By Jim Shrine

Special to BioWorld Today

NeXstar Pharmaceuticals Inc. said Wednesday it will split into two independent public companies, one focused on commercial products and the other on discovery technologies.

The move, expected to be completed by mid-1999, will leave the NeXstar company with existing approved liposomal products as well as the pipeline. The new company, to be called Iterex Technologies Inc., will own the Selex and evolutionary chemistry compound discovery technologies. Both companies will be based in Boulder, Colo.

"You could almost think of this as a off-balance-sheet transaction for research and development, except they don't get the money back," said Robert Swift, an analyst at Bigelow and Co., in Denver. "They are taking research and development off the balance sheet of NeXstar Pharmaceuticals."

The idea, Swift told BioWorld Today, is that NeXstar would be worth more as a separate — and profitable — company. "The question is how much value they can assign to NeXstar discovery and how much to NeXstar Pharmaceuticals."

NeXstar had revenues of $50 million in the first half of 1998 from its two approved products. Nearly all of the revenue came from AmBisome, a liposomal formulation of the antifungal drug amphotericin B that is approved in 36 countries. DaunoXome, or liposomal daunorubicin, is approved in 23 countries for AIDS-associated Kaposi's sarcoma.

NeXstar Shareholders To Receive Iterex Stock

NeXstar stockholders will receive an equivalent percentage of shares in Iterex. The stock (NASDAQ:NXTR) gained $1.125 Wednesday to close at $8.875. As of June 30, NeXstar had $66.3 million in cash and equivalents and about 28 million shares outstanding.

"The market has not embraced it to the extent you'd expect if you believe the numbers on estimated earnings for the NeXstar Pharmaceuticals entity," Swift said earlier Wednesday, when the stock was up about half a point. "You'd expect the stock to trade higher than it has. NeXstar is financially sound, has revenues, pipeline growth — all the attributes you'd want."

NeXstar first said in August it was evaluating a spinoff of the drug-discovery portion of the business. That led to the resignation of President, CEO and Director Patrick Mahaffy, who said such a strategy is different than one he envisioned.

The board went ahead with the move for the potential savings of $20 million per year for NeXstar and the expected boost in valuation of the profitable side of the business. The $20 million essentially represents research and development expenses that will be assumed by Iterex, as well as a 13 percent reduction in the workforce (75 employees). A restructuring charge of about $5 million will be taken in the fourth quarter.

Michael Hart, NeXstar's vice president and chief financial officer, said on a conference call Wednesday the split should happen in four to six months. He said Iterex, with about 90 employees, will be sufficiently capitalized to operate two years. The amount of cash needed from NeXstar to sustain that will depend on the extent to which Iterex establishes revenue-producing collaborations before the spinoff.

Hart said that NeXstar won't have any ownership position in Iterex and the only formal tie will be that Iterex will receive royalties on sales of NX 1838, a Selex-derived anti-angiogenesis compound being developed for age-related macular degeneration. Larry Gold, a co-discoverer of the Selex technology, will be the only member of the NeXstar management committee to move to Iterex.

Selex, or systematic evolution of ligands by exponential enrichment, is a combinatorial chemistry method that quickly screens pools of molecules to identify nontoxic, nonimmunogenic, and high affinity and specificity compounds (aptamers) that bind to extracellular targets. Evolutionary chemistry uses modified RNA to catalyze reactions between libraries of small molecules, creating large combinatorial libraries for screening.

Collaborations involving the compound-identification technologies already are in place with Glaxo Wellcome plc, of London, and Schering AG, of Berlin.

"We're convinced these technologies are ready for commercial application," Hart said. "We will create two companies with attractive commercial potential. This transaction will allow each company to move to the next phase."

NeXstar, with total revenues of $57 million for the first half of the year, reported a net loss $5.9 million. Research and development expenses were $26.5 million for that period.

Antibacterial MiKasome At Head Of Pipeline

Hart said NeXstar intends to increase sales of AmBisome and DaunoXome through expanding the size of existing markets and through label expansion. Another strategy is to in-license late-stage compounds for oncology and infectious-disease indications, particularly those that can be improved with liposomal technology. A third growth strategy is expediting development of products in the pipeline, he said.

NeXstar's lead pipeline product is MiKasome, a liposomal form of the antibiotic amikacin, which is being tested against bacterial infections. Phase II trials are under way for complicated urinary tract infections, hospital-acquired pneumonia and stable, colonized cystic fibrosis. Phase III studies are expected to begin in 1999.

NX 1838 is an aptamer that inhibits vascular endothelial growth factor, a protein linked to progression of certain ocular diseases. It is in Phase I trials.

NX 211, which NeXstar licensed from Glaxo Wellcome, is a liposomal formulation of the anticancer drug lurtotecan. Liposomal encapsulation produced a three- to six-fold increase in the drug's effectiveness vs. free drug, Hart said. That product has not entered human studies. *