Although it's searched for two years - and had what seemed like a good prospect on the line for the past 12 months - ArQule Inc. has been unable to pair up with a heavyweight partner to use its acquired ADME chemistry screening technology. Late Tuesday, the company said it is reducing staff by 31 percent (128 people), and plans to close two facilities.
The company's stock (NASDAQ:ARQL) fell $1.70 Wednesday, or 31.8 percent, to close at $3.64.
"I don't want to be too specific about the individual company we were working with," said Stephen Hill, president and CEO of Woburn, Mass.-based ArQule in a conference call.
"The explanation why ultimately, somewhat to our surprise, we didn't end up going forward [is that the prospective partner's] priority increasingly over time became where do they get compounds in development from,' rather than how do they use technology at an earlier stage,'" Hill said.
Analyst Ivonne Marondel with Gerard Klauer Mattison & Co. in New York told BioWorld Today, "I think [ArQule is] as shocked as I am. Everybody had high expectations, and it was very close."
ArQule will shut down sites in Redwood City, Calif., and Cambridge, UK, taking a charge of about $12 million in the restructuring. The annualized savings is expected to total about the same amount.
As the company aims to become a drug discovery specialist, its cash balance, cash flow from operations and other assets will allow the firm to dedicate more than $100 million to drug discovery over the next five years, Hill said.
Andrew Uprichard, ArQule's chief operating officer, said the company aims to generate two optimized chemical entities annually, but Hill cautioned that is "at steady state. When we get to that point depends on how we choose to do it. It's not Never-Never Land,' and it's not in the next six months," and could be as far away as 2005.
Still, Uprichard said, "if the use of predictive models does result in lower attrition, which we believe it will, this would ultimately translate into initiating one clinical program per year from our own internal efforts at the proposed level of R&D spending."
Meanwhile, the firm will keep looking for partners for its predictive ADME technology, acquired in a $95 million merger with Menlo Park, Calif.-based Camitro Corp. at the start of last year. ADME stands for "absorption, distribution, metabolism, elimination" - factors which together make up the single largest cause of drug failure. It's often referred to as ADMET, since it also tests for toxicity. (See BioWorld Today, Jan. 17, 2001.)
"Two years ago, things were very different," Hill said, and the potential for ADMET seemed much more promising. Now, it will have to become either cheaper, or better proven, or both, for partners to become interested, he added.
ArQule designs what it officially calls Optimal Chemical Entities - small molecules that are target-specific with drug-like properties, engineered before preclinical studies begin - using molecules, plus high-throughput, automated chemistry and predictive evaluation by way of ADMET. In March, ArQule entered a one-year deal with Peapack, N.J.-based Pharmacia Corp. focused on ADMET. No financial terms were disclosed.
"We did sign the biggest cash-based [expanded] collaboration in December 2001, probably in the whole biotech industry when you look at real dollar value - a $345 million deal with the biggest pharmaceutical company on the planet [Pfizer, Inc.]," Hill said. "We're not going to do that every few months, but that's a very significant business."
Originally formed in the summer of 1999 around ArQule's AMAP (automated molecular assembly plant) technology, the arrangement meant $16 million for ArQule up front with a potential value of $117 million. (See BioWorld Today, Dec. 24, 2001, and July 22, 1999.)
"We've met every single performance target," Hill said.
Marondel said part of ArQule's difficulty might be its insistence on larger partnerships.
"It's high risk," she said. "You have a big deal but you can also fail. In the past they've been quite successful, but the markets have changed so much."
ArQule's own pipeline is early stage, with three internal programs. One is focused on p38 MAP kinase inhibitors and animal testing is slated to begin in the first quarter of 2003. These would probably be directed toward inflammatory conditions and/or tumor growth, the company said. Another is in ion channels, focusing on two validated targets for neuropathic pain, and recent results in rodents showed promise. The third is directed at cathepsin S, a cysteine protease involved in inflammatory conditions and possibly also tumor invasion, expected to begin preliminary animal testing within 12 months.
Marondel noted that a strong point in ArQule's favor is its cash position. Although more guidance is pending in the year-end report, David Hastings, chief financial officer, said ArQule expects to record revenue between $61 million and $63 million in 2002. The company had $66.5 million in cash as of Sept. 30.
ArQule also has a five-year deal with Wyeth, of Madison, N.J., entered in 1997 and focused on Mapping Array and Directed Array technology, which yielded a milestone payment in October. Wyeth has started a pre-investigational new drug application program based on the work, and so has another ArQule collaborator for the same technology, Solvay Pharmaceuticals Inc., of Marietta, Ga.
The high-throughput parallel chemistry side of ArQule's business "is very different," Hill said, and carries more cause for optimism than ADME with regard to securing partners.
"The technology is not at an equal, early stage," he said. Not only has Pfizer Inc. come aboard, but so has Leverkusen, Germany-based Bayer AG, which formed with ArQule Inc. a three-year collaboration worth $30 million several years ago. (See BioWorld Today, Oct. 1, 1999.)