A run of positive clinical trials and lucrative financing deals is injecting fresh energy into the biotechnology industry, which has been hit particularly hard in the economic downturn.
In the latest development, scheduled to be announced Thursday, Exelixis Inc. of South San Francisco, Calif., is licensing two of its experimental cancer drugs to French pharmaceutical giant Sanofi-Aventis SA in a pact in which Exelixis will get an upfront payment of $140 million.
The news comes on the heels of Tuesday's report by MAP Pharmaceuticals Inc. that its experimental migraine-headache medicine achieved strongly positive results in a late-stage trial.
Also Tuesday, Amgen Inc. agreed to pay $50 million to exercise its option on a heart-failure drug being developed by Cytokinetics Inc. Last week, Johnson & Johnson said it agreed to pay $894 million for Cougar Biotechnology Inc., which has a promising prostate-cancer drug.
The positive signs for biotech include a secondary stock offering by Dendreon Inc., which raised $221 million after reporting positive late-stage data on prostate-cancer drug Provenge.
The flurry of activity follows months of doldrums in the biotech industry, largely reflecting woes in investment banking and the overall economy that all but sealed off access to financial markets -- especially for small companies without products on the market. Despite expectations that big pharmaceutical companies would go on a shopping spree for biotech properties, the drug giants -- with such pending deals as Pfizer Inc. buying Wyeth and Merck & Co. merging with Schering-Plough Corp. -- invested in acquiring each other instead.
"The process we've been going through has been painful for the small companies," says Jim Birchenough, a biotech analyst at Barclays Capital. The new developments "may be the beginning of a better environment for biotech overall," says the analyst, who recently upgraded his rating on the U.S. biotechnology sector to positive from neutral.
He sees companies such as Dendreon and Rigel Pharmaceuticals Inc., which has a drug for rheumatoid arthritis in development, as ripe for partnership agreements or acquisitions.
The Biotechnology Industry Organization, a trade group, says 40% of the 330 publicly traded biotech companies are operating with less than a year of cash in the bank. Many of them have limited prospects for raising enough money to get their best drug candidates through late-stage development to gain consideration by the U.S. Food and Drug Administration.
The initial public-offering market in the U.S. is tight. Since the beginning of 2008, there has been just one biotech IPO.
Exelixis has thrived by negotiating rights to several of its large pipeline of drug candidates in early to mid-stage development. In December, it signed a pact with Bristol-Myers Squibb Co. for two such drugs for an initial payment of $195 million and an additional $45 million due this year. It has since reached a smaller pact with Boehringer Ingleheim GmbH.
With the Sanofi deal, which includes an additional $21 million over the next three years, Exelixis will have raised more than $400 million through licensing deals since late last year. "We're in the best financial shape we've ever been in," says George A. Scangos, chief executive officer at Exelixis, which was founded in 1994.
Hundreds of millions in additional payments are possible if certain development milestones are met. Sanofi would sell the drugs if they reach the market, paying royalties to Exelixis.
The latest agreement focuses on two compounds, known as XL756 and XL147, that are in early- to mid-stage human studies. Both drugs block an enzyme called PI3 kinase, which is known to regulate a pathway involved in the growth of many types of solid tumors and is considered a promising new approach to fight cancer.
Exelixis has licensing pacts for eight cancer compounds, and it has three others in human testing on its own. None of its drugs has yet reached the market, but one is in late-stage development.
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