UPDATED: Dumped by Roche, Constellation celebrates end of an option deal

Constellation CEO Keith Dionne

Not very surprisingly, Roche's ($RHHBY) big biotech subsidiary Genentech is taking a pass on its option to buy out Constellation Pharmaceuticals.

As FierceBiotech reported back in January, Cambridge, MA-based Constellation laid off 23 staffers as the collaborative phase of the deal ran out, with Genentech picking up a few targets for its own and Constellation setting the stage for moving ahead solo. But the biotech was left in limbo on the buyout option--until now.

Constellation, a Third Rock startup, celebrated the end of the deal with a series of tweets featuring pictures of fireworks and champagne glasses and messages like "celebrating our independence."

Xconomy was the first to pick up on the story, and the Twitter stream, reporting that Constellation CEO Keith Dionne is now plotting a crossover round and a swift leap into the IPO queue--provided the recent tumult doesn't shutter an IPO window that's now been open for three long years.

The strategic problem with the deal, Dionne tells FierceBiotech this morning, is that Genentech wanted to renegotiate the option.

"Genentech ended up wanting to cherry pick," says the CEO. Rather than go all out and buy the company and the pipeline it has, he adds, the pharma partner preferred to select what it most wanted and transfer it over to South San Francisco, shutting the rest of the East Coast biotech down.

"We're on the wrong coast for Genentech," he adds. But now the biotech is well positioned to raise more money, at least enough to get through next year, and follow up with the prospective partners that have been looking to talk a deal while it preps for a leap into the public market at the right time.

Option deals are a controversial topic in the biotech world, particularly appealing several years ago with the prospect of considerable research support and a marquee name to help validate the science. The downside is that someone else makes the final decision about your fate, on their schedule.

In this case, Roche paid $95 million to partner with Constellation on epigenetics--the science of turning the right genes off and on--and set up a deal that gave the pharma giant a chance to bag the company for a mutually agreed on price. But Roche says it figured that Constellation wasn't the right "strategic fit," especially in light of the rest of the work it's doing in the field.

"As you are certainly aware," a Roche spokesperson tells FierceBiotech via email, "in April 2014 Roche entered into a worldwide collaboration with Barcelona-based Oryzon to develop epigenetics-based medicines for oncology, hematology and non-malignant conditions. The collaboration spans research, development and commercialization of Lysine Specific Demethylase-1 (LSD1), an epigenetic modulator that regulates gene expression. Roche's Pharma Research and Early Development (pRED) has an LSD1 inhibitor (also known as ORY-1001 or RG6016) in Phase I clinical development for acute leukemia."

Constellation will now get a chance to see if it waited too long for a shot at an IPO, or if there's still a large segment of investors with a big appetite for this kind of risk.

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