Forma Therapeutics' licensing agreement with Genentech Inc. around a cancer metabolism program is the latest deal with an innovative twist that could bring returns to the startup's venture investors without a traditional exit via acquisition or public offering.

The companies didn't release any specifics of the terms of the deal, which they announced on June 27. Genentech, however, will pay an up-front to obtain worldwide rights to a Forma tumor metabolism program. In addition, the licensor holds an option to acquire the program outright at a future development stage. If it decides to go forward, it will pay Forma's investors in cash and cannot ask them for an equity stake.

Genentech will shoulder the costs of development of the program, while Forma will receive milestone payments as work progresses. Should Genentech choose to take possession of the drug outright, in addition to the buyout payment, it would pay sales-based milestone payments. Forma, however, would not receive royalties.

Although Forma and its stakeholders aren't disclosing much about the unusual deal structure, CEO Steven Tregay said the arrangement "provides a chance to de-risk [the program] over a long period of time via incremental steps," while potentially supplying returns to VCs who are doubtful that they will achieve liquidity via an IPO.

The deal structure avoids the dilemma of "licensing at the cost of an exit" for VCs, he added.

That could prove beneficial in providing relatively short-term returns to Forma's investors, which include Lilly Ventures, Novartis Option Fund and Bio*One Capital. Lilly led Forma's $25.5 million Series B round in 2009, while the others have been on board since its Series A the previous year. Forma has raised $33 million total since its inception in 2008 (Also see "Lilly, Novartis Help Forma Therapeutics Raise $25 Million To Expand R&D In Asia" - Scrip, 21 December, 2009.).

With traditional exits - IPOs or M&A - difficult to come by, startups have looked for increasingly creative deal structures in order to bring in returns for their investors. In November 2009, for example, PanGenetics BV's sale of an anti-nerve growth factor antibody to Abbott Laboratories Inc. delivered a return to backer Index Ventures because the compound was owned by a single-asset company within the PanGenetics umbrella (Also see "PanGenetics' NGF Antibody Sale Illustrates Index's Asset-Focused Strategy" - Scrip, 1 December, 2009.).

If Genentech does exercise its option, Tregay said the asset sale agreement would be relatively straightforward, although he acknowledged that Forma would seek to conduct such a deal "in a tax-efficient manner," using a structure he declined to detail.

While Genentech might be content to license the program rather than own it outright, Tregay said the Roche-owned biotech could conceivably exercise greater control with an outright acquisition. A licensing agreement might be easier to terminate as well, enabling Forma to regain possession of the program.

Rapid Screening, Many Partnerships

Forma is one of several startups looking to develop drugs in cancer metabolism, the science of blocking metabolic enzymes from feeding tumor cells as they grow and proliferate. The field has already produced several substantial deals, including Agios Pharmaceuticals Inc.'s lockup with Celgene Corp. in April 2010 for $130 million up front (Also see "Celgene Teams Up With Agios In Long-Term Cancer Metabolism Pact" - Scrip, 1 May, 2010.). AstraZeneca PLC also has a three-year public-private partnership with Cancer Research Technology Ltd. in cancer metabolism.

Forma's platform is applicable to both tumor metabolism and protein-protein interaction, and uses computational power to perform rapid screenings of potential targets. Although neither Tregay nor Lilly Ventures partner Steve Hall would specify the program or therapeutic areas licensed by Genentech, Tregay confirmed that it is a cancer metabolism target that has the potential for "broad utility."

Although the deal is Forma's first partnership around a specific target, the company has several other deals in place, typically allowing partners to use its screening platform for their own discovery. Last November, the U.S. division of Japan's Eisai Co. Ltd. committed $20 million to use Forma's chemistry library and screening platform to discover new compounds. In 2009, Cubist Pharmaceuticals Inc. and Forma reached a three-year deal worth $14 million up-front plus a potential $54 million in milestone payments as well.

Novartis AG, which invested in Forma through its Option Fund, has an option agreement potentially worth $200 million plus royalties to discover new compounds using Forma's cell-based screening platform. Forma also has discovery agreements with the Leukemia & Lymphoma Society and the Experimental Therapeutics Centre of Singapore.

Tregay said three-year-old Forma has already collected $45 million in up-front payments from its deals prior to the Genentech agreement, in addition to its $33 million in VC money. With an annual burn rate he pegged at less than $10 million net, the company may not need a Series C round for some time, if it needs one at all.

Still, Tregay said, Forma has identified eight to ten programs it may want to fund with the proceeds of the new agreement. The company typically identifies 15 to 20 new targets for potential drug discovery each year.

- Paul Bonanos ( p.bonanos@elsevier.com )

Genentech Licenses A Cancer Metabolism Program From Forma, With Option To Buy

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