Novartis ponders its option to acquire biotech Proteon in $550M deal

Novartis ($NVS) faces an M&A decision that has profound implications for the small biotech Proteon Therapeutics. In recent months Proteon has completed a Phase II study for its lead vessel-dilating candidate PRT-201, advancing the program to where Novartis can take its four-year-old option to gobble up the biotech outfit entirely.

Yet Novartis hasn't made a decision on whether to pull the trigger on a buyout of Waltham, MA-based Proteon. The Swiss drug giant has months to mull the decision under the terms of the option agreement, says a source with knowledge of the situation. Novartis could say "yes," "no," or try to renegotiate the terms of the deal, which includes payments that could exceed $550 million.

As Proteon and other biotech startups sought financing sources in recent years, option deals with pharma players have offered ways to pick up money to fund research activities and give investors in the startups a potential path to reap a return on their investments. Last year alone Constellation Pharmaceuticals, an epigenetics company, revealed a deal that gives Roche's ($RHHBY) Genentech an option to acquire the startup. Also, Sanofi ($SNY) has an option to buy Warp Drive Bio if the startup succeeds with a plan that involves sequencing microbial genomes to discover new drugs.

Yet a risk Proteon took in accepting the option deal with Novartis was that the would-be buyer would walk away without pulling the trigger on a buyout. Novartis could opt out over a change in direction, as the company did in deciding against taking an option in 2009 on a bone-building drug candidate called BA058 from Radius Health after the startup succeeded in Phase II.

Both Novartis and Proteon were sparing with comments about the deal. Novartis spokesman Jeff Lockwood said that the option deal originated with the company's pharmaceuticals group, not the Novartis Institutes for Biomedical Research with a massive presence in Cambridge, MA. Lockwood declined further comment on the situation. Proteon CEO Timothy Noyes was similarly reticent.

"The company isn't discussing publically the specifics of the Novartis decision process due to confidentiality provisions of our agreement," Noyes said in an email to FierceBiotech. "What I can say is that our discussions with Novartis continue to be collaborative and productive, and are proceeding along the timeline we envisioned."

While unsure of which way Novartis will go, Noyes wrote, Proteon (a 2009 Fierce 15 company) is planning pivotal trials with PRT-201 in patients with kidney disease. In a Phase II trial the candidate, a recombinant human elastase, succeeded in prolonging the patency of arteriovenous fistulas, which are created surgically in kidney-disease patients to receive hemodialysis.

It's unclear how Proteon plans to finance a pivotal program in the event Novartis balks. The company's previous backers include angel investors, Bessemer Venture Partners, Devon Park Bioventures, Intersouth Partners, MPM Bio IV NVS Strategic Fund L.P., Prism VentureWorks, Skyline Ventures and TVM Capital.

Special Reports: Proteon Therapeutics - 2009 Fierce 15 | Proteon Therapeutics - Top 20 Biotech VC Deals of 2009

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