West Coast Editor

Geared up for a strong year, Exelixis Inc. kicked off 2007 with a $40 million-plus deal that gives Genentech Inc. optional rights to develop (and fund) beyond Phase I trials the clinic-ready MEK inhibitor XL518 for cancer.

South San Francisco-based Exelixis' shares (NASDAQ:EXEL) rose 5.2 percent on the news, closing Wednesday at $9.47, up 47 cents. Genentech's stock (NYSE:DNA) ended the day at $81.80, up 67 cents.

Exelixis, which filed the investigational new drug application for XL518 last month, gets $40 million in combined up-front money and milestone payments, but George Scangos, the firm's president and CEO, would not break out the amounts. The up-front portion came at the end of the December, and the remainder is due later this month.

XL518's Phase I trial could start in a month or so, and last the usual year or so. "Some are shorter; some are longer, depending on what you find out," Scangos noted during a conference call with investors.

Genentech, also of South San Francisco, has about three months after the trial ends to decide whether to advance XL518 and pay Exelixis another, undisclosed milestone, described by Scangos as "in the double-digit number of millions." Genentech, if it exercises the option, would fund all further development.

Exelixis keeps an option to co-promote in the U.S., and is responsible for what the company called a "substantial" share in the marketing and commercialization costs, as well as an equal share in U.S. profits at first. This would decrease as sales rise but never drop below 30 percent, and Genentech will pay royalties on ex-U.S. sales.

The shape of the deal, Exelixis' second with Genentech, recalls the December pact with New York-based Bristol-Myers Squibb Co., valued as high as $120 million. BMS paid $60 million up front, in the form of $20 million each for up to three drug candidates to be chosen when they are ready for investigational new drug application filings, and splits with Exelixis development costs, promotion expenses and profits. (See BioWorld Today, Dec. 19, 2006.)

Partnering at the IND stage is not the always best strategy, Scangos allowed - "There's a market price for those [compounds], and we get what we get," he said - and Exelixis' goal has been to keep a satisfying share of the rights in any deal made. The arrangements with Genentech and BMS are "reflective of that strategy," he said.

But payouts for IND candidates have improved lately.

"That's not only true for us, that's true across the board," Scangos said. Cash-strapped biotech firms previously found themselves at the mercy of big pharma, but early stage drugs today draw what's "approaching a fair market value, because you can do financial modeling of what a compound should be worth and factor in the risk and the potential sales and market and production costs," he added.

Exelixis' other deal with Genentech, a three-year setup worth $16 million, involves intellectual property regarding the Notch signal transduction pathway and its potential for drugs in tissue growth and repair or inflammation. Yale University developmental geneticist Spyros Artavanis-Tsakonas, co-founder of Exelixis, did most of the research. (See BioWorld Today, Feb. 21, 1997, and June 6, 2005.)

The summer 2005 team-up with Genentech trailed by one month a $35 million payment from the 2002 deal with London-based GlaxoSmithKline plc to develop therapeutics in vascular biology, inflammatory disease and oncology. GSK in the original terms agreed to provide funding of $134 million, a loan facility of $85 million, along with milestone payments and royalties. (See BioWorld Today, Oct. 30, 2002.)

"We certainly expect several compounds [included in that agreement] to get to a GSK decision point this year," Scangos said. "We plan to take any compounds that we get back from GSK, that have good data, forward on our own, as our resources allow" - unless GSK returns too many, in which case Exelixis would seek partners. "We're in pretty good shape financially right now," he added. Exelixis had about $55.7 million in cash and cash equivalents, but this was before the BMS deal brought $60 million more.

The latest Genentech deal bolsters investors' faith in MEK, also known as mitogen-activated protein kinase, or MAPK, a key part of the RAS/RAF/MEK/ERK pathway, commonly active in tumors.

An early stage MEK-inhibitor candidate became part of Palo Alto, Calif.-based Ardea Biosciences Inc.'s portfolio a week ago, when the firm (formerly IntraBiotics Pharmaceuticals Inc., and soon to relocate to San Diego) bought a set of preclinical programs from Valeant Pharmaceuticals International Inc., of Aliso Viejo, Calif.

Farther along is ARRY-438162, from Array BioPharma Inc., of Boulder, Colo., which last fall reported Phase I results with the compound for inflammatory diseases, tested in 20 healthy volunteers. The drug met its primary objective, blocking production of IL-1-beta and TNF-alpha after ex-vivo stimulation of clinical samples.

Looming in the pharma world is New York-based Pfizer Inc.'s MEK inhibitor PD-325901, which has advanced as far as Phase II, and could work against cancers of the lung, colon and breast, as well as melanoma.

Scangos said XL518 "compares extremely favorably" with the Array and Pfizer drug candidates.

"Obviously we've looked very carefully at those compounds, and from the data that are publicly available, have a pretty good view of both their strengths and their limitations, and the issues they've had in terms of [toxicology]," he said. "I can tell you that XL518 does not, so far, have those toxicity issues, and is an extremely potent compound."

Exelixis' year ahead includes Phase II data due from a handful of drug candidates, starts of several Phase I trials and three more IND filings in the first half of 2007.