Bristol's Private Sting Should Have Venture Financiers Celebrating

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Includes: ADRO, ALIOY, BMY, CELG, IDRA, NVS
by: EP Vantage

Big-ticket merger and acquisition activity might well be set on pause at present, but yesterday's swoop by Bristol-Myers Squibb (NYSE:BMY) on IFM Therapeutics will at least show deal bankers that when the asset is right, there is money to be made.

Venture financiers will have much more cause for celebration: with the $300m Bristol deal IFM's co-founders, Atlas Venture, could see the entire investment in its Venture Fund X returned in one fell swoop. As pharma bemoans the bloated valuations of listed biotechs, it will not go unnoticed that IFM is a preclinical business that had raised just $27m since inception.

Clearly IFM's work - the group targets innate immunity using agonists of the Sting and NLRP3 pathways - was something Bristol just had to own, and it is possible that a young, private business was less cumbersome to acquire than a listed biotech would have been.

Sting in particular has been of interest recently: this protein complex is thought to play an important role in promoting an antitumor response by the innate immune system, and the promise of targeting it was highlighted when Aduro Biotech (NASDAQ:ADRO) - another preclinical company - struck a $225m deal with Novartis (NYSE:NVS) (Pre-IPO Sting gives Novartis a stake in Aduro, March 30, 2015).

Aduro's ADU-S100 is the industry's most advanced Sting asset, and Nimbus Therapeutics is also investigating this pathway. Meanwhile, Bristol sees IFM's NLRP3 agonist as a possible first-in-class asset; Idera Pharmaceuticals (NASDAQ:IDRA) seems also to have done some non-oncology work on NLRP3.

In addition to $300m up front the Bristol deal could see IFM's backers get a further $1bn in milestones as the Sting and NLRP3 projects advance. Moreover, Sting and NLRP3 antagonists, for autoimmune conditions, remain outside the takeover and are being spun into a new entity, also called IFM Therapeutics.

Second exit

This is the second early exit for Atlas' Venture Fund X, after Celgene (NASDAQ:CELG) bought Delinia, and should prompt confidence across the biotech VC financing world. EP Vantage's just published half-year review found that this year's venture investments are on track at least to match 2016, and that moreover there is a move away from massive raises seen previously.

The Bristol/IFM deal backs this up. The fact that Atlas and Abingworth managed to turn $27m into $300m in the space of a year underscores the fact that private groups with monster investments under their belts are not necessarily the ones that yield the biggest returns.

Still, IFM on its own barely moves the needle for biopharma's takeover totals, even if it does show that we are not in a complete M&A drought. The EP Vantage report shows 2017's first-half M&A tally almost matching that seen 12 months earlier, but only thanks to Johnson & Johnson's (NYSE:JNJ) $30bn takeout of Actelion.

If another similar move does not materialize in the second half the year as a whole could be a serious letdown for deal bankers.

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