Novartis partners with tiny microcap Cerulean as it nabs $20M

Novartis HQ cropped

Novartis ($NVS) has picked microcap Cerulean Pharma ($CERU) for a discovery and development deal that could be worth as much $1.2 billion in milestones. At the same time, longtime investors in the company, Chicago-based Aspire Capital, have committed to investing $20 million in the struggling nanotech company.

The news drove the penny stock up fast in early trading, up 85%, but to a market cap of only $35 million. Cerulean never fared particularly well on the stock market after debuting in a lackluster IPO in 2014.

The Cerulean IPO priced at $7 a share. Those climbed to as high as about $10 in 2015, but recently fell in August to less than $1 after its lead candidate CRLX101 failed in a combination trial with Roche’s ($RHHBY) Avastin (bevacizumab) to beat standard of care in the treatment of renal cell carcinoma. The Waltham, MA-based company responded to the trial failure by cutting its workforce almost in half.

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Despite all of that, Novartis is buying into the promise of the company’s nanoparticle-drug conjugates (NDCs). The pharma is paying $5 million up front and will fund the first 5 candidates. The deal is slated to combine Cerulean’s Dynamic Tumor Targeting technology with Novartis compounds against up to 5 targets.

Cerulean is to create the NDC candidates under the deal, while Novartis is responsible for development and commercialization. In addition to the upfront, Cerulean is eligible for $41.5 million per program in preclinical and R&D milestones with another $185 million in sales milestones. So, in total Cerulean could receive up to almost $1.2 billion in milestones with an additional single-digit to low double-digit tiered royalties on net sales for each resulting product.

“Novartis is widely recognized as one of the world leaders in drug development,” said Cerulean President and CEO Christopher Guiffre in a statement. “This collaboration is further validation of our powerful technology platform, and we are excited that Novartis is including NDCs in its drug discovery and development efforts.”

Cerulean’s tech is intended to create NDCs that selectively attack tumor cells and reduce toxicity--this is expected to better enable combination therapy. CRLX101 is still in several ongoing cancer trials in combination with other cancer treatments; next up is CRLX301, which is in an early stage trial for advanced solid tumor malignancies.

As for Aspire Capital, the long only healthcare and technology investor committed to buying $20 million shares in Cerulean stock. It has exercised the first purchase of $1 million under the at-the-market facility for 800,000 shares at $1.25 each. The firm has 24 months to fully exercise the commitment in similar small increments at a price that’s tied to the current Cerulean share price. The microcap’s shares closed at $0.69 on Oct. 18, ahead of the Novartis and Aspire announcements.

“This agreement with Aspire provides us access to capital to support our ongoing clinical efforts,” said Guiffre in a separate statement. “Our relationship with Aspire allows us to strengthen our balance sheet over time without banking commissions or warrants.”