Biotech Sellers Dangle Data For Currency At Cancer Drug Bazaar
Already, biotechnology companies are being more selective about what compounds they invest in and which studies theyll 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. Its 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 & Youngs biotech group, in an interview. “Thats the point where a pharmaceutical company can buy with a reasonable risk reward valuation, and its also the point where the biotech company needs a huge capital infusion.”
Potential Investors
King has been talking to potential investors for months about his companys 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 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. Thats enough cash to last until the end of October, Peregrine said.
Seeking to Accelerate
“Were 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 4 cents, or 8.4 percent, to 48 cents yesterday in Nasdaq Stock Market composite trading.