Celgene adds $1B-plus immuno-oncology deal, buyout option for Sutro

Sutro CEO Bill Newell

Close to two years after Celgene closed its first development deal with Sutro Biopharma, the prolific partnering machine at the big biotech has come back and taken an option on buying the company and its antibody-drug conjugates and bispecifics. And Celgene ($CELG) is expanding their collaboration to include immuno-oncology drugs, the hottest R&D field in biotech.

In the development deal South San Francisco-based Sutro gets $95 million upfront, which includes an equity stake, $90 million during the research stage and more than $1 billion in total, including potential milestones. The two companies will work on PD-1 and PD-L1 targets, an immensely promising field that is bringing an effective immune response to fight cancer for the first time. And out of the mix Sutro can retain certain commercial rights to its products--provided Celgene doesn't go ahead and close the deal with a buyout under prespecified terms, which are being kept quiet for now.

Sutro's team believes it has devised a much better way to build ADCs--those precise cancer cell-killing constructs made up of a targeting antibody, linker and payload--and bispecifics, teeing up potentially best-in-class products that promise to be more efficiently and consistently manufactured. Using biochemical synthesis, they've hatched a technology that can bypass the current approach to biologics by genetically engineering drugs that are much simpler to make, more akin to small molecules. Their technology, which can be deployed with multiple warheads, has not only attracted Celgene; Johnson & Johnson ($JNJ), Sanofi ($SNY) and Merck KGaA have all signed on as partners.

Sutro was a 2014 Fierce 15 company.

There are plenty of precedents now to demonstrate that checkpoint inhibitors from companies like Merck, Bristol-Myers Squibb and Roche can have a significant impact on overall survival, says Trevor Hallam, the CSO at Sutro. "The consensus is that's a bit of a given now," he says.

Sutro's technology, he says, has the potential to quickly come up with candidates that can bind to--or avoid--multiple target sites on checkpoint pathways. That way next-gen combination therapies can both steer clear of "common and limiting side effects" while fine-tuning delivery and allowing investigators to safely amp up the dosage.

"It's really an important deal for our company," says CEO Bill Newell. Sutro now has 70 staffers and will continue to grow over the next 18 months as these new Celgene programs are brought online and it pursues its own in-house products as well as a collaboration with Merck KGaA.

Over the past few years Celgene's partnering group under George Golumbeski has been scouring the global industry to partner or buy the most interesting new technologies in the field, particularly zeroing in on a number of cancer programs, including a CAR-T partnership it has with bluebird bio. CEO Bob Hugin has made partnering and M&A a top priority at the company, determined to diversify the company's portfolio while gambling billions of dollars on the outcome. And whatever they have learned about Sutro in the past two years has only whetted their appetite.

"Substantive progress and unique advantages of Sutro's platform have led us to expand and extend our relationship, as a key capability supporting our emerging immuno-oncology pipeline," says Celgene R&D chief Tom Daniel in a statement. "We see this collaboration as a unique opportunity to accelerate the evaluation and development of important products in this and other strategic areas of high potential impact. Sutro has been a strong partner expanding a potentially disruptive technology, and we look forward to building on the existing collaboration."

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