix of private financiers, non-profits, public companies, and federal grant sources including Celgene itself, Kraft Group (the holding company founded by New England Patriots owner Robert Kraft), Acetylon co-founder and chairman (as well as Dana-Farber board member and technology entrepreneur) Marc Cohen, and the Leukemia & Lymphoma Society.
Acetylon was formed in 2008 out of work at Harvard University and the Dana-Farber Cancer Institute. The company raised a total of $55 million in funding before it struck the Celgene deal.
Celgene extended its partnership with Acetylon last summer, but that included a contingency that the relationship would end in May if it didn’t buy Acetylon. Regulatory filings show that’s exactly what happened.
The agreement was a bet on Acetylon’s work on drugs that interfere with what are known as histone deacetylases (HDACs), enzymes that help regulate gene expression and are implicated in a number of cancers. HDACs are a well-known molecular target, but Acetylon’s are part of a newer breed of HDAC-blocking drugs meant to be more precise, and thus less toxic, than their predecessors. Acetylon’s lead drug ricolinostat, for instance, is meant to block only the specific enzyme HDAC6.
According to clinicaltrials.gov, ricolinostat (formerly ACY-1215) is being tested in several trials. Even though Celgene no longer has a buyout option on Acetylon, the company is still testing ricolinostat in tandem with a few of its drugs. In multiple myeloma, ricolinostat is being administered along with Celgene’s pomalidomide (Pomalyst) in a mid-stage trial; in breast cancer, it’s being given with Celgene’s nab-paclitaxel (Abraxane).
Acetylon provided an interim look at the multiple myeloma trial—as well as an early stage study of another drug, ACT-241, a pill version of ricolinostat—in June at the European Hematology Association’s annual meeting in Copenhagen. The company said that the results “established proof of concept” for using an HDAC6-blocking drug along with pomalidomide and dexamethasone in relapsed/refractory multiple myeloma patients, but Acetylon didn’t say what the next steps would be for ricolinostat.
Celgene is known for saddling up to small biotechs in a variety of ways—just today, for instance, it invested in a $37 million round for Cleave Biosciences of Burlingame, CA—and option-to-buy deals have been one of its tools to do so. Last year, Celgene followed through on one of them, acquiring Quanticel Pharmaceuticals for $100 million up front after aligning with the company in 2011. Options to buy Forma Therapeutics of Watertown, MA, and Lycera of Ann Arbor, MI, are still ongoing, while Celgene never exercised its right to buy Seattle-based VentiRx Pharmaceuticals after cutting a deal with the company in 2012.
It’s not unusual for option-to-buy deals to fall through—at least three others over the past 3 years ended without an acquisition. Novartis decided not to buy Proteon Therapeutics (NASDAQ: PRTO) after the two companies couldn’t come to terms on a deal. Proteon shifted gears, raised a new round of funding, and went public in 2014. Cubist (before Merck bought it) walked away from a potential $40 million buyout of San Francisco-based Adynxx because the clinical response to the post-operative pain drug the latter firm was developing “did not meet Cubist’s exercise criteria.” And last August, Genentech passed on a potential buyout of Constellation Pharmaceuticals.