Roche AG unit Genentech is plunking down $725 million in cash, plus contingent milestone-based payments of up to $1 billion, to purchase Seragon Pharmaceuticals Inc. and its portfolio of oral selective estrogen receptor degraders (SERDs), designed to treat hormone receptor-positive breast cancer.

The acquisition represents just the second in Genentech's 38-year history. The first, a takeover of Tanox Inc., for $20 per share, or $919 million, was centered on asthma drug Xolair (omalizumab), developed in a three-way deal that also included Novartis AG, of Basel, Switzerland. That price tag was crafted, in part to hold off Novartis, which held a 14 percent stake in publicly traded Tanox. (See BioWorld Today, June 23, 2003, and Nov. 13, 2006.)

Seragon's lead product candidate, ARN-810, is in a phase I trial in patients with ER-positive metastatic breast cancer. Seragon has a second SERD candidate that has potential in ER-positive breast cancer as well as also ER-positive endometrial and ovarian cancer.

James Sabry, senior vice president and global head of Genentech Partnering, said the Seragon deal was designed "to move these compounds into our portfolio as quickly and effectively as possible."

Although numerous therapies are approved to treat hormone receptor-positive breast cancer, the disease still accounts for more than half of the 40,000 breast cancer-related deaths of women in the U.S. each year, Sabry said, adding that the Seragon technology could "advance our breast cancer research by years."

Seragon's SERDs are designed both to block estradiol action at the estrogen receptor and to clear the estrogen receptor from the cell altogether. SERDs are believed to change the shape of the estrogen receptor in a manner that targets it for elimination by the cell, with applications not only in hormone receptor-positive breast cancer but, potentially, other cancers driven by the estrogen receptor.

The mechanism of action is critically important, Sabry said, because it could allow the development of effective therapies for women whose hormone receptor-positive breast cancer responds to early treatment with tamoxifen or aromatase inhibitors – which work mainly by blocking estrogen binding to the receptor – but eventually becomes resistant to conventional drugs. When cancer returns in these patients, "the receptor is required but not the estrogen, so the drugs that we have don't help," he explained.

The Seragon technology could provide a one-two punch in these cancers.

"When science shows us new ways of managing and treating disease, we like to follow that science all the way through into the marketplace," Sabry told BioWorld Today. "This is exactly the type of thing that Genentech does very well."

SERAGON'S TEAM 'PLAYED OUT ALL THE OPTIONS'

Seragon rose to the top quickly. The privately held San Diego biotech was spun out of Aragon Pharmaceuticals Inc. in August 2013 just prior to Aragon's acquisition by Johnson & Johnson. The company's leadership remained largely intact, including former Aragon CEO Rich Heyman, a management team of former Aragon execs and board members who had helped to shepherd Aragon through its formative years. (See BioWorld Today, June 18, 2013.)

In October 2013, Seragon landed a $30 million series A round that included investors Venbio, Topspin Fund, Aisling Capital, Orbimed Advisors and the Column Group. All had participated in Aragon's $50 million series D round the previous year. (See BioWorld Today, Oct. 5, 2012, and Oct. 17, 2013.)

Seragon's mission was evident even in its name, which is an acronym for "selective estrogen receptor antagonist" combined with a derivative of "gone."

Genentech began eyeing the receptor degradation technology when it was still at Aragon, whose androgen receptor program, including phase III-ready ARN-509 for castration-resistant prostate cancer, hooked New Brunswick, N.J.-based J&J.

At the time of that deal, "we were at a crossroads," recalled Heyman, Seragon's president and CEO. "We needed to raise quite a bit of additional money to advance our prostate cancer compound to phase III trials, and we were very, very excited about the second child, which was the drug targeting breast cancer."

After reviewing the usual options, Aragon decided to seek a buyer "that was more biased towards advancing the prostate cancer program" while allowing the company to spin out the breast cancer assets. J&J, which had planted a big stake in prostate cancer with Zytiga (abiraterone acetate), agreed to those terms "free and clear," Heyman said.

Twenty-four hours before the J&J purchase closed, Heyman activated Seragon. On a Friday afternoon, he parked the SERD assets there and terminated Aragon's employees. That weekend, he was Seragon's only employee. When the new company opened for business Monday morning, he re-hired the staff and the SERD program continued without missing a beat.

The Genentech deal wasn't quite that convoluted, but many of the precipitating factors were the same.

"The compound, 810, was advancing nicely through a classic phase I study," Heyman told BioWorld Today. "The data were encouraging, albeit early. And we were again at a crossroads."

Seragon explored the idea of raising another private round, going public or securing a pharma partnership or buyout. The company "played out all the options," attracting multiple suitors over the course of its discussions, but Genentech rose to the top.

"Genentech/Roche clearly has a very strong track record in oncology and, in particular, they've developed some wonderful drugs to help patients with breast cancer," Heyman said. Given that legacy, both companies looked at the opportunity to transfer assets "earlier rather than later," he added.

The SERDs nicely complement Genentech's existing therapies in breast cancer, including Herceptin (trastuzumab), Kadcyla (ado-trastuzumab emtansine) and Perjeta (pertuzumab), as well as programs in development by the South San Francisco-based company and parent Roche.

The Seragon transaction is expected to close in the third quarter, subject to customary conditions, including clearance under the Hart-Scott-Rodino Act. Sabry said Genentech will work with Seragon's team during the transition to maintain momentum for ARN-810. The open-label phase I study, which is expected to enroll approximately 72 patients at sites in the U.S., is evaluating the maximum tolerated dose for a follow-on phase II as well as the compound's safety, according to Cortellis Clinical Trials Intelligence.

Genentech is in the best position to "turbo-charge" Seragon's assets, Heyman said.

"We were able to negotiate a deal that is very good for our investors and employees," he said. "But it's also important to make sure that a partner is strategically aligned. We felt very comfortable with the deep expertise that Genentech/Roche has in breast cancer and with their commitment to hormone receptor-positive breast cancer. In the end, both companies wanted not just to create value for investors but, most importantly, to help patients."