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Stromedix and Biogen, the backstory

by Ben Fidler | Published February 17, 2012 at 12:47 PM

When Michael Gilman left his post in 2005 as the executive vice president of research at Biogen Idec Inc. -- a post he'd manned for five years -- he had no idea that a piece of that business would ultimately follow him to his next venture.

"I wasn't sure what I wanted to do," he said. "I was just looking for a change."

Fast forward about six years and Gilman finds himself headed for a reunion. On Tuesday he emerged from the sell side of the negotiating table with an agreement to flip Stromedix Inc., the startup company he formed in the wake of his exit, to his former employer Biogen for up to $562.5 million.

"It has been a whirlwind, as you might imagine," he said.

The metaphor is apt given the circular nature of Stromedix's story. Once Gilman left Biogen, he explained, he began networking and in 2006 hooked up with Atlas Venture, an international venture capital firm based in Waltham, Mass., that invests in early-stage technology and life-science companies.

"We had a fun afternoon just brainstorming," he recalled. "[But] my time at Biogen had gotten me interested in fibrosis. It was one of the many things on my list."

Indeed, the two partners then decided that Gilman would start up a fibrosis treatment company, based on the investment thesis that fibrosis -- the excess formation of scar tissue, or fibrotic tissue in an organ or tissue that can ultimately lead to organ failure -- is a "significant medical problem that is highly unmet that affects millions of people."

There were simply no approved drugs for fibrosis even as demand for treatment was substantial. Seeing potential for a windfall, Atlas and Frazier Healthcare Ventures stumped up a little more than $4 million in Series A backing to get a fibrosis project going. All Gilman needed was an asset to get his plan off the ground.

"They gave me an empty office and said, 'figure it out and let us know,' " he said.

As it turns out, Gilman didn't have to look very hard to find his target. His old employer, Biogen, had began developing a monoclonal antibody targeting fibrosis while he was still there -- a program that was falling through the cracks as part of a strategic review.

"This asset became not-strategic for them. They were essentially walking away from it," Gilman said. "[But] I'd always really liked that program."

Gilman worked the phones at Biogen hoping to pry away the asset. By 2007 he had hammered out a licensing agreement with Biogen using the cash obtained from the Series A financing. Gilman's company won worldwide rights to the fibrosis program, while Biogen got an equity stake, a "board observer seat" (according to Gilman), and the chance to hand a stalled program off to a group that truly wanted to incubate it. Stromedix was born, based on Biogen's former monoclonal antibody, which was named STX-100 under the new company's ownership.

"This way Biogen was putting the asset in the hands of a very focused management team and someone else's risk capital," Gilman said. "And it was great for us, because it was a much stronger asset than we really imagined being able to get a hold of."

Stromedix initiated a Phase 1 clinical trial of STX-100 and, in April 2008, was able to expand its investor team, bringing in $25 million in Series B funding from New Leaf Venture Partners, Bessemer Venture Partners, Red Abbey Venture Partners, Atlas and Frazier. And as Stromedix was doing so, Biogen kept a keen eye on it.

"[Biogen] stayed close to the program," he said, noting that the biotech earned some additional equity in Stromedix when the Phase 1 trials were initiated.

As STX-100 began advancing through the pipeline, pieces began to fall into place for a potential reunion. Biogen moved toward a widely publicized management shake-up and reshaped its pipeline "quite considerably," according to Gilman, dropping several programs and narrowing its focus to concentrate on areas including neurodegenerative diseases, hemophilia and autoimmune disorders.

"They identified fibrosis as one of those areas," Gilman said. "It's very closely aligned with their internal expertise in immunology."

Gilman noted that Stromedix wasn't looking for a buyer and was instead focused on initiating Phase 2 trials for STX-100, which is being tested in patients with idiopathic pulmonary fibrosis -- a typically fatal disease in which patients experience more and more trouble breathing due to scarring of the lungs. (STX-100 does not address cystic fibrosis.) Biogen, after looking at several fibrosis programs, ultimately found the one it spurned six years ago to be the best fit: "Which shouldn't be a surprise, since it was born under their roof," Gilman quipped.

Biogen made an offer and Stromedix ultimately accepted on Tuesday, giving it access to the biotech's considerable financial might to help it continue to develop STX-100. Given that Gilman said that Stromedix's investors poured in roughly $38 million in venture and debt financing, they appear to be poised to make a significant return. Biogen will pay $75 million upfront and as much as $487.5 million in milestone payments that Gilman said are largely tied to STX-100's clinical success.

Indeed, the Valentine's Day reunion looks to be a sweetheart deal.

"[This program] was probably never going to see the light of day," Gilman said. "It's a great deal for [Biogen] and for us, and ultimately it will be great for the patients."

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Tags: Biogen Idec Inc | M&A | middle market | Stromedix Inc.

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Stromedix and Biogen, the backstory

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