In an arrangement potentially worth $272 million, MethylGene Inc. entered a license and collaboration agreement with Pharmion Corp. focused on histone deacetylase (HDAC) inhibitors.

The deal involves the research, development and commercialization of the products, which includes MethylGene's lead HDAC inhibitor, MGCD0103, as well as a pipeline of second-generation compounds for oncology.

Investors applauded the alliance, sending MethylGene's stock (TSE:MYG) upward 17.1 percent, or C$0.48 (US$0.42), to close at C$3.28. Pharmion's stock (NASDAQ:PHRM) rose 49 cents Tuesday to close at $16.67.

"We believe that this is one of the largest [out-licensing] deals," in terms of up-front money and total value, "executed in Canadian biotech history," said Donald Corcoran, MethylGene's president and CEO.

Terms call for MethylGene to receive $25 million as an up-front payment that includes a $5 million equity investment. MethylGene also could receive $145 million in milestone payments based on development, regulatory and sales achievements of MGCD0103, as well as up to $100 million in milestone payments for each additional HDAC inhibitor. If MGCD0103 demonstrates efficacy in the clinic, MethylGene likely will develop "at least one more" compound in the deal, Corcoran said.

Pharmion will provide $2 million for one year of research support for eight MethylGene scientists working to identify second-generation candidates.

The funds, along with existing cash, will take the company "full blast" into the first quarter of 2008, Corcoran said. Montreal-based MethylGene reported C$29.1 million in cash, cash equivalents and short-term investments as of Sept. 30.

For the equity investment, MethylGene's common shares will be purchased at C$3.125 - a 25 percent premium to Friday's closing stock price. The investment will give Pharmion a 7.8 percent ownership.

The preclinical and clinical development for MGCD0103 and any second-generation compounds will be 40 percent funded by MethylGene and 60 percent funded by Pharmion.

"Pharmion's a great strategic fit for us," Corcoran told BioWorld Today. "We're good at research and Phase I/Phase II development, and medicinal chemistry. They are obviously good at late-stage development, regulatory and commercialization. So I think there's good synergy there."

In terms of royalties, MethylGene will receive a range of 13 percent to 21 percent on all North American net sales depending upon MethylGene's share in development costs and the level of product sales. It will retain an option to co-promote approved products and split the net profits equally with Pharmion, in lieu of royalties.

Other licensed territories include Europe, the Middle East, Turkey, Australia, New Zealand, South Africa and certain countries in Southeast Asia, where Pharmion will cover all development and commercialization costs, while MethylGene receives a 10 percent to 13 percent royalty based on annual net sales. MGCD0103 and second-generation oncology HDAC inhibitors previously were partnered with Tokyo-based Taiho Pharmaceutical Co. Ltd. for Japan, Korea, Taiwan and China. MethylGene owns full rights to the product in South America, India and parts of Africa.

Representatives from Taiho, MethylGene and Pharmion will make up a global development committee to share data and coordinate a worldwide development program.

MGCD0103 is an oral compound in several Phase I trials in solid tumors and hematological malignancies and in a combination Phase I/II trial with Vidaza (azacitidine for injectable suspension) for high-risk myelodysplastic syndromes and acute myelogenous leukemia. Boulder, Colo.-based Pharmion gained approval for Vidaza, the first marketed epigenetic drug, in May 2004, as a treatment for myelodysplastic syndromes. (See BioWorld Today, May 21, 2004.)

Researchers have said there is potential in treating cancer with demethylating agents such as Vidaza, and HDAC inhibitors such as MGCD0103. Both agents appear to regulate gene expression and, when used together, show promise in controlling cancer.

"We may not actually cure cancer, but we may be able to manage the disease, much more like diabetes," Corcoran said. Enabling patients to live with cancer, he added, "would be a great win for all of us in the industry."

The epigenetic approach to cancer therapy focuses on changes in the regulation of gene expression. Instead of using molecules that kill both normal and tumor cells, the approach calls for the reactivation of silenced genes in order to re-establish natural mechanisms that control abnormal cancer growth.

MGCD0103 is a non-hydroxamate compound that targets HDAC isoforms 1, 2, 3 and 11 in vivo, and has been shown to inhibit tumors in preclinical animal models. It also appears to have a more favorable safety profile than traditional chemotherapies. MethylGene expects the product to move into additional combination Phase I/II and monotherapy Phase II trials this year.

Histone deacetylation regulates gene expression. In cancerous tissues, the activity of DNA methylation and histone deacetylation silences tumor suppressor genes. MGCD0103 and Vidaza together may re-activate endogenous tumor suppressor genes by reversing both types of gene-silencing mechanisms.

There are 11 different forms of HDACs, but MethylGene's research suggests that only a subset is involved in cancer progression. It is that difference that might give MethylGene an edge over the competition.

"In general, the other inhibitors hit all 11 [HDACs] with equal potency," Corcoran said, adding that MethylGene's products, in terms of pharmacodynamics, pharmacokinetics and oral ability "would probably stand up favorably to these other molecules."

Aside from MGCD0103, MethylGene is working in Phase II trials with MG98, an oncology product partnered with Minneapolis-based MGI Pharma Inc. for North America. It also has an exclusive license agreement with Merck & Co. Inc., of Whitehouse Station, N.J., to develop and commercialize small-molecule beta-lactamase inhibitors to overcome antibiotic resistance. And it is developing HDAC inhibitors for indications outside of oncology in the areas of antifungals, diabetes, inflammation and neurodegenerative diseases. Those programs have in vivo data and are a couple of years away from entering the clinic.

Corcoran hopes that the deal with Pharmion, as well as the in vivo data, will "attract additional partners" for the non-oncology indications, he said.

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