Celgene and Sutro Biopharma have revised the terms of the immuno-oncology pact they entered into in 2014. The reshuffle sees Celgene secure a stake in four assets that are advancing toward the clinic and opportunities to invest in Sutro at the expense of its option to buy the biotech outright.

Buyout options have been a recurring theme of Celgene’s drive to get a finger in every promising pie in biotech. But, as Acetylon can testify, not all of these options result in M&A. For Sutro, Celgene’s decision to pass on the buyout sees it lose the chance to make a swift exit but gain the freedom to try to establish itself as a breakout name in the world of antibody-drug conjugates (ADCs) and bispecific antibodies.

Sutro landed the original immuno-oncology deal in 2014. Back then, Celgene paid $95 million and committed to more than $1 billion in milestones to team up with Sutro and land the chance to buy the biotech down the line. 

Three years later, both companies—and the broader immuno-oncology sector—look a little different. And Celgene’s changed leadership team has decided it is best served by picking up rights to the choicest fruits of the collaboration while leaving Sutro to go forward as an independent company.

As in the 2014 deal, Celgene has the worldwide rights to the first collaborative program to get to an IND, which is likely to be a BCMA-aimed ADC that makes up one part of the Big Biotech’s multifront attack on the popular target. Celgene is yet to say when the ADC will get to the IND stage. But Sutro CEO Bill Newell sees it reaching the clinic "in the not too distant future."

Beyond that, the revised deal gives Celgene the option to pick up worldwide rights to the second program to reach IND status, something it lacked under the 2014 pact. Celgene is also in line to gain the ex-U.S. rights to two other programs. 

That positions Sutro to bolster its own pipeline with the rights to two drugs in its home territory. Newell put U.S. rights to programs on his wish list when he sat down to renegotiate the deal with Celgene. The list also included continued financial support from Celgene. Sutro achieved that by securing a fresh upfront payment and revised set of future milestones, although, unlike in 2014, it is keeping quiet about how much money is on the table. 

Whatever money flows into Sutro as a result of the deal will be welcomed by a company that is increasingly hungry for capital. Sutro plans to take two of its own assets—ADCs targeting CD74 and folate receptor alpha—into the clinic next year. The need to fund those trials prompted Newell to see the revision of the Celgene deal as a chance to unshackle Sutro from some of the constraints of that agreement.   

"With a couple of programs heading to the clinic in 2018, the ability for us to unlock other sources of capital—which is something we were constrained to do in our prior relationship—was something we felt was important for the future of our product opportunities," he said.

Under the terms of the revised deal, Sutro is free to consider all financing options, including the IPO route that was barred by the fine print of the 2014 agreement. And, while Sutro is yet to get a drug into the clinic, the recent experience of other biotechs on Wall Street has emboldened Newell to give serious thought to an IPO.

"One alternative is to do another private round. But public markets have been reasonably available to strong companies over the last little bit of time, so we're actually thinking about that as well," he said.

Sutro is still in the early stages of thinking about its next financing steps. But when it decides to pull the trigger and add to the $100 million in venture capital it has raised to date, it knows one potential backer is already in place: Celgene. The revised deal gives Celgene an option to add to the Sutro stake it acquired in 2014 by participating in a future private financing and a private placement at the same time as an IPO.

Newell and his team will weigh the financing options in parallel to talks with potential partners. The 2014 Celgene agreement prohibited Sutro from striking additional alliances, something Newell said made sense at the time. Back then, Sutro was working on six programs with Merck KGaA and about to embark on a collaboration with Celgene that looked at about 15 targets.

"We had quite a lot on our plate," Newell said.

Now, with Celgene narrowing its focus to four candidates, Newell thinks Sutro has the capacity to add to its list of partners. And the revised agreement with Celgene frees it to do so. The next step is to get in touch with the companies Sutro was forced to rebuff after hooking up with Celgene. In deciding on which, if any deals, to strike, Newell will draw on the experiences of the two existing alliances.

"The thing we like about Merck KGaA and Celgene is they brought to us a real deep understanding of the tumor microenvironment and targets that they were particularly excited about. And that was very complementary to our skills," he said.

Newell notes "a number of companies" have made investments in oncology comparable to those made by German Merck and Celgene. And thinks that will ensure interesting conversations await Sutro as it strikes out as a newly-liberated biotech, with all the opportunities and risks that entails.