Washington Editor

Through its planned $25 million purchase of Cyclis Pharmaceuticals Inc., ArQule Inc. will combine a biology-based program with its chemistry-focused technology to build its own research and development business.

Stephen Hill, ArQule's president and CEO, told BioWorld Today such a merger has been part of the company's long-term goals for quite some time. As part of the deal, ArQule, of Woburn, Mass., will acquire Cyclis' lead clinical candidate for cancer, CO-501, plus the Activated Checkpoint Therapy (ACT) used to develop the cancer candidate, and about 16 of Cyclis' 19 employees.

For Cyclis, of Norwood, Mass., the deal seems to be part of the natural order of things. "Companies like ours always look for ways to move a product along as rapidly and effectively as possible. Sometimes that takes the form of a merger, and that's what happened here," Samuel Ackerman, Cyclis president and CEO, told BioWorld Today. "ArQule has exceptional chemistry capabilities and they can help with the development of this product and with the development of many follow-on products. This is really a synergistic interaction, with their capabilities contributing to our development and our products complementing their capabilities."

Founded in late 2001, Cyclis, a privately held company, has raised about $5 million in its young life. As part of the merger agreement, ArQule will issue 4.6 million common shares (19.5 percent of the company) and pay $5 million in cash upon closing the transaction, in exchange for all of Cyclis' outstanding shares on a fully diluted basis. ArQule said the deal is valued at $25 million based on its recent share price.

ArQule's stock (NASDAQ:ARQL) closed Thursday at $3.82, down 38 cents.

Also under the deal, ArQule will assume Cyclis' outstanding liability and debt, which amounts to about $5 million to $6 million. CIBC World Markets Corp., of New York, and Legg Mason, of Baltimore, served as financial advisers in the deal.

Hill said the transaction is likely to close in the middle to end of August. The acquisition will not force ArQule to change its 2003 guidance. "We can incorporate this acquisition within our previous guidance for revenue and costs with the exception of the purchase accounting," he said.

The company's weighted average shares for the year are now expected to range from 24.5 million to 25 million, and net cash usage is expected to range from $24 million to $26 million for the year. ArQule will release its second-quarter financials next Thursday.

Deal Helps ArQule Expand Pipeline

ArQule is quite attracted to Cyclis' ACT technology, which is based on science developed at the Dana Farber Cancer Institute in Boston, the Beth Israel Deaconess Medical Center in Boston and the John Hopkins University School of Medicine in Baltimore.

Ackerman said the concept of the technology relates to correcting a fundamental defect in cancer cells. "Cancer cells are extremely abnormal in their DNA, yet they don't have the capacity to undergo suicide or apoptosis in response to that abnormality in the way that normal cells would.

"Our technology is designed to reinstate, to restore, the ability of cancer cells to commit suicide in response to their fundamental abnormalities, and in doing that, we achieve, we believe, a way to kill cancer cells that is highly selective, that does not similarly affect normal cells, for the simple reason that normal cells have normal DNA. They are genetically normal; they are not bothered by therapeutics that trigger apoptosis in cells that are genetically abnormal," Ackerman said.

Hill said Cyclis' work differs greatly from many biotech firms. "Other companies are looking for novel versions of the more traditional mechanism, which basically damages DNA and has the same side-effect profile in patients because it acts on normal cells as well."

Such drugs, he said, are targeted to certain cancer cells within a tumor that express the same aspects. And they often target particular tumor types (breast, for example). "So I would call those narrow-spectrum targeted therapies. What we are looking for are broad-spectrum targeted therapies," Hill said.

Once the merger is complete, ArQule's lead product will become CO-501, a candidate that works at the cell cycle checkpoints in G1 and S phases by selectively activating E2F-mediated apoptosis. CO-501 has been tested in preclinical studies as monotherapy and with other chemotherapeutic agents.

Hill said CO-501 appears to have anticancer activity in a range of tumor types. He expects the product to enter Phase I trials this year.

Beyond CO-501, Cyclis has a second-generation program in oral form based on a similar mechanism of action. Cyclis also has a discovery-stage program that comprises a series of proteins called Cancer Survival Proteins, known to block checkpoint-mediated apoptosis.

In another program, Cyclis has acquired exclusive worldwide rights from Hopkins to a recently discovered intracellular protein named PUMA, or p53-Upregulated Modulator of Apoptosis. Produced in response to p53, PUMA has shown in in vitro assays to be a highly potent stimulator of apoptosis in cancer cells, the companies said in a prepared statement. ArQule says it intends to pursue the program.

ArQule also plans to continue its p38 MAP kinase program in rheumatoid arthritis.