Staff Writer

Toward the end of a bumpy year ridden with massive layoffs, a not-approvable letter and a partner pullout, Inex Pharmaceuticals Corp. has decided to spin out its targeted immunotherapy assets into a new company.

The Vancouver, British Columbia-based company hopes to provide a chance at new life for the platform's products designed to treat cancer and other diseases, including a lead preclinical candidate called INX-0167. Inex plans to transfer cash and most of its remaining 22 employees to the new entity, while a small management crew continues to negotiate with potential partners for its targeted chemotherapy platform, which includes Marqibo, INX-0125 and INX-0076.

Inex would retain an equity position in the new - as yet unnamed - company, with the rest of the shares being distributed to the company's common shareholders. A portion of the equity also would be reserved for the holders of Inex's convertible debt.

Inex needs court and shareholder approval - a special meeting is scheduled for early next year - before completing the spinout of the assets.

"This would be an early stage company and as such would carry the associated development timelines, capital requirements and development risks," said Timothy Ruane, Inex's president and chief operating officer, in a conference call Thursday. "That being said, we believe this technology is both promising and viable and in a separate company, financeable."

It appeared to be a glimmer of hope for some shareholders, as the company's stock climbed 20 percent in late-day trading Thursday, shortly after the announcement. But the shares (TSE:IEX) lost almost C$0.03, to close at C$0.18 (US$0.15).

The first signs of trouble for Inex occurred in December when an FDA panel voted unanimously not to recommend approval of Marqibo, criticizing the company's decision to file based on single-arm Phase II data. Two weeks later, Inex cut two-thirds of its employees - 103 of 165 - and reduced its expenses by 40 percent. (See BioWorld Today, Dec. 15, 2004.)

The not-approvable letter came in January, and Inex's Marqibo partner Enzon Pharmaceuticals Inc., of Bridgewater, N.J., pulled out two months later. In June, Inex reduced its staff down to 22 people. (See BioWorld Today, Jan. 20, 2005; March 18, 2005; and June 22, 2005.)

As of June 30, the company had a C$22.4 million cash balance, enough to carry it through the second half of 2006. Inex eventually came to an agreement with the FDA in which Marqibo could be approved as a first-line treatment for non-Hodgkin's lymphoma and acute lymphoblastic leukemia based on Phase III data in which complete response rate is used as the primary endpoint. A Marqibo partner would take the lead in conducting such trials, and the agreement also could include Inex's earlier-stage products, INX-0125 (sphingosomal vinorelbine) and INX-0076 (sphingosomal topotecan). Inex currently is "in discussions with a number of potential partners for the three products," Ruane said.

He later told BioWorld Today that once the products are licensed or sold, Inex would focus on leveraging its intellectual property with other drug targets.

"There are plenty of additional things that Inex could do with the first-generation liposome technology, as well as start up new liposome technologies," he said, adding that Inex will have access to the new company's personnel by way of a service agreement.

The troubles with Marqibo and the company's need to conserve cash has held back Inex's immunotherapy platform and is a major reason for the spinout.

"If we are unable to complete this transaction, we believe we would not be able to advance developing this technology and thus would likely realize no real value from it," Ruane said.

Inex's challenge this year has been a need to find ways to create stakeholder value, while still fulfilling its obligations to debt holders. In late August, the company shared its spinout reorganization plan with its largest debt holder, Stark Trading and Shepherd Investments.

"We could not get Stark to agree on a debt solution plan that would protect and benefit both the debt holders and Inex shareholders," Ruane said. "We informed Stark we would be moving forward with our value creation plan."

Stark responded by filing a bankruptcy petition that a judge dismissed in late October. Inex's convertible debt matures in April 2007 and totaled C$41 million on Sept. 30.

While Stark filed for an appeal to the bankruptcy decision, Ruane said he believes the court will rule in Inex's favor, and the spinout will occur as planned.

The new entity would begin operations free of debt and would be provided by Inex with about six to 12 months of operating cash. Inex's current executive team and board would manage the company, which would need to conduct a $5 million to $10 million equity financing sometime in 2006. It would seek a stock exchange listing, and could move the lead product - INX-0167 - into Phase I trials in 2007.

Inex's targeted immunotherapy platform is based on the encapsulation of immunostimulatory oligonucleotides, or short sequences of DNA, in the company's liposomal technology and combines the immunostimulatory properties of oligonucleotides into a single synthetic particle. INX-0167 has demonstrated its ability to enhance the number and potency of certain immune cells, including natural killer cells - an important factor in enhancing the potency of monoclonal antibodies through a mechanism known as antibody-dependent cell mediated cytotoxicity.

"We have already shown that INX-0167 can enhance the activity of the monoclonal antibody Rituxan in preclinical lymphoma models and Herceptin in preclinical breast cancer models," Ruane said.

When studying it with Rituxan in models, for instance, Inex researchers found that Rituxan alone prolonged median survival by 25 percent over control and INX-0167 alone prolonged survival by 110 percent over control. Combining the two, however, resulted in a prolonged median survival of more than 500 percent over control.

Ruane added that a number of companies, including Coley Pharmaceutical Group Inc., of Wellesley, Mass.; Hybridon Inc., of Cambridge, Mass.; Sirna Therapeutics Inc., of San Francisco; and Alnylam Pharmaceuticals Inc., of Cambridge, Mass., have established promising positions in the oligonucleotide field, achieving recent successes in public financings and partnerships.

We feel our technology compares very well with the other companies in the field," Ruane said.