Try Then Buy? Sutro Deal Could Be Celgene’s Biggest Antibody Bet Yet

Xconomy New York — 

Celgene, one of biopharma’s most aggressive and creative dealmakers, said Thursday it has forged a deep partnership with South San Francisco, CA-based Sutro Biopharma that could end up with an acquisition.

If it does, it would dramatically expand Celgene’s footprint into the world of biologics, which the Summit, NJ-based company has mainly stayed away from during its climb to join Amgen, Gilead Sciences, and a few others among the big biotech elite.

At the time of this writing, Celgene is worth $76 billion, which includes a healthy 5.6 percent bump Thursday after announcing the deal on its third-quarter earnings call.

Celgene has become a powerhouse first with its multiple myeloma treatments, then by branching out into other types of cancer and most recently, autoimmune disease. All of its approved drugs to date have been small molecules, a very different business than biologics. That pattern has continued with its seemingly nonstop partnering; very few of its license deals and alliances have centered around biologics.

Sutro is by far the most significant. The deal, which builds upon a 2012 agreement between the two companies, remains, for now, a collaboration. Celgene is paying $95 million up front to work with Sutro on antibody-based therapeutics in immuno-oncology, one of the industry’s hottest fields. Sutro has built technology that the company says does two main things differently than other antibody technology companies.

It can mine for new antibodies faster, without using traditional cells like E. Coli as the “factories.” And it can modify those antibodies more accurately to hit more than one target at a time (what’s known as bi-specific or multi-specific), or be attached to tumor-killing small molecule drugs, in what’s known as an antibody-drug conjugate. Celgene wants Sutro to help it develop both kinds of products.

There are other payments involved, too, including up to $90 million more in the first three years of their R&D collaboration, and more than $1 billion in various payments if products from the work advance through development and onto the market.

But the big number in the deal remains a secret: What is Sutro worth if Celgene wants to buy it? The size of the window for Celgene to make that decision is also a secret, but if and when it does, it triggers a formula—or as Sutro CEO Bill Newell calls it, “a calculation”—that the two sides have put in place to determine Sutro’s value.

“It’s a very fair price,” said Newell. “But it’s not a fixed price.”

It’s not a stretch to say Celgene loves options to acquire. The Sutro deal is at least its sixth in three years, with Abide Therapeutics, Acetylon Pharmaceuticals, Forma Therapeutics, Quanticel Pharmaceuticals, and VentiRx Pharmaceuticals already in the portfolio. None of the options to acquire have yet been exercised, although VentiRx CEO Rob Hershberg is now working both for Celgene and for VentiRx. This summer, Celgene tapped him to run its new immuno-oncology “center of excellence” in Seattle, as Xconomy reported in July.

Newell said Sutro looked closely at that track record and was particularly encouraged … Next Page »

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