Physicians' Financial News for April 2007

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Avalon Could Earn More Than $200M in Deal with Merck & Co.

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valon Pharmaceuticals, Inc. and Merck & Co., Inc. will together identify and develop inhibitors for a validated cancer target that has been tough to test outside the cellular context, according to Kenneth C. Carter, PhD, president and CEO of Avalon.

Investors reacted favorably to the news. On the day of the announcement, Avalon (AVRX) shares jumped 94 cents, or 20.6%,

to $5.51 in morning trading on the Nasdaq Stock Market. Merck (MRK) added 47 cents, at $44.78, on the New York Stock Exchange.

The pharmaceutical industry has been focused on a drug discovery paradigm that starts with identifying a specific validated

molecular target and testing them to identify candidates that can be used for therapeutic intervention, notes Dr. Carter. “Many

of these targets are enzymes which facilitate biochemical reactions within cells that can be removed from their cellular context

and tested in a high-throughput screening,” he said. “However, the majority of validated targets are not amenable to functional

testing outside the cellular context. These ‘intractable targets’ have frustrated drug developers for decades.”

Dr. Carter also noted that, “The combination of Merck’s considerable drug discovery and development capabilities and Avalon’s

unique approach for targeting otherwise intractable cancer pathways should result in the identification of first-in-class drug

candidates.”

The AvalonRx® will be used to screen a select set of compounds from Merck’s compound library and identify hits against this target. Avalon will optimize compounds to a preclinical candidate-selection stage. Merck will be responsible for the clinical development, regulatory approval and commercialization of product candidates.

According to the drug discovery, development and commercialization, Avalon may receive milestones exceeding $200 million

and royalties on marketed products. The timeline for discovery and preclinical portions of the collaboration is expected to be

three years, according to Dr. Carter.

Added Lex Van der Ploeg, PhD, vice president, Merck Research Laboratories and site head, Merck Boston, “We are very pleased with this agreement, and believe this collaboration has potential to provide significant synergy in drug discovery.”

— Querida Anderson

OXiGENE Sets Fiscal 2007 Priorities

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XiGENE, Inc. (OXGN) is a clinical-stage biotechnology company that develops novel therapeutics for the treatment of cancer and eye disease. OXiGENE recently reported operational and financial results for its fourth quarter and fiscal year 2006.

For the fourth quarter of 2006, OXiGENE reported a net loss of approximately $3.4 million, or $0.12 per share, compared to a net loss of approximately $3.4 million, or $0.16 per share, in the fourth quarter of 2005. For the 12-month period ending December 31, 2006, OXiGENE reported a net loss of approximately $15.5 million, or $0.56 per share compared to a net loss of approximately $11.9 million, or $0.61 per share in 2005.

As of December 31, 2006, OXiGENE reported cash, cash equivalents, and marketable securities of approximately $45.8 million, compared with approximately $58.9 million at the end of December, 2005. Cash utilization for 2007 is anticipated to be between approximately $16 and $22 million in support of the OXiGENE’s ongoing research and development efforts.

According to Dr. Richard Chin, president and chief executive officer of the company, “OXiGENE has developed a clear and focused strategy, demonstrated sound execution on key scientific and development projects and committed to establishing strong partnerships with the addition of a chief business officer. We are pursuing anaplastic thyroid cancer as our lead targeted indication, and we believe we have a development strategy that will make CA4P the first vascular disrupting agent on the market.”

CA4P (combretastatin A4 phosphate) is a vascular targeting agent that exerts its anti-angiogenic effect by targeting unstable budding neovessels in tumors. CA4P selectively targets endothelial cells, but does not target smooth muscle cells. It also induces regression of unstable, newly formed vessels by disruption of vascular endothelial-cadherin (VE-cadherin) signaling. VE-cadherin is a protein found at the junctions of overlapping regions of endothelial cells, and plays a key role in many aspects of vascular function, including endothelial cell survival, cell migration, cell proliferation, and assembly into vessel-like structures. Mechanistic studies have demonstrated that CA4P has anti-tumor and antiangiogenic activity in a variety of tumor types.

Commenting on the year ahead, Dr. Peter Harris, chief medical officer of OXiGENE stated, “For our oncology program, our focus will be to enroll our first patient in the advanced thyroid cancer phase III trial by the end of the first half of 2007.”

Future research may further elucidate the mechanisms whereby CA4P exerts its anti-tumor effect, potentially opening up new avenues of research to selectively target tumor neo-vessels and increase the therapeutic window of anti-angiogenic agents.

— John D. Zoidis, MD

Genentech Shares Fall Nearly 3% on Avastin Study

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enentech reported recently that a low dose of its anticancer drug Avastin® (bevacizumab, Genentech/Roche) appeared to work just as well as a more expensive high dose in the AVAIL trial—a phase III clinical trial of patients with lung cancer. Genentech shares fell by nearly 3% in response to the news amid concerns the company, as well as its majority owner Roche Holding, will receive less revenue from the drug if physicians choose the low-dose version.

The AVAIL trial enrolled just over 1,000 patients with advanced non—small-cell lung cancer (NSCLC), who received their most

common standard chemotherapy, cisplatin, and gemcitabine, alone or in combination with Avastin at either of two dose levels, 7.5 mg/kg and 15 mg/kg.

Results from the trial showed that both 7.5-mg/kg and 15-mg/kg doses of Avastin significantly lengthened the time patients

with advanced NSCLC lived without the disease progressing significantly, when compared with chemotherapy alone.

