Assistant Managing Editor

CytRx Corp. came to the rescue of cash-strapped Innovive Pharmaceuticals Inc. with an acquisition offer worth up to $25 million, with most of that coming from future sales milestones.

That deal bolsters CytRx's pipeline - and helps the company move into the hot oncology space - while also offering a near-term opportunity that could buy the firm some time to finish up the animal toxicology studies needed to lift the clinical hold on lead drug arimoclomol in amyotrophic lateral sclerosis. The most advanced product from Innovive's pipeline is a tamibarotene, an oral, synthetic retinoid that could reach the market as early as 2010 in acute promyelocytic leukemia (APL).

Innovive's assets offer "relatively low regulatory risk" and could provide "an accelerated pathway to near-term commercialization," Steven A. Kriegsman, CytRx's president and CEO said during a conference call. "It's an attractive pipeline," he added, that "more than compensates for the up-front investment we are making."

As it stands, CytRx is getting Innovive at a bargain-basement price. The Los Angeles-based firm agreed to pay $3 million up front to Innovive shareholders and will assume about $3.7 million in liabilities upon the close of the deal, expected in the third quarter.

New York-based Innovive has invested about $41 million - most of that comprising debt and equity financing - since its 2004 inception. But the firm is in dire need of capital. As of March 31, Innovive had a mere $301,962 in the bank, and recently reduced employee headcount and suspended some of its earlier development programs to conserve cash.

Only a year ago, Innovive's market cap was more than $50 million, but "gradually, because of the financial market difficulties, they ran low on funds, and management decided to put [the firm] on the market," Kriegsman told BioWorld Today.

Pending successful commercialization of Innovive products, CytRx will make up to an additional $18.3 million in sales-based milestone payments to Innovive shareholders according to a prespecified earn-out schedule: Shareholders will earn $2 million when product sales reach $2 million in a particular year; $5 million when sales reach $15 million; another $5 million when sales reach $30 million; and $6.3 million when sales hit $40 million. Those payments will be made in either cash or CytRx stock.

Shares of Innovive (OTC BB:IVPH) rose 2 cents, or 13.3 percent, to close Monday at 17 cents.

For its part, CytRx sees the deal as an ideal chance to move into the cancer space, an area that has seen more than its share of highly competitive deals in the past few weeks. Late last month, Hayward, Calif.-based Kosan Biosciences Inc. was snatched up by New York-based Bristol-Myers Squibb Co. in a $234 million deal that marked a hefty premium for Kosan shareholders. Other recent deals include the acquisition of German cancer firm U3 Pharma AG by Tokyo-based Daiichi Sankyo Co. Ltd. for $235 million and London-based Antisoma plc's $52.2 million offer for privately held Cambridge, Mass.-based Xanthus Pharmaceuticals Inc.

For the past couple of years, CytRx looked for "oncology opportunities that were compelling," Kriegsman said. The firm also specifically wanted clinical-stage candidates. For instance, lead Innovive program tamibarotene already is sold in Japan and is in a pivotal Phase II trial - complete with special protocol assessment from the FDA - in refractory APL, an orphan drug indication that could generate as much $20 million in U.S. sales per year.

If CytRx succeeds in securing an expanded label for maintenance and front-line therapy, the overall market could reach $150 million in the U.S. and Europe.

The three other Innovive programs are earlier in development, though they've already shown some promising efficacy. INNO-406, a dual Bcr-Abl and Lyn-kinase inhibitor, is nearing the end of a Phase I study in acute myeloid leukemia, and data so far have indicated that the drug can generate clinical responses with fewer side effects, Kriegsman said, adding that upon completion of Phase I, "we'll quickly move in the direction of a Phase II program."

INNO-206, a prodrug of doxorubicin, finished Phase I development, where it demonstrated safety in doses up to six times the standard dose of doxorubicin, and CytRx anticipates evaluating design for a Phase II study with the FDA. And the fourth product, INNO-305, is a cancer vaccine immunotherapeutic, also known as WT1 (Wilm's tumor antigen 1) heteroclitic peptide immunotherapy. That product is in a Phase I trial in patients with AML, myelodysplastic syndrome, non-small-cell lung cancer and mesothelioma.

Shares of CytRx (NASDAQ:CYTR) fell 16 cents to close Monday at 83 cents, as favorable terms of the acquisition were overshadowed by further news of a delay with the company's lead molecular chaperone amplifier program, arimoclomol. The firm's Phase IIb trial in ALS was placed on clinical hold in January after the FDA asked for additional analyses of animal toxicology data, though Kriegsman said dosing in all human trials, even up to 600 mg three times daily, resulted in "no apparent drug-related safety risks." (See BioWorld Today, Jan. 23, 2008.)

The company toyed with the idea of proceeding with a lower dose in the Phase IIb study, but ultimately opted first to conduct a further animal toxicology test to address the agency's issues so "we may be able to proceed with a [Phase IIb] dose that we believe gives the best chance of success," he told investors on the call.

That likely will delay the arimoclomal program by about a year, but Kriegsman maintained that it wasn't negative news. "It's just part of the reality of the new marketplace and dealing with an FDA that's very cautious," he said. "We still don't believe there are [safety] issues with arimoclomol, but we intend to work to satisfy the FDA."

CytRx also plans to move forward with a second molecular chaperone amplifier, iroxanadine, which is expected to begin a Phase II trial in the first quarter of 2009 in diabetic foot ulcers. The company also is working on identifying next-generation compounds and aims to use the molecular chaperone technology to screen for possible inhibitors (rather than amplifiers) in the oncology space.

CytRx also holds a 49 percent stake in its early 2007 spinout of Worcester, Mass.-based RXi Pharmaceuticals, an RNAi-focused firm that gained its independence with a listing on Nasdaq in March. RXi, which started with a $15 million investment from CytRx, has a market cap of about $100 million.