A year after shareholders of a different firm put the kibosh on a planned merger with privately held Eos Biotechnology Inc., Protein Design Labs Inc. said it has entered an agreement to pay $37.5 million for the spurned company.
The deal will give Fremont, Calif.-based PDL two drug candidates almost ready for the clinic, plus a lineup of antibody targets in oncology. James Goff, senior director of corporate communications for PDL, acknowledged that an earlier collaboration with Exelixis Inc. also has yielded cancer antibody targets, but more are welcome.
"There's a high rate of attrition for targets at this very early stage," Goff said. "The thought is simply that you need more."
PDL intends to issue about 4.3 million shares to take over South San Francisco-based Eos. PDL would retain half of Eos' 80-member work force and consolidate the new company in Fremont. The boards of both companies have given their go-ahead and the deal is expected to close late this quarter.
PDL's stock (NASDAQ:PDLI) closed Wednesday at $8, unchanged.
If the merger goes through, PDL gets two clinical development programs. One is Eos200-4, a chimeric antibody targeting the alpha5beta1 integrin. The drug is under development as an anti-angiogenic agent for treatment of solid tumors with a Phase I trial expected to start in the first half of this year.
"This one is about 82 percent human, and there are two humanized versions on the research shelf, so to speak," Goff told BioWorld Today. Pending favorable Phase I data from the first, the others might go into testing, he said.
The second drug candidate is Eos200-F, the antigen-binding fragment of Eos200-4, which is under preclinical development for ocular indications including age-related macular degeneration. An investigational new drug application could be filed as early as the first quarter of next year, the company said.
Eos' genomics-based target discovery platform also has yielded more than 20 antibody targets in oncology, and functional validation is under way for a number of them. The oncology angle is important, especially given PDL's collaboration with Exelixis. (See BioWorld Today, May 24, 2001, and July 12, 2001.)
As of PDL's last earnings report on Oct. 31, the company had about 89 million shares outstanding. Details from PDL regarding the cost effect of the merger on operations will come as part of the company's year-end report, expected Feb. 26, the company said. Included will be guidance on pre-closing and pro forma post-closing expenses, as well as the nonrecurring and non-operating expenses.
Focused on humanized monoclonal antibodies, PDL is pulling in royalties through licenses for such high-selling drugs as Gaithersburg, Md.-based MedImmune Inc.'s Synagis (palivizumab) for respiratory syncytial virus; Herceptin (trastuzumab), the breast cancer drug from Genentech Inc., of South San Francisco; Nutley, N.J.-based Hoffman-La Roche Inc.'s Zenapax (daclizumab); and Mylotarg (gemtuzumab ozogamicin) from Wyeth, of Madison, N.J.
At the end of 2002's third quarter, PDL had $624 million in cash, noted analyst George Farmer of Fortis Securities Inc. in New York, who was somewhat skeptical of the proposed Eos merger.
"I'm not saying this is a full-on bad deal, but why not use a portion of that cash to finance this, as opposed to their stock which is trading near a 52-week low?" he asked. The 52-week low is $7.19.
"This is a lot to pay for a collection of unvalidated targets," Farmer told BioWorld Today. "It's going to be a very research-intensive effort for them."
Goff said PDL's business philosophy "tend[s] to view cash as intended toward operations - research and development, manufacturing - and dilution is relatively low in this case."
"It's a difficult market out there, and we continue to believe it's important to preserve cash," he said.
Yaron Werber, analyst with SG Cowen Securities Inc. in New York, said officials at PDL "are clearly trying to beef up their oncology franchise and at the same time bolster their R&D and preclinical capabilities. Overall, given that they're getting a platform here as well as an IND, a preclinical [drug candidate] near IND and 20 targets, it's very reasonable. Four million shares isn't going to break the bank."
A merger between Eos and Pharmacopeia Inc., of Princeton, N.J., was nixed a year ago. Shareholders of Pharmacopeia were wary of the deal for different reasons than those PDL might cite, Werber said. (See BioWorld Today, Jan. 22, 2003.)
"They were worried about valuation in general," he said, noting that the stock-and-cash merger was valued originally at $197 million. "Pharmacopeia is two businesses - software and drug screening," Werber said, which further complicated the deal and distinguishes it from the buy out proposal by PDL.
"I'm expecting more acquisitions by PDL," he told BioWorld Today.
Werber also distinguished the deal between PDL and Eos from the arrangement between the former and Exelixis, of South San Francisco, a partnership billed at the time as PDL's foray into genomics and entailed a $30 million investment in Exelixis through the purchase of a note convertible within a year into Exelixis stock. PDL also agreed to pay $4 million in annual research funding for two or more years.
"Eos is focused on oncology and they have a platform that is essentially genomics derived," he said. "But I think genomics in general, the way the old term is used, is pretty much passé. Genomics is just another way to look for targets, and it's embedded in everybody's research."