Washington Editor

PPD Inc.'s stock surged 21.2 percent on its improved financial forecast for the remainder of the year, a fiscal increase due in part to a new deal out-licensing rights for a Type II diabetes program to Takeda Pharmaceutical Co. Ltd.

"Takeda is one of the best, if not the leading, Type II diabetes franchises in the world," Nancy Zeleniak, PPD's global head of corporate communications, told BioWorld Today. "It's among the leading pharmaceutical companies in the world, with an international marketing network including 13 overseas bases in the U.S., Europe and Asia. So we're very happy to have the program with Takeda."

On Thursday, PPD's shares (NASDAQ:PPDI) gained $10.28 to close at $58.82.

Takeda San Diego Inc. acquired the development and marketing rights to all dipeptidyl peptidase IV (DPP4) inhibitors previously granted to PPD under its collaboration with the former Syrrx Inc., a San Diego company acquired by Takeda three months ago. The lead compound from the program, labeled 322, is in Phase II and could enter Phase III by the end of this year. Clinical pharmacology and safety studies are running in parallel. Its backup, 619, is in Phase I.

"Our diligence indicates that 322 and 619 are novel chemical entities," Zeleniak said, "and quite distinct from other DPP4 inhibitors in clinical trials."

In exchange for terminating the agreement and transferring its rights to Takeda, Wilmington, N.C.-based PPD is receiving a $15 million up-front payment, undisclosed milestones related to development and sales, as well as royalties should any products reach the market. Still, PPD will continue to play a role in the DPP4 program's advancement, as Takeda will hire it for Phase II and III development services in the U.S. and Europe.

DPP4 combats Type II diabetes by degrading glucagon-like peptide-1 (GLP-1), a hormone released in response to food intake that stimulates pancreatic beta cells to increase insulin secretion. It also has potential to improve beta cell function itself. The oral DPP4 inhibitors work by blocking GLP-1 degradation to keep its concentration for a longer period of time.

PPD's agreement with Syrrx, which fell under the compound partnering segment of its business, dated back a year and a half when PPD initially bought $25 million worth of Syrrx's convertible preferred stock. The partners advanced the program rapidly, moving from initial preclinical work to first human studies in two and a half years. (See BioWorld Today, Nov. 21, 2003.)

Takeda, of Osaka, Japan, returned that $25 million investment to PPD upon its buyout of Syrrx. Takeda San Diego is a wholly owned subsidiary.

For PPD, its compound partnering strategy has succeeded before, as the company has gained from milestones related to dapoxetine, a premature ejaculation compound under FDA review that is owned by Johnson & Johnson. PPD's stake in the drug is born of a 1998 relationship with Indianapolis-based Eli Lilly and Co., which opted out of its rights. PPD had developed it through Phase II proof of concept and found ALZA Corp. as a third-party developer. ALZA is owned by Johnson & Johnson, of New Brunswick, N.J.

"So in both [dapoxetine and DPP4] cases, we used our drug development expertise to significantly improve the value of the compounds in less than three years," Zeleniak said. "That's the beauty of the compound partnering strategy - we have the development work that comes in from our relationships with pharmaceutical, biotech and medical device companies, and from compound partnering we have these arrangements whereby we're providing our development skills and resources, and there's a parallel revenue stream if we bet on the right horse and things go well moving forward."

Similarly, it has an ongoing relationship with Chemokine Therapeutics Corp., a firm in which PPD has an equity stake and could opt to in-license a peptide called chemokine-0214 for use as a blood recovery agent in immune-compromised patients. PPD is awaiting Phase I results from Vancouver, British Columbia-based Chemokine before deciding.

Based on its new DPP4 agreement and recent financial performance, PPD upgraded its financial guidance for this year. The company said it now expects net revenue, excluding reimbursed out-of-pocket expenses, to come in between $940 million and $950 million, up from previous projections of $885 million to $900 million. Correspondingly, PPD also is expecting higher earnings per diluted share for the full year, forecasting a range of $2.26 to $2.30. It previously projected $1.85 to $1.93.

"That's pretty good growth," Steve Smith, PPD's executive director of corporate finance and investor relations, told BioWorld Today. "And part of [Thursday's stock increase] was related to the Takeda deal, as well. That's the second instance in which we've taken a drug candidate in early development further down the pathway and licensed it back out to a third party, which goes a long way toward validating our risk-sharing strategy."

PPD's guidance revision was issued along with its second-quarter earnings. For the period ended June 30, the company generated about $23.7 million in net income, worth 41 cents per diluted share, on net revenues of $245.1 million. Smith said 20-year-old PPD's core contract research organization business recorded a new record of quarterly signings, and the company also reported about $288.1 million in cash, cash equivalents and short-term investments.

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