Washington Editor

OSI Pharmaceuticals Inc. added a potential blockbuster to its cancer product pipeline Monday through its planned acquisition of Cell Pathways Inc. in an all-stock deal valued at $32 million.

The product of interest is Cell Pathways' CP461, a second-generation, more potent version of Aptosyn (exisulind), Cell Pathways' lead clinical candidate that was rejected by the FDA in September 2000 as a treatment for patients with polyposis. (See BioWorld Today, Sept. 26, 2000.)

Still the lead product, Aptosyn is the subject of a 600-patient randomized Phase III trial in combination with Taxotere for the treatment of advanced non-small-cell lung cancer patients. Meanwhile, CP461 is believed to be 100 times more potent than Aptosyn, and is in Phase I and II studies for a number of conditions, including prostate cancer, renal cell carcinoma, chronic lymphocytic leukemia and chronic lymphocytic leukemia. Both CP461 and Aptosyn are cGMP phosphodiesterase (cGMP-PDEs) 1, 2 and 5 inhibitors (PDE2 and 5 are expressed in many tumor cells.)

In a conference call with analysts Monday, Colin Goddard, CEO of Melville, N.Y.-based OSI, described the acquisition as part of the company's development plan to expand its oncology products program and to broaden and strengthen its clinical pipeline. "Cell Pathways has been on our watch and wait list for some time now," Goddard said. "It became apparent to us in the back end of last year that a deal may be possible."

Indeed, Robert Towarnicki, chairman, president and CEO of Horsham, Pa.-based Cell Pathways, told BioWorld Today, "In our situation, our stock was under a lot of pressure. It was below $1 and we had a product in Phase III [Aptosyn] and another in Phase I/II [CP461] and we were down below a year's worth of cash. The equity markets were not hospitable to raising money; we certainly couldn't raise enough money by selling our stock at the current prices so we had to look at our alternatives.

"We considered licensing, we considered joint ventures, but we made the decision to be more aggressive about the possibility of a merger or acquisition and I think in this market, we didn't want to get to the point of total weakness to get something done," Towarnicki said.

"I think being proactive in this market was the right thing to do for the shareholders to try to make sure they still retain some upside in the technology they invested in," he said.

OSI will exchange .0567 shares of OSI for every share of Cell Pathways upon closing of the transaction in late spring. Based on a recent OSI closing share price ($15), that represents $0.80 per share, a 58 percent premium to Cell Pathways' last closing price (51 cents).

Goddard said OSI will issue 2.2 million shares, bringing the company's outstanding shares to 38.7 million.

Also, according to press statements released by both companies, OSI will provide additional consideration in the form of a five-year contingent value right through which each share of Cell Pathways held by shareholders of record on the date of the merger closure may be eligible for an additional .040 share of OSI in the event of a filing of a new drug application for either Aptosyn or CP461.

Robert Van Nostrand, OSI's vice president and chief financial officer, told BioWorld Today that Cell Pathways has about $11 million in cash but is expected to burn some of it before the deal closes this spring. (OSI has $445 million in cash.)

OSI also gains Cell Pathways' rights to Gelclair, a bioadherent oral gel for pain relief, used for oral mucositis/stomatitis (which may be caused by chemotherapy and/or radiotherapy, irritation due to oral surgery and ulcers caused by braces, poorly fitting dentures or disease). It is sold in the U.S. to cancer patients through a co-promotion agreement with Celgene Corp., of Warren, N.J., and to dental care providers in an agreement with John O. Butler Co., of Chicago.

Van Nostrand said the Gelclair product line is expected to grow to $25 million to $30 million annually within five years. "That could justify the cost of this deal. However, that's not what we're really after. We are after the science, the platform and the clinical program, but certainly having that revenue will help the company," he said.

OSI also will acquire Cell Pathways' apoptosis platform technology, Selective Apoptotic Antineoplastic Drugs (SAANDs). Goddard said OSI has identified apoptosis as one of its key areas of investment for anticancer drug development. "We believe Cell Pathways' platform represents an innovative and credible approach to the discovery and development of pro-apoptotic anticancer drugs."

Cell Pathways employs 42 people in Horsham, Pa., a site likely to shut down within the next year, Van Nostrand said.

In the conference call Goddard said it is unlikely that all Cell Pathways employees would be retained, "but we have a culture of treating employees with fairness and respect and we expect to continue that through this transition."

Towarnicki said a majority of company officers - including himself - would transition out via the merger.

Founded in 1990, Cell Pathways went public in 1998 through a merger with Tseng Labs Inc., of Norristown, Pa. Tseng was a public shell company with $28 million in assets, cash and facilities. (See BioWorld Today, June 25, 1998.)

OSI's stock (NASDAQ:OSIP) closed Monday at $13.79, down 39 cents. Cell Pathways' shares (NASDAQ:CLPA) gained 24 cents, or 47.1 percent, to close at 75 cents. n