By Brady Huggett

Two North American companies looked to the UK to round out their respective pipelines, with QLT Inc. plucking the compound XR9576 from Xenova Group plc and Genencor International Inc. getting rights to the VP22 technology from Xenova¿s joint venture company, Phogen Inc., in deals that have a combined potential value of more than $126 million.

Both Vancouver, British Columbia-based QLT and Palo Alto, Calif.-based Genencor will use the in-licensed products to bolster platforms. For QLT, it¿s oncology; for Genencor, it¿s vaccines.

For QLT, the agreement both fills a hole and responds to criticism, said Julia Levy, CEO and president of QLT.

¿Clearly what is does for us is address what people have been critical toward us about ¿ a lack of pipeline activity,¿ she told BioWorld Today. ¿It¿s a great deal, because it¿s a late-stage product, which is hard to find. We were looking for a middle-to-late-stage product in which we could develop our own sales force for. This is ours in North America. This is our first step. We do have a strong marketing force for our product [Visudyne], but we don¿t have a sales force.¿

QLT is handing over a $10 million licensing fee up front to Xenova and may pay as much as $50 million in milestones. Also, QLT will fund up to $45 million for Phase III trials in North America and Europe. Xenova will benefit from attractive royalties ¿ 15 to 22 percent ¿ depending on the level of sales in North America.

But what QLT gets is a product on the lip of Phase III trials. QLT will assume development responsibility of XR9576 and gets marketing rights for the U.S., Canada and Mexico. Xenova retains the rights for the rest of the world. At least for now, said Hilary Reid Evans, head of corporate communications.

¿In realistic terms, we may be beginning to look at a partner for [XR9576 for other markets], but I think when we would actually sign a deal is at the end of Phase III trials,¿ Evans said. ¿We are exploring every opportunity.¿

XR9576 fights multidrug resistance to chemotherapy agents. The compound inhibits P-glycoprotein, a membrane-based pump that expels chemotherapic drugs from the tumor cell, thus reducing efficacy.

When contemplating partners, Xenova, of Slough, UK, wanted to ensure it got the most for its compound. It felt QLT provided that without the moral dilemma big pharmaceutical companies might have, companies with anticancer drugs of its own.

¿QLT has made it clear it intends to build a franchise in the oncology marketplace,¿ said David Oxlade, CEO of Xenova. ¿They are not conflicted as the major pharmaceutical players are that have their own cytotoxins in their portfolio. We want to market [XR9576] with as many cytotoxins as possible. We know there are at least 12 that we can market it with.¿

QLT draws significant revenue from its product, Visudyne, first approved to treat the wet form of age-related macular degeneration. The product is partnered with Novartis Ophthalmics, of Atlanta, the eye-health unit of Basel, Switzerland-based Novartis AG. In the second quarter, Visudyne pulled in $56.2 million in worldwide revenue, a 120 percent increase over the same period in 2000.

The specifics of the Phase III study have not been released yet, said Mohammad Azab, senior vice president, clinical research and medical affairs, but it will be ¿a large program.¿ The timeline for the trial should allow for a 2005 FDA filing and a potential 2006 launch.

Xenova¿s joint venture, Phogen ¿ Xenova owns 50 percent of the voting stock and 45 percent of its equity ¿ had what Genencor wanted, namely a way to potentially improve the efficacy of vaccines. The VP22 technology enables the spread of peptides and proteins from a cell to neighboring cells. Added to a vaccine, the technology is expected to improve the vaccine¿s efficiency.

¿When we started thinking about how we were going to approach therapeutic vaccines broadly, we didn¿t believe that the current approaches that companies were taking were going to be good enough,¿ said Debby Jo Blank, chief business officer of health care at Genencor. ¿One problem was the lack of a strong enough immune response to really create a therapeutic vaccine.¿ With that in mind, Genencor began the search for a way to improve vaccines and settled on Phogen¿s technology.

Phogen will receive up-front license fees, research and development funding and annual license maintenance fees, as well as milestone payments for clinical goals. The agreement is potentially worth more than $21 million.

Genencor will initially evaluate the VP22 technology for vaccines to treat diseases including hepatitis C, hepatitis B and human papillomavirus.

Besides the intracellular delivery aspect of the technology, DNA-based vaccines may be formulated in aggregates or vectosomes, using the VP22 protein to encapsulate the vaccine construct. While attractive, that part of the deal, Blank said, is ¿gravy¿ on top of the intracellular trafficking aspect.

Genencor paid a sum to Phogen for insurance, as well.

¿A lot of [the deal] is back-end loaded,¿ Blank said. ¿We didn¿t want to do all this work for a narrow field and find out that we had something very valuable and be precluded from practicing it broadly. A lot of the up-front money is Genencor taking options for broader fields in infectious diseases and cancers. We will be able to use VP22 in every area we care about for therapeutic vaccines. We tied up a broader real estate.¿

Xenova¿s Oxlade said Phogen ¿has its funding secured for the medium term¿ and that Genencor ¿expects to have a product in the clinic¿ from the agreement in about two years.

Although a red-letter day for Xenova, the North American companies believe the deals significantly help their futures, too.

¿What it really means is that the Genencor Vaccine Division is beginning to amass the technology that we said we would need to bring in to be competitive and have a good platform for vaccine delivery and commercialization,¿ Blank said.

In Vancouver, QLT is aiming to be among biotechnology¿s heavy hitters.

¿We are excited to be in this position,¿ Azab said. ¿From our point of view, we have a blockbuster on the market and a product going into Phase III that may be another blockbuster. The last time we heard that, it was Amgen [Inc., of Thousand Oaks, Calif.].¿

Genencor¿s stock (NASDAQ:GCOR) rose 39 cents to close at $12.48 Tuesday. QLT¿s stock (NASDAQ:QLTI) fell 57 cents to close at $21.48. The dual news had a positive effect on Xenova¿s stock (NASDAQ:XNVA), driving it up $1.84, or about 35 percent, to close at $7.

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