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.

Source

What are the chances a deal will close?

“Id say maybe better than 50-50,” said analyst Les Funtleyder of Miller Tabak & Co.

Analysts say Pfizer, the maker of impotence drug Viagra and overactive bladder treatment Detrol, needs to do something dramatic to compensate for a revenue crash starting in November 2011. Thats when the worlds top-selling drug, $13 billion-a-year cholesterol fighter Lipitor, is expected to face generic competition.

At $60 billion, a deal between New York-based Pfizer and No. 12 drugmaker Wyeth of Madison, N.J., would be slightly less than the $66 billion Sanofi-Aventis merger from August 2004. Coincidentally, $60 billion is the same price Pfizer paid for its last big acquisition, Pharmacia Corp., in April 2003, said Erik Gordon, biomedical analyst and professor at University of Michigans Ross School of Business.

“Part of this is a financial trick,” he added. Wyeth has much more debt than Pfizer proportionally, he explained, and under complex but standard accounting practices, the combination would boost Pfizers earnings per share, possibly by 20 to 30 cents per share.

“That obviously isnt driving the deal, but its a bonus,” Gordon said.

Shares of Wyeth rose $4.91, or 12.6 percent, to $43.74. Pfizer shares were down most of the day but closed up 24 cents at $17.45.

Analysts said Friday that getting financing could be a big hurdle - it would have to be a cash-and-stock deal, with Pfizer still likely to have to borrow billions - and the Federal Trade Commission might require the companies to divest some products.

Pfizer Chief Executive Jeff Kindler, barely in the job for two years, had to take drastic action to get the company out of its doldrums: flat revenue, little to show for its $7.5 billion in yearly research spending and the expected loss of more than 70 percent of its 2007 revenue by 2015.

Its run of iconic blockbusters - Viagra, Lipitor, antidepressant Zoloft, plus blood-pressure blockbuster Norvasc - is a fading memory and its research labs have been so unproductive that it closed its mammoth research lab in Ann Arbor, Mich., about a year ago and now is laying off 800 more research staffers.

Pfizers stock price is barely one-third of its July 2000 peak of $48.

Until now, the company has just been tinkering, cutting staff here, closing plants there and trimming its research portfolio.

Acquiring Wyeth would transform Pfizer almost overnight from primarily a pure pharmaceutical company into a broadly diversified health care giant, given Wyeths huge presence and revenue in biotech drugs, vaccines including the blockbuster pneumococcal vaccine Prevnar, veterinary medicines and consumer health products from Advil to Robitussin.

Biotech drugs, produced in living cells, are seen as hot commodities these days because they generally command high prices and have little to no risk of generic competition. Wyeths offerings include blockbuster rheumatoid arthritis drug Enbrel (sold jointly with Amgen Inc.), and hemophilia treatments Refacto, BeneFIX and Xyntha.

So is absorbing Wyeth Pfizers best option? Analysts are all over the map on that issue.

Source: jrc