Managing Editor

Kosan Biosciences Inc. has moved its restructuring two steps forward, announcing the layoffs of 37 percent of its work force and naming newly appointed President Helen S. Kim as its CEO.

The layoffs primarily will impact its research and administrative functions as Kosan shifts emphasis to development of its existing pipeline, notably tanespimycin in multiple myeloma and in metastatic breast cancer, and epothilone KOS-1584 in non-small-cell lung cancer. Current research programs will be put on hold as the company explores partnership opportunities in those areas, Kosan said.

The moves are an attempt to stop the bleeding that began in December when the Hayward, Calif.-based company suffered a 42 percent stock hit on news that a Phase Ib trial with tanespimycin showed a lower response rate in multiple myeloma than the company had reported earlier. (See BioWorld Today, Dec. 11, 2007.) That sent shares of Kosan (NASDAQ:KOSN) plunging to $2.47, even as some analysts said the market was overreacting to the news. Wednesday, Kosan shares rose 37 cents, or 24.3 percent, closing at $1.89.

There was more encouraging analyst news with the latest move. Han Li, with the Stanford Group Co., noted Kosan's high cash reserves ($70 million in cash, cash equivalents and short-term investments as of Dec. 31), and reiterated his "buy" rating for the stock.

"We view Tanespimycin as a leading HSP90 inhibitor in development for cancer treatment. While the stock is trading below cash, we consider [Kosan shares] as attractive for investors with long a term horizon," he wrote in a research note.

The next test for Kosan may come in June when it is expected to report data from an additional 20 patients in the Phase II Tanespimycin plus Herceptin combination study in metastatic breast cancer. "Data from the first 20 patients was impressive" with five partial responses observed, Li noted. Tanespimycin also is in a Phase III study in multiple myeloma, with an interim analysis expected late this year, and final data in the second quarter of 2009, he wrote.

In the fateful Phase Ib trial unveiled in December, tanespimycin was tested in combination with bortezomib (Velcade, Millennium Pharmaceuticals Inc.), and was given in two forms: Kosan's first version, which contains the solvent Cremophor (polyethoxylated castor oil) and a new suspended injectable. Both showed activity in the Phase Ib trial, which enrolled 71 patients with relapsed, refractory MM.

Dose escalations ranged from 100 mg/m2 to 340 mg/m2 for tanespimycin, and from 0.7 mg/m2 to 1.3 mg/m2 for bortezomib. Researchers evaluated the tanespimycin's outcome in patients classed as Velcade-naive, Velcade-pretreated and Velcade-refractory, and administered tanespimycin by a one-hour infusion following the bortezomib dose twice weekly every two weeks out of three.

Thirty patients took part in the dose-escalating phase of the study, and the remaining 41 got 340 mg/m2 of tanespimycin and 1.3 mg/m2 of Velcade. Of the latter, 19 were treated with the original Cremophor form of Kosan's compound, and 22 with the newer version. Results showed the response rate at the 340-mg/m2 dose came in lower than the rate in the earlier, dose-escalating group given tanespimycin at amounts between 100 mg/m2 and 275 mg/m2.

Kosan's epothilones program includes KOS-1584, in Phase II development for NSCLC, and KOS-1803 in preclinical development for cancer.

The company began shifting gears in March when former President and CEO Robert G. Johnson Jr. resigned, and Kosan withdraw Hsp90 inhibitor alvespimycin from development to shift resources to tanespimycin in breast cancer. Additionally, Kosan licensed its motilin agonist KOS-2187 to Pfizer Inc., of New York, as a potential treatment for gastrointestinal disorders.

Kosan did not say how many people would be laid off, but it previously has maintained about 90 employees. It said it expects restructuring charges of approximately $700,000 in the first quarter due to personnel-related termination costs. The company also adjusted its 2008 guidance for cash used in operating activities by $3 million, from $40 million to $50 million down to $37 million to $47 million.

New CEO Kim joined Kosan in January as senior vice president and chief business officer, and was appointed president in late February. She previously held senior positions with Affymax Inc., Onyx Pharmaceuticals Inc. and the former Chiron Corp.