By Mary Welch

As the company's president and CEO resigned, NeXstar Pharmaceuticals Inc. said it will spend the next 45 days considering whether to split the company into two publicly traded firms.

Under the split proposal, Boulder, Colo.-based NeXstar would spin out drug discovery activities and concentrate on development and marketing of products.

"The board has long felt that there was more inherent value in our assets than was reflected on Wall Street," said Mike Hart, vice president and chief financial officer of NeXstar. "We have received no value whatsoever for our technology."

NeXstar's president and CEO, Patrick Mahaffy, resigned over his differences with the board. Robert Swift, an analyst with Bigelow & Co., of Denver, said the board's proposed move would have been a better one if made last year.

"They were further away from turning that critical corner of profitability," Swift said. "This will add shareholder value, but I would have liked to see them be a $100 million company in three to four years. Now, [the profitability] has a cap."

Swift sees the spin-off maneuver as a way to attract a buyer.

"I would think this spin-off would also make it easier [for another company] to acquire that liposomal piece of business," he said.

Peter Drake, an analyst with Vector Securities International Inc., of Deerfield, Ill., said a spin-off could result in a "modest net positive" for NeXstar, but eliminating its contract revenue business also means losing about $10 million in revenues in 1999 and 2000.

NeXstar's marketed products are AmBisome and Dauno-Xome. In the pipeline are MiKasome, NX 1838 and NX 211.

AmBisome Sales Projected To Hit $100M This Year

AmBisome, a liposomal formulation of the antifungal agent amphotericin B, is used to treat life-threatening infections in patients with compromised immune systems. AmBisome is expected to reach $100 million in sales this year. The drug accounted for 96 percent of NeXstar's product revenues in the second quarter of 1998.

DaunoXome (daunorubicin citrate liposome injection) is a liposomal formulation of the anticancer agent daunorubicin and is marketed in 21 countries, including the U.S., for advanced HIV-associated Kaposi's sarcoma. Trials are currently under way in the U.S. to broaden the indication.

MiKasome, a liposomal formulation of the antibiotic amikacin, is expected to enter Phase III trials next year for the treatment of serious bacterial and mycobacterial infections.

NX 1838 is an aptamer that in certain animals can block the growth of new blood vessels. This year the company submitted an investigational new drug (IND) application for NX 1838 for the treatment of age-related macular degeneration, the leading cause of adult-onset blindness in developed countries.

NX 211 is a liposomal formulation of the oncology drug lurtotecan.

Subtracting the $20 million required yearly to maintain the drug discovery side of NeXstar would leave the company with annual revenues of about $100 to $115 million, Hart said.

"We have been pressing forward to make this company profitable by next year," he said. "If the spin-out occurs, it would be a very profitable company. Plus, we would have the much-needed cash flow to look for opportunities to back fill our pipeline."

The new drug discovery company would make its Selex technology available to partners as a research tool. Selex uses combinatorial chemistry to rapidly identify inhibitors of targets involved in disease. Called aptamers, the inhibitors can be used in preclinical disease models to assess potential therapeutic benefit by altering the activity of a specific target molecule, thus confirming the role of the target prior to starting drug discovery programs.

"We believe the Selex technology would be more visible and would attract relationships like we have with Glaxo Wellcome [plc, of London]," Hart said.

In May, NeXstar and Glaxo inked a three-part collaboration that included Selex. Glaxo made a $10 million equity investment in NeXstar and also received certain rights to develop aptamers as therapeutics in return for milestone and royalty payments. (See BioWorld Today May 28, 1998, p. 1.)

This week, NeXstar spun out its technology products division into a new company called Proligo LLC, with a 51 percent investment by SKW Americas Inc., of Buffalo, New York. (See BioWorld Today, Aug. 18, 1998, p. 1.)

Swift said NeXstar was "starting to get value for its technology and pipeline." But he said the stock is still undervalued, and one way to "unlock that value" would be to spin off research and development. "By spinning off the R&D and the technology products division, it [would] cut about $25 million off its expenses. That should add $0.80 per fully diluted share and the stock should trade around $15 to $18 a share."

NeXstar's stock (NASDAQ:NXTR) closed Wednesday at $9.750, up $0.688. *

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