By Jim Shrine


NeoPharm Pharmaceuticals Inc. finished the year with less than a million dollars in the bank and the knowledge that it had come close to becoming one of the companies that didn't survive.

NeoPharm regained its financial footing Monday with the receipt of $17 million up front in a potentially $77 million deal granting Pharmacia & Upjohn Inc. worldwide rights to liposome formulations of the cancer drugs paclitaxel and doxorubicin.

Pharmacia & Upjohn also is covering all future clinical expenses, and will share profits on U.S. sales.

"The company was in trouble," said NeoPharm CEO James Hussey, who joined the firm last March. "The company was on its back. Everything was banked on whether these liposomes would work or not."

Both products, Liposomal Encapsulated Paclitaxel (LEP) and Liposomal Encapsulated Doxorubicin (LED), are expected to move into pivotal studies by the end of the summer, Hussey said. They represent the first partnership for the 9-year-old Bannockburn, Ill., company, which in late 1997 saw its prognostic test for breast cancer shot down by an FDA advisory panel.

"Then, [company researchers] made a breakthrough in liposomes," he said. "They went back to square one and synthesized a bunch of new lipids, and found some that were more stable and had better encapsulating properties. People have tried for a long time to put paclitaxel into a liposome and they couldn't do it."

Phase I trials of LEP included doses of 250 milligrams per meter squared "and still haven't come close to dose-limiting toxicity," Hussey said. "Results have been startling. There's very little toxicity, and we've seen some efficacy."

The doxorubicin product is well behind other liposomal formulations of that drug, such as Doxil, Menlo Park, Calif.-based Sequus Pharmaceuticals Inc.'s drug that was approved in December 1995 for treating Kaposi's sarcoma, but gets most of its use off-label; and Princeton, N.J.-based The Liposome Co.'s Evacet, for which a new drug application was filed in December.

Hussey said LED would have advantages over competing products in its ease of formulation and in the ability to use higher doses safely. Also, he said, activity in prostate cancer has been seen with LED.

LEP, LED Expected To Be On The Market In 2003

As part of the deal, Pharmacia & Upjohn, of Bridgewater, N.J., gained an option to negotiate agreements to incorporate two of its products into NeoPharm's liposome technology. Hussey said the exercise of those options would be subject to additional payments.

The $17 million up front from Pharmacia & Upjohn includes $9 million in the form of a license payment and $8 million in equity purchased at a "double-digit premium," Hussey said. The deal includes $60 million in milestones that can be achieved over four years. Additionally, Pharmacia & Upjohn is covering an estimated $100 million in clinical trial costs, he said.

The profit split on U.S. sales will be "roughly half," Hussey said, while NeoPharm will form its own sales organization to help that effort. It will get royalties on LED and LEP sales outside the U.S. Both products are expected to be on the market in 2003, he said.

NeoPharm's stock (AMEX:NEO), which traded as low as $2 in late summer, closed Monday at $15.875, down $1.625.

The stock's upswing began in September, the same month the first human testing of LEP was initiated. Pharmacia & Upjohn got a stake of about 4 percent with its equity investment, Hussey said.

Including the trial costs and milestones, this deal is worth more than NeoPharm itself - which has a market capitalization of nearly $140 million, Hussey said, adding that a lot more is in the works.

"We've been able to put all sorts of molecules in liposomes," he said, citing genes, proteins and a raf antisense nucleotide, which could go into the clinic later this year. NeoPharm also has an interleukin-13 product expected to go into the clinic in May, Hussey said.

"The company is in pretty good shape financially now," Hussey said. "We're going to continue developing other drugs using our liposome platform."