Senior Staff Writer

EntreMed Inc. managed to resolve ongoing litigation, bring in the necessary cash to fund operations for some time and help alleviate issues surrounding a potential Nasdaq delisting through one move - the signing of a deal valued at about $27 million with Celgene Corp. for EntreMed's thalidomide analogue program.

"This puts EntreMed on firm footing, makes us financially stable, and we can focus on our small-molecule programs," said Neil Campbell, EntreMed's president and chief operating officer.

Celgene, of Warren, N.J., receives in the deal all rights to Rockville, Md.-based EntreMed's thalidomide analogue program, including ENMD 0995 and ENMD 0997. Celgene will assume certain EntreMed license payment obligations and will have the option for one year to select one of three preclinical products to develop. For all that, EntreMed receives $10 million up front, and EntreMed will issue $16.75 million in convertible preferred stock and warrants to Celgene. The preferred stock in the deal is convertible into 16.75 million shares at $1 per share. The warrants may be exercised for up to 7 million shares after six months at $1.50 per share, which could add $10.5 million to the deal. The exercise of warrants for cash is not included in the $27 million valuation.

EntreMed's stock (NASDAQ:ENMD) rose 34 cents Thursday, or 39.5 percent, to close at $1.20. Celgene's stock (NASDAQ:CELG) gained 41 cents to close at $21.88

If Celgene converts all the preferred stock and exercises all the warrants for cash, Celgene would own about 49 percent of EntreMed's outstanding shares. Celgene also has the right to place two directors on EntreMed's board.

The deal marks the second agreement between the companies concerning thalidomide. EntreMed licensed thalidomide in 1998 to Celgene for angiogenesis-related uses only. The licensed molecule, now called Thalomid, is approved as a treatment for leprosy, although it is used off label to treat multiple myeloma and other cancers, the company said. Through the first nine months of 2002, the product generated $85.1 million in sales.

ENMD 0995 is in Phase I trials for multiple myeloma now, Campbell said. ENMD 0997 is preclinical, Campbell said.

The companies have been battling each other in the courts. As recently as December, Celgene initiated further legal action pertaining to the intellectual property patents of ENMD 0995. Celgene submitted a brief in opposition to EntreMed's request that the U.S. District Court for the District of Columbia dismiss a lawsuit filed by Celgene against the U.S. Patent and Trademark Office and in opposition to EntreMed seeking to block the issuance of patent applications protecting ENMD 0995. However, with the agreement, the court issues are washed away.

"It's settled by this transaction," Campbell told BioWorld Today. "Both sides will dismiss the suits and the [intellectual property] becomes part of the license agreement."

As of Sept. 30, EntreMed had cash and cash equivalents of about $4.8 million. Nasdaq notified the company that it was in danger of being delisted because it did not meet the requirement of having a $50 million market valuation of its common stock. EntreMed appealed in November, and Campbell said that part of its plan for continued listing "requires us to do several things, and [the Celgene deal] helps us do some of that."

All of which leaves EntreMed where? In August, the company reorganized to focus on its core products, dropping about 30 employees. It later reduced its work force further to about 50 people. The company has said it is moving toward being a small-molecule-focused company and anticipates burning about $12 million a year. Campbell said that with the thalidomide analogue program licensed out, its Panzem program is now at the company's forefront. (See BioWorld Today, Aug. 8, 2002.)

Panzem, a recombinant version of a naturally occurring compound, is in Phase II work for oncology. About a year ago, EntreMed and Allergan Inc. finalized a deal to develop Panzem for ophthalmic uses. That deal had a potential value to EntreMed of about $40 million, including milestones. The company also is looking to use Panzem as a coating in drug-eluting stents.

The company also has Angiostatin being tested in combination with chemotherapeutics in non-small-cell lung cancer Phase II trials. Another EntreMed product, Endostatin, is being studied in Stage IV metastatic melanoma in Phase II trials.

Beneath that, the company's pipeline includes a receptor program centered on growth factors that is still preclinical.

Celgene also received intellectual property covering thalidomide analogues from Children's Hospital, Boston, as part of the terminated litigation, and Celgene entered a five-year research collaboration with the hospital to develop cancer agents.

Separately, Celgene said it completed its acquisition of Anthrogenesis Corp. The acquisition was originally disclosed in November and valued at about $45 million in stock and options. Anthrogenesis, of Cedar Knolls, N.J., focuses on human stem cell therapeutics and regenerative medicine. (See BioWorld Today, Nov. 15, 2002.)