West Coast Editor
CytRx Corp. raised $4 million in a private placement, paid $3 million for an overseas company with several drugs, including one slated for Phase II trials next year, and saw its stock drop more than 20 percent on the double dose of seemingly positive news.
The Los Angeles-based company's shares (NASDAQ:CYTR) closed Tuesday at $1.18, down 38 cents, or 24.4 percent, after trading as low as $1.10.
"We had a dollar-per-share price [in the financing] which we had agreed to weeks ago, when the stock was lower" than its Monday close of $1.56, noted Steven Kriegsman, president and CEO of CytRx.
"We could have pulled that deal and made a new deal when the stock rose," he conceded, but the firm didn't want to make enemies on Wall Street and disappoint its investment banker. Nor did CytRx want to miss the Biorex opportunity, which Kriegsman called a "once-in-a-lifetime" chance to hugely boost the intrinsic worth of the firm.
"This makes us more valuable than we've ever been," he said, calling the stock trouble a "blip" that will "take care of itself."
Timing the transaction with the buyout of Biorex Research & Development RT, of Veszprem, Hungary, CytRx also issued warrants for the purchase of 2.8 million shares exercisable at $1.72 for five years. Rodman & Renshaw, of New York, served as lead placement agent in the financing, and served as financial adviser to CytRx in the Biorex buyout that the deal made possible.
Along with the cash payment of $3 million, CytRx agreed to make milestone payments based on regulatory filings and approvals related to the drugs bought from Biorex. The firm has compounds designed to provide cellular protection from abnormal proteins by activating molecular "chaperone" proteins to repair or degrade the damaged proteins that are believed to cause disorders including amyotrophic lateral sclerosis (ALS, or Lou Gehrig's disease).
CytRx particularly focused on three later-stage compounds in the Biorex lineup. A key drug is arimoclomol for ALS, which CytRx expects to put in Phase II trials in the second quarter of next year. First intended for diabetic complications, arimoclomol recently was discovered to significantly inhibit progression of ALS in an experimental animal model, as reported in Nature Medicine in April 2004.
"It's a multibillion-dollar market," Kriegsman said, and the drug could extend ALS patients' lives "by 10 years or more."
Arimoclomol does the same job as RNA interference - a field in which CytRx has been especially active - but works at the protein, rather than RNA, level. CytRx's RNAi approach to ALS tries to block production of a toxic protein that causes disease in a subset of patients that have inherited a mutation in the superoxide dismutase 1 (SOD1) gene.
The company believes that arimoclomol would not only target the SOD1 protein, but also additional toxic proteins that might be involved in the more common or "sporadic" form of ALS, as well - thus boosting the number of treatable patients.
"If we find that, [developed] in tandem with RNAi, the small-molecule program does the same job, obviously we would go with the small-molecule program," Kriegsman said. "It's a pill, and we already know it has a good safety profile, and all the R&D work that preceded us was done by Biorex," he said, adding that CytRx had "beat big pharma at their own game" by moving quickly.
Kriegsman learned about Biorex and arimoclomol from Robert Brown, a member of CytRx's scientific advisory board who also is a professor of neurology at Harvard Medical School and a recognized authority on ALS.
"I got on a plane and flew to London within 48 hours to meet with the former CEO of Biorex," Kriegsman told BioWorld Today. CytRx worked on the transaction for about six months. "The deal actually closed at 6:30 [Tuesday] morning."
A second drug in the Biorex hopper is iroxanadine, for diabetes and cardiovascular disease. The compound has been tested in two Phase I studies and one Phase II, demonstrating it was well tolerated and showed signs of efficacy in hiking the function of endothelial cells in blood vessels of patients at risk of cardiovascular problems.
Jack Barber, CytRx's senior vice president of drug development, noted that "as a small company, we want to stay focused on clinical indications that aren't five years long and $100 million to develop. Diabetic wound-healing is the first thing we'll be looking at." Then, the drug could be out-licensed.
The third Biorex compound is bimoclomol, proved safe in two large Phase II trials.
"I have plans for that, even though it didn't work for diabetic neuropathy," which was the targeted indication, Barber said. "Really, what happened was that the drug didn't show efficacy because the control group changed - it actually got better because the clinical trial wasn't developed very well."
Bimoclomal is "kind of a drug looking for a disease at this point," Barber told BioWorld Today, adding that he would "rather not say" which indication CytRx might first use it against, although he said the drug might work against any of the neurogenerative illnesses such as Alzheimer's and Parkinson's disease.