Biotechnology companies struggling with funding shortages because of the global credit crisis will be scrambling for the attention of cash-rich drugmakers at the world’s largest annual meeting of cancer doctors.
Already, biotechnology companies are being more selective about what compounds they invest in and which studies they’ll undertake, said Bruce Chabner, a professor of medicine at Harvard Medical School in Boston. The American Society of Clinical Oncology, which starts May 29, may give at least 30 companies with no marketed drugs their last best chance to seek deals with larger drugmakers eager to expand in the $78 billion cancer market, according to industry executives, analysts and investors interviewed this month.
Failing to secure a development partnership, or to be sold outright, may force research delays and project shutdowns that can add years to the time it takes to bring a drug to market, or end the effort entirely, said Steven King, Chief Executive Officer of Peregrine Pharmaceuticals Inc., a biotechnology company with less than a year of cash on hand.
“The current economy has made this the most important year, of all the years I can remember, for small biotechnology companies to get the attention of potential partners and investors at ASCO,” King said in a telephone interview.
It costs $1 billion and takes about 10 years to bring a medicine to market, according to the Tufts Center for the Study of Drug Development in Boston. Because of the credit crisis, biotechnology companies are accepting lower prices for their research, and looking to make deals earlier in the development process, said Steve Elek, in charge of health-care transaction services for PricewaterhouseCoopers LLC in New York.
Cash Burn
“Without access to capital, early-stage biotechnology companies are looking to sell when a year or two ago they would never think of it,” Elek said in an interview. “Ideally they would be able to move along a little further in the process to maximize value, but the cash burn makes that not feasible for them. I expect to see a lot more biotech M&A activity over the next six to twelve months.”
Peregrine, Cougar Biotechnology Inc. and Sunesis Pharmaceuticals Inc. are among biotechs that will report key data on cancer treatments at the meeting, according to the companies. These companies have less cash than they will need during the next year, according to U.S. regulatory filings.
Testing Phases
The companies have drugs that have proven promising in the early laboratory tests. That is the first phase of three testing stages generally required to submit a new drug for approval by the U.S. Food and Drug Administration.
The meeting will spotlight more detailed data showing safety and effectiveness in patients. This second stage of trials can often persuade drugmakers to partner with biotech companies on further development of a medicine, or to buy them outright. It’s that financial decision that company executives, analysts, doctors and investors say has become more tentative, and crucial, because of the recession.
“Phase two data is really the sweet spot for deals,” said Glen Giovannetti, head of Ernst & Young’s biotech group, in an interview. “That’s the point where a pharmaceutical company can buy with a reasonable risk reward valuation, and it’s also the point where the biotech company needs a huge capital infusion.”
At the same time, drugmakers led by Pfizer Inc. and Bristol-Myers Squibb Co., both of New York; Eli Lilly & Co. of Indianapolis, Indiana; and GlaxoSmithKline Plc, of London, have said this year they are looking to the cancer market for new products to refill their pipelines. Medicines worth more than $24 billion in sales face competition this year.
Potential Investors
King has been talking to potential investors for months about his company’s lead product, bavituximab, for breast cancer. The drug is a laboratory-engineered antibody designed to shrink tumors by unleashing an immune system attack against the vessels that feed them, he said in the interview.
Peregrine, of Tustin, California, will present data at ASCO from the second stage of testing. The second phase is critical for small biotechnology companies because it provides the first glimpse at whether the drug is effective in patients, after showing promise in the laboratory and passing safety testing in volunteers. It also signals whether a larger, stage-three trial is appropriate.
Peregrine Loss
Peregrine reported a net loss of $23.2 million in its last fiscal year, ended April 30, 2008, on revenue of $6.1 million from a U.S. government contract to develop bio-defense compounds and from a manufacturing subsidiary. The company had $10.9 million in cash and equivalents at the end of its fiscal third quarter ended Jan. 31, Peregrine said in a March 12 regulatory filing. That’s enough cash to last until the end of October, Peregrine said.
“We’re not in a position to move bavituximab forward as aggressively as we would like,” King said. “We have set up a number of meetings at ASCO with potential partners and investors to see if we can accelerate things.”
Peregrine rose a penny to 48 cents at 9:41 a.m. in Nasdaq Stock Market composite trading.
Sunesis Pharmaceuticals, based in San Francisco, has enough financing to push its first drug through to an approval application with the FDA, said Steve Ketchum, head of research and development.
