By Mary Welch
Usually when a company inks a $50 million deal with a major pharmaceutical firm, the news is greeted with enthusiasm by Wall Street. Such accolades were certainly what executives at Dallas-based Cytoclonal Pharmaceutics Inc. expected when the firm signed an agreement with Bristol-Myers Squibb Co. for two technologies related to production of paclitaxel, the active ingredient in the drug maker's largest selling cancer product, Taxol.
Instead, Cytoclonal's stock dropped following the June 16 report of the collaboration. Its shares (NASDAQ:CYPH) closed June 15 at $14.062. They ended Thursday at $9.50.
"I think Wall Street was confused about the details of the deal," said Arthur Bollon, chairman and CEO. "I don't think it was clear there was more to the deal than the potential $50 million — not that $50 million is a bad amount. But the second part could also bring in hundreds of millions of dollars over the more than 17 years of patent coverage."
The $50 million sum could come from research and support fees and milestone payments. But on top of that, the six-year-old firm could receive royalty payments for the sales of Taxol, taxanes and new cancer drugs. Those sales, Bollon projected, could hit double-digit millions of dollars annually.
Taxol is approved for ovarian and breast cancers that do not respond to other treatments. Bristol-Myers' sales of Taxol were $940 million in 1997 and should reach more than $1 billion this year. Taxol also is being considered for lung cancer, which could increase sales by 50 percent, Bollon said.
In fact, on Tuesday, Cytoclonal received its first payment from New York-based Bristol-Myers, an amount Bollon characterized as "seven-digit."
The Bristol-Myers deal focuses on microbial fermentation to produce paclitaxel and on use of specific genes to enhance production. In addition, the Cytoclonal microbial strains could be screened for new cancer drugs.
The company said it could further enhance paclitaxel production by microbial fermentation, which has been a mainstay for economic production of most antibiotics and other important drugs, including penicillin. Cytoclonal's approach adds genetic engineering to microbial fermentation to boost production even more.
"It's the next logical step," Bollon said. "Bristol-Myers has made several improvements in the production of paclitaxel since making it with the original yew bark extraction. They've gone to using needles from the trees and plant cell culture."
Cytoclonal Another Genentech?
In 1993, Cytoclonal obtained the exclusive rights to microorganisms that make paclitaxel and were isolated from the yew tree. These microorganisms, which were discovered by researchers at Montana State University, make paclitaxel independent of the tree. A patent was obtained in 1994 and, in 1997, a broad patent was allowed for its microbial fermentation process.
The second technology covered by the agreement involves the use of genes involved in Taxol synthesis. The first gene that codes for the enzyme taxadiene synthase was discovered at Washington State University, of Pullman, Wash. Cytoclonal has rights to that technology.
"Those are the technologies we licensed to Bristol-Myers," said Bollon. "What we did not license is [paclitaxel production] for polycystic kidney diseases, developed at [the University of California at Los Angeles]. That market has a potential of $500 million to $1 billion a year. More than 5 million people have it worldwide and there is no treatment."
The company hopes to sublicense this technology and is in advanced discussions with several companies, he said.
Cytoclonal's third concentration is on identifying genes for different cancers. The company is focusing on a patented gene they isolated for non-small-cell lung cancer. The lung cancer gene technology is being developed for delivering paclitaxel specifically to the cancer.
"We are targeting genes that we know have commercial utility, such as breast, melanoma and lung cancers," he said. "If we pull out 50 genes, maybe 10 to 20 have commercial use — that's in contrast to isolating 10,000 DNA sequences and searching for utility."
The company, which had $8 million in cash prior to the Bristol-Myers agreement, said the new deal allows it to move its development along more quickly.
Bollon said, "There is some analogy with the initial stage at Genentech [Inc., of South San Francisco] where they improved insulin production and licensed it to Eli Lilly [and Co., of Indianapolis]. We see some similarities between our arrangement and Genentech's beginnings. What we've done is improve the method of making paclitaxel, went to the top company that controls that market, and made a deal."
"We're going from no revenues in 1997 to substantial revenues in 1998." *