Entering a research deal with Structural GenomiX Inc. that's intended to speed up the testing of drug leads, OSI Pharmaceuticals Inc. separately agreed to issue $135 million in convertible notes in a private placement.
"It was a tactical deal," said Kathy Galante, director of corporate communications for Melville, N.Y.-based OSI, speaking of the convertible notes.
"Nothing has changed in the core business," she added, noting that legal restrictions prevented her from disclosing details beyond those in a press release. "This was an opportunistic time, and we got good terms on the deal," she told BioWorld Today.
The notes will bear interest at 3.25 percent per year, payable semi-annually, and initial buyers have a 30-day option to purchase $15 million more on the same terms.
Expected to close Sept. 8, the sale involves notes convertible into OSI stock at an initial conversion price (subject to adjustment) of $50.02 per share - a premium of 32.5 percent to the stock's Tuesday closing price of $37.75.
On or after Sept. 8, 2008, OSI may redeem all or some of the notes for cash at a redemption price equal to the principal amount plus any accrued and unpaid interest. On that date as well as the same month and day in 2013 and 2018, holders can require OSI to buy all or a portion of their notes for 100 percent of the principal and interest.
The company's shares (NASDAQ:OSIP) ended Wednesday at $36.03, down $1.86.
OSI said it expects to use up to $20 million of the proceeds to repurchase shares of its stock in transactions negotiated concurrently with the offering, and $12.5 million to purchase U.S. treasury securities to be pledged as security for the notes in an amount sufficient to pay the first six interest payments.
The rest will be used to advance OSI's oncology franchise, including the possible buying of external assets, and for general corporate purposes.
With South San Francisco-based Genentech Inc., OSI has Tarceva (erlotinib) in Phase III trials in combination with chemotherapy in front-line treatment of lung cancer, and results are expected in the third quarter of this year. Phase III data with the drug as monotherapy in refractory lung cancer are expected late this year or early next, and Phase III data in pancreatic cancer are due in the first half of 2004. Tarceva also is in Phase II trials for brain cancer, which recently began. The third partner in Tarceva's development is Roche Holdings Inc., of Basel, Switzerland. (See BioWorld Today, Aug. 11, 2003.)
In the deal with San Diego-based Structural GenomiX, OSI is providing an undisclosed amount of up-front cash plus committed research funding and milestone payments.
Privately held Structural GenomiX in return will set about solving the 3-D structure of multiple OSI drug targets with its large-scale protein structure determination methods. The firm also will come up with co-crystal data to determine how OSI drug leads interact with the targets.
Protein engineering, high-throughput protein crystallization and what the company described as state-of-the-art approaches to diffraction data collection will be undertaken at its facility in the U.S. Department of Energy's Argonne National Laboratory.
"We think there's a tremendous amount they can help us with," Galante said, but would not be specific about financial terms of the collaboration.
Structural GenomiX is deploying its technology in deals with other firms, too. Among them is Indianapolis-based Eli Lilly and Co., for which the company will solve structures in the first year and then hand over the gene-to-structure platform so Lilly scientists can do the work themselves (See BioWorld Today, April 22, 2003.)
"Lilly had an additional component in that it had a technology transfer," said Mike Grey, president of Structural GenomiX.
The OSI deal, he said, is "an extremely good fit for us," given OSI's work with Tarceva, which inhibits the tyrosine kinase activity of the HER1/epithelial growth factor signaling pathway.
Structural GenomiX's preclinical work also is in the kinase area, Grey said.
"These relationships where we're using our platform to solve the structures for others are typically arrangements where our partners have exclusive access to data related to the compounds [binding] to the target, but nonexclusive access to the target itself," he added.
The company's technology allows it, and its partners, to use structural information "in a way that simply hasn't been possible previously," Grey said. Getting the initial structure took too long, and getting the co-crystal data took even longer.
"Typically, it was used as a retrospective analysis," often as late as Phase II trials, Grey said - which made a nice addition to an annual report but didn't help much in drug discovery.
Now, firms such as OSI "can use the data prospectively in deciding what compounds to make next," he said. "Having the X-ray pictures you can see exactly where you can change the molecule and hopefully improve potency."