Sunesis Funding
Sunesis reported a loss of $37.2 million last year. The company had $4.3 million in cash and marketable securities at the end of the first quarter of this year, enough along with a round of financing from managers and private investors to fund operations through the end of 2009, the company said in a May 6 regulatory filing.
At ASCO, Sunesis will show early human trial data for its lead product, voreloxin, for acute myeloid leukemia. Voreloxin is from a new class of medicines chemically similar to the antibacterial drug quinolone. It’s designed to trigger tumor cell death by damaging DNA. Sunesis has also started tests in ovarian cancer that can’t be finished without funds from a partner or buyer, Ketchum said.
“ASCO this year could be an important inflection point for voreloxin going forward,” Ketchum said in an interview.
Sunesis was unchanged at 9:34 a.m. in Nasdaq Stock Market composite trading.
By 2020, more than 16 million people worldwide will be diagnosed with new malignancies and 10 million will die annually from cancer, according to the U.S. Centers for Disease Control and Prevention in Atlanta.
Competition Increases
At the same time, competition for tumor-fighting therapies, a market worth $78 billion, has increased. There are more than 861 experimental cancer therapies in development, a 33 percent jump in two years, according to the Pharmaceutical Research and Manufacturers of America, a trade group located in Washington.
“Right now the cancer research process is so slowed down by cash shortages everywhere that companies are doing one trial instead of five at a time and having fewer shots on goal,” said Chabner, the Harvard oncologist, in a telephone interview.
Los Angeles-based Cougar Biotechnology is racing to get its first medicine, for prostate cancer, to market ahead of a drug in development by Medivation Inc. of San Francisco. Both companies will present preliminary data at ASCO.
Cougar’s pill, abiraterone acetate, is the most anticipated early prostate cancer data at the meeting, said Brian Rini, an oncologist at the Cleveland Clinic in Ohio. Cougar could lose its edge in physician enthusiasm if the company can’t fund its trials fast enough to beat Medivation to market, he said.
Being First
“People get into a habit of using the first drug out,” Rini said in a telephone interview. “Companies who are not first have to get over that with a safer or more effective competitor and have much more better marketing.”
Cougar’s pill works by stopping tumor cells from making a hormone they need to survive and reproduce. In data from earlier testing, the medicine shrank tumors and prolonged life for men with advanced prostate cancer who had stopped responding to other therapies.
Cougar fell a penny, to $35, at 9:37 a.m. Nasdaq Stock Market composite trading.
Medivation’s similar therapy, MDV 3100, is in a new family of drugs, known as androgen receptor antagonists, that work by stopping the hormone testosterone from entering tumor cells. Medivation also has early data on its drug at ASCO.
The company received an up-front payment of $225 million in October when it formed a partnership with Pfizer to develop its Alzheimer’s disease therapy Dimebon, pushing cash and short-term investments to $200.7 million in the quarter ended March 31.
Medivation rose a penny, to $20.52, at 9:44 a.m. in Nasdaq Stock Market composite trading.
Acquisition Target
Cougar, at ASCO with the data from the second of three stages of testing, is the most attractive biotech acquisition target at the meeting, said Simos Simeonidis, an analyst with Rodman & Renshaw in New York, in an interview.
“We will see an acquisition any time from now until that phase three data comes out,” Simeonidis said.
Cougar Chief Executive Officer Alan Auerbach declined an interview request. Simeonidis said offers could come from Paris- based Sanofi Aventis SA, maker of Taxotere for prostate cancer, or others seeking to expand oncology offerings, including London-based AstraZeneca Plc or Lilly.
Poniard Pharmaceuticals Inc., based in South San Francisco, is also likely to attract buyers at ASCO, Simeonidis said. Poniard will have early trial results for its lead product, picoplatin, in prostate and colorectal tumors.
The drug is the first in a new generation of platinum-based chemotherapies that is designed to work in patients who stop responding to older alternatives.
Poniard Partners
“We think our data will provide not only a rationale to continue development of the product, but also be very appealing to potential partners,” Poniard Chairman and Chief Executive Officer Gerald McMahon said in a telephone interview.
Poniard has started speaking with potential partners about picoplatin and will continue those talks at ASCO, McMahon said. He declined to comment on whether a sale was also being discussed.
Poniard rose 20 cents, or less than a percent, to $3.20 9:37 a.m. in Nasdaq Stock Market composite trading.
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