Quanticel Pharmaceuticals Inc., a fledgling, privately held San Francisco biotech, Celgene Corp., of Summit, N.J., and California venture capital firm Versant Ventures have agreed to a 3.5-year, $45 million "build to buy" cancer drug collaboration.

In exchange for its $45 million commitment, Celgene will get an equity stake in Quanticel and an exclusive option to acquire the company. Celgene also can extend the deal with additional funding.

For its part, Quanticel, which was founded in 2009 by Stanford University scientists Stephen Quake and Michael Clarke, will conduct single-cell genomic analysis of patient tumor samples and identify predictive biomarkers for Celgene.

Quanticel will also perform independent drug discovery to generate its own drug candidates, which Celgene will be able to access through acquisition. Quanticel has about 10 employees and expects that number to grow.

Versant, which incubated Quanticel and by design, remains the sole capital investor in the company, holds that the deal provides the VC with a potential acquirer and expects greater value and liquidity than through traditional venture funding models.

Quanticel CEO Stephen Kaldor, who also is a partner with Versant, told BioWorld Today that the arrangement might best be described as "build to buy."

An early pharmaceutical partnership allows Versant and Quanticel to build the latter in a way that fits the needs of a potential acquirer like Celgene, explained Kaldor, who was the CEO of Ambrx Inc., of La Jolla, Calif., from 2007 to 2010 and president and CSO from 2002 to 2005 of Syrrx, a San Diego company acquired in 2005 by Takeda Pharmaceutical Co. Ltd., of Osaka, Japan, for $270 million.

Kaldor said there are a number of elements that make the model attractive for Quanticel, Celgene and Versant.

First, there is what he describes as "shared access to exceptional capabilities." The model allows Celgene early access to Quanticel's technology and benefits Quanticel through Celgene's capabilities, insights and funding support.

Second, there is a pre-negotiated acquisition that makes the financials appealing to all parties, he said. It allows Celgene an option for acquisition while limiting risk and providing a potential path to liquidity for Quanticel and Versant.

Last, it is a simple, un-syndicated approach.

But if the build to buy approach is such a good idea, why hasn't it been used more widely before?

"It is rare to have such an early meeting of the minds between a privately held biotech, a pharma partner and a VC firm," said Kaldor. "The Quanticel-Celgene-Versant partnership was enabled by strong, existing relationships involving trust and mutual respect."

Bradley Bolzon, managing director of Versant, stressed that "build to buy" is the prevailing strategy now for Versant, which specializes in seed, early stage and selective later-stage investments in medical devices, biotechnology and pharmaceuticals and has more than $1.6 billion in capital and 95 companies in its portfolios.

"Versant does have similar incubation-based business models under development as part of its biotech investment strategy," Bolzon said. "The common formula is lining up at the outset transformative technologies, entrepreneurs with world-class management teams and strategic acquirers."

Neither Kaldor nor Bolzon were aware of any similar agreements that have involved an established company such as Celgene partnering with an early start-up company to take an option to acquire. Moreover, the involvement of a VC in the transaction is unique.

"This type of collaboration is a viable alternative to other approaches, and its potential success should be judged only once the collaboration has produced true value for all concerned," said Kaldor.

The deal would appear to be a fit for Celgene, a global company that has built its reputation with innovative therapies for the treatment of cancer and inflammatory diseases, and which is having a strong year financially.

A week earlier, Celgene once again beat analyst expectations and reported third quarter revenues of $1.25 billion, a 37 percent increase over the same period last year and ahead of the $1.2 billion analysts had expected. Non-GAAP net income was $469 million and non-GAAP earnings per share were $1.02, while analysts had expected 94 cents.

Most of Celgene's revenues came from sales of multiple myeloma drug Revlimid (lenalidomide), which garnered $820 million in the third quarter, myelodysplastic syndrome drug Vidaza (azacitidine) at $191 million and breast cancer drug Abraxane (nab-paclitaxel) at $114 million. Celgene raised its full year 2011 financial guidance to revenue between $4.8 billion and $4.85 billion and EPS between $3.78 and $3.80.