Washington Editor

Exelixis Inc. and GlaxoSmithKline plc reworked the terms of a 2-year-old collaboration, providing accelerated milestone payments to Exelixis and allowing third-party development and funding of certain programs.

Established in October 2002, the relationship has been focused on the discovery and development of therapeutics in the areas of vascular biology, inflammatory disease and oncology. At the time, the terms included $134 million in guaranteed funding and a potential total worth much more to Exelixis. (See BioWorld Today, Oct. 30, 2002.)

Since that time, the South San Francisco company has filed four investigational new drug applications in generating six development candidates. Beginning in October, London-based GSK entered an option period to determine a path to move the collaborative programs forward.

"As we sit here today, I think that we can say that the collaboration has exceeded our expectations, and GSK's expectations, to date," Exelixis President and CEO George Scangos said during a conference call. "I think it's fair to say that both Exelixis and GSK are excited about both the number of compounds that we've generated in that period of time and the quality of those compounds."

Company officials could not be reached, but Scangos further explained on the call the rationale behind the decision to rework the deal's terms. Under the amended agreement, Exelixis will continue to work on a dozen programs: XL784, XL647, XL999, XL880, XL184, XL820, XL844 and five earlier-stage oncology programs that remain in lead optimization. GSK retains exclusive rights to 32 specified targets. XL784, initially a cancer compound that completed a Phase I trial, is being developed for renal disease and is expected to enter Phase II in the first half of this year. It is a protease inhibitor.

The remaining compounds stem from Exelixis' kinase inhibitor program. XL647 and XL999 are in Phase I trials, an IND has been filed for XL880, while XL820, XL844 and XL184 are potential candidates for cancer for which INDs are scheduled to be filed in the first half of this year.

Since GSK chose to modify the deal, it has the right to select up to two compounds from those programs upon completion of Phase IIa, or three compounds if it extends the collaboration for up to two years. Depending on the timing of GSK's compound selection, it will pay proof-of-concept milestones up to about $275 million for three compounds. Exelixis will receive additional development-related milestones down the road, the magnitude of which has not changed, and royalties on product sales. Also, it has certain co-promotion rights to products in North America and retains rights to all collaboration compounds not encompassed by the 12 programs selected by GSK. Exelixis can work on any collaboration targets, save for the 32 subject to GSK's exclusivity, and will retain all rights to compounds not selected by GSK, regardless of target overlap.

"Once GSK has selected its two or three compounds, GSK's exclusivity will be narrowed from the 32 targets to a subset of targets that are clinically relevant to the selected compounds," Scangos said. "The remaining programs under the collaboration remain with Exelixis, and can be developed independently."

GSK will provide a new $30 million milestone should Exelixis file three additional INDs by the end of this year from among four compounds - XL880, XL184, XL820 and XL844 - or upon successful completion of a Phase I trial of one of the four this year. An IND for XL880 was filed last month.

In return, GSK would reduce its future payments owed to Exelixis, though royalties would remain in double digits. Exelixis also would receive an additional new $5 million milestone payment upon progressing certain other candidates. Under the amended agreement, GSK will provide research funding of $47.5 million over the last three years of the collaboration.

In order to provide additional flexibility for all programs under the collaboration to move forward, the amended terms allow Exelixis to develop XL784, XL647 and XL999 independently or through third-party financing vehicles. GSK retains an option to further develop such independently developed compounds after proof of concept, in which case such compounds would be subject to premium proof-of-concept milestone payments.

"It's obviously in GSK's and Exelixis' interest to keep all of these compounds moving forward as aggressively as possible," Scangos said. "And this amendment allows us to do just that."

As provided in the original agreement, GSK will purchase 1 million shares of newly issued Exelixis stock at a 25 percent premium to a 20-day average market price during the last quarter, worth about $11 million. Pursuant to the amended agreement, the parties agreed to amend certain financial covenants, and Exelixis last month drew the remaining $30 million under the original $85 million loan facility. The loan is repayable in cash or stock.

On Tuesday, Exelixis' stock (NASDAQ:EXEL) dropped 19 cents to $8.39.

At the close of the quarter ended Sept. 30, Exelixis had $147.2 million in cash equivalents, short-term investments and restricted cash. Its net loss in the preceding three months totaled about $27.2 million under generally accepted accounting principles.

Outside of its GSK relationship, Exelixis has been developing a pipeline that includes investigational products for cancer and metabolism. The lead compound, XL119 (becatecarin), is in a Phase III trial in patients with bile duct tumors. Multiple compounds remain in preclinical development for cancer, lipid disorders, hyperlipidemia and congestive heart failure.

Other partners include Bristol-Myers Squibb Co., of New York, and Protein Design Labs Inc., of Fremont, Calif.

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