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

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by the immuno-oncology center in Seattle. “It’s fair to say they’re casting a broad net with different methods of approaching immuno-oncology therapeutics,” said Newell.

In addition to exploring new twists on monoclonal antibodies with Sutro, Celgene has tapped Bluebird Bio (NASDAQ: [[BLUE]]) for its cellular therapy approach and the aforementioned VentiRx for its small-molecule treatment that stimulates a component of the immune system called toll-like receptors.

Sutro chief scientific officer Trevor Hallam said hitting more than one immuno-oncology target at a time with a bispecific antibody could make for a better checkpoint inhibitor. That’s the type of treatment already proven to work by Bristol-Myers Squibb, which got marketing clearance in 2011 for ipilimumab (Yervoy), originally developed by the antibody developer Medarex. Ipilimumab binds to a receptor called CTLA-4 and prevents tumor cells from hiding from cytotoxic T lymphocytes, which normally would hunt down and kill them.

Other checkpoint inhibitors in development go after other targets to do roughly the same job. Those targets, PD-1 and PDL-1, are also present on healthy cells, so there’s a danger of those drugs causing unwanted side effects. Hallam said a bi- or multi-specific approach to checkpoint inhibition could do a better job to “spare healthy tissue” and let patients tolerate larger doses with “more medical impact.”

Sutro has also taken its first steps down the path more befitting an old-school, “fully integrated” biopharma company, inlcuding a manufacturing facility just south of the San Francisco airport. It’s only 10,000 square feet—by comparison, Genentech in 1998 cut the ribbon on its Northern California plant, then the world’s largest, with 310,000 square feet—but it’s the start of what Hallam called a “potential future operating system” that could take products up through commercialization.

With the Celgene deal, “we wanted to make sure Sutro was well situated, and that our investors would get a good return,” said CEO Newell. “But if they don’t exercise the option, we also want to make sure we’re positioned to go forward as a standalone company.”

The means to do so these days often comes through the public markets, where much more capital is available for growth. But the Celgene deal prevents Sutro from going public, Newell said, so that’s one less source of capital available.

An IPO was something Sutro, like many biotechs nearing $100 million in venture capital raised, had been considering. Its CFO Ed Albini told Xconomy earlier this year the company was out “talking to pure public and crossover investors,” who these days often will invest in a private biotech’s final round before an IPO. “The key, if you’re going to take crossover investors, is to find a group that will help facilitate the IPO,” Albini said.

Sutro’s most recent venture round, a $26 million Series D that closed in late 2013, brought it to more than $90 million. Its investor base has remained fairly stable, with Celgene joining previous investors, including other corporate backers—Amgen, Lilly—and VCs Skyline Ventures, SV Life Sciences, and Alta Partners. Celgene took more equity as part of the option-to-acquire deal, boosting its stake in Sutro to 15 percent, Celgene said.

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