Various financial analysts predicted a doom-and-gloom for Genentech as a result of the news, but noted that Avastin sales

are likely to exceed $8 billion worldwide as it gains approval for more and more indications. In addition, Roche noted, the safety

results from the trial were promising and there were no new safety issues associated with the use of Avastin at either dose level.

Some experts believe the markets overreacted to the news, and that physicians would not be inclined to start switching to the lower dose of Avastin without more details about the actual efficacy and toxicity results.

— John D. Zoidis, MD

Start-Up Biotech Firm VentiRx Acquires $26.6 Million in Venture Capital Financing toDevelop New Cancer Drugs

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entiRx Pharmaceuticals, San Diego, CA—founded in June by former Anadys Pharmaceuticals vice president Michael J. Kamdar and former Dendreon chief medical officer Robert M. Hershberg, MD—has announced the acquisition of $26.6 million

in venture capital financing from Frazier Healthcare Ventures, Arch Venture Partners, and Domain Associates. Total financing now stands at $28.9 million.

VentiRx develops novel medicines for the treatment of cancer as well as infectious, respiratory, and autoimmune diseases.

VentiRx’s main headquarters will be in San Diego, and an ancillary office will be established in Seattle under the direction of Dr.

Hershberg, with employees to be split evenly between the two cities.

According to Mr. Kamdar, “The designation of San Diego as the headquarters is really just a moniker to give people a frame of reference. We are really equally balanced between the two locations. And importantly, it gives us a great opportunity to tap into two very interesting markets in terms of people.”

Mr. Kamdar added there are numerous opportunities to hire great people in San Diego, noting that there was a “pretty big exodus” following the 2003 merger of Biogen and IDEC Pharmaceuticals. The same phenomenon is also occurring in the Seattle area, where Icos Corp. is shedding hundreds of jobs following its $2.3 billion buyout by Eli Lilly and Co. According to Dr. Hershberg, VentiRx has already lined up some “very talented senior folks” from Icos.

VentiRx’s business plan includes licensing research from established companies. In doing so, VentiRx hopes to reduce the amount of time and money that it takes to develop new cancer drugs.

VentiRx’s technology is built around a series of small molecule receptors, which are designed to act as “sentinels” for the innate immune system. According to Dr. Hershberg, “It can enhance an immune response against cancer, and it can modulate existing immune responses in the context of allergic disease.”

With technology licensed from an undisclosed partner, VentiRx plans to move into human clinical trials next year. The recent

venture funding will be enough for VentiRx to sustain itself until 2009, at which time the company hopes to have two drug candidates in the proof-of-concept phase.

— John D. Zoidis, MD

Vion Reports Fourth Quarter Loss of $6.1 Million

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ion Pharmaceuticals, Inc. (VION) reported a net loss of $6.1 million, or $0.09 per share, for the fourth quarter of 2006, compared with a net loss of $4.7 million, or $0.07 per share, for the same period in 2005. In addition, Vion reported a net loss

of $25.3 million, or $0.38 per share, for the year ending December 31, 2006, compared with a net loss of $18.0 million, or $0.28 per share, for 2005.

Vion has two anticancer agents in clinical trials. Cloretazine® (VNP40101M), a unique alkylating agent, is being evaluated in: (1) a phase III trial in combination with cytarabine in relapsed acute myelogenous leukemia (AML); (2) a phase II pivotal trial as a single agent in elderly patients with previously untreated de novo poor-risk acute myelogenous leukemia; and (3) a phase II trial of Cloretazine as a single agent in small-cell lung cancer. Triapine®, a ribonucleotide reductase inhibitor, is being evaluated in several clinical trials sponsored by the National Cancer Institute.

VNP40541, another Vion anticancer agent, is in late-stage preclinical development. VNP40541 is a hypoxia-selective anticancer

agent. VNP40541 remains relatively inactive under oxygenated conditions. Upon activation in hypoxic conditions, VNP40541 liberates the DNA-chloroethylating species 90CE, which is the same active metabolite released by Cloretazine. 90CE produces interstrand DNA cross-links that are difficult to repair and are toxic to cells. Because almost all solid tumors contain hypoxic regions, it is expected that VNP40541 will work well in combination with other anticancer agents.

Total Vion operating expenses for the three months ended December 31, 2006 and 2005, respectively, were $6.5 million and $5.2 million. Total operating expenses were $27.3 million and $19.8 million for the years ended December 31, 2006 and 2005,

respectively. The increase in operating expenses was primarily due to higher total research and development expenses resulting from the late-stage clinical development of Cloretazine, including greater spending for clinical trials and development costs in support of a potential registration filing. The preclinical development of VNP40541 and a stock-based compensation expense also contributed to the higher operating costs. In addition, general and administrative expenses were higher than the previous year, primarily due to stock-based compensation expenses.

Vion reported ending the year with $30.9 million in cash and cash equivalents. In February 2007, the company received net

proceeds of approximately $55.4 million in connection with a private placement of convertible notes and warrants.

— John D. Zoidis, MD

Somanta Acquisition Enhances Access Pharmaceuticals Cancer Focus

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s an emerging oncology-focused company, Access Pharmaceuticals, Inc. is expanding its pipeline by acquiring Somanta

Pharmaceuticals. Through a stock-for-stock transaction, Access will gain Somanta’s four anticancer compounds, including a

technology platform.

Access has one drug on the market, MuGard for the management of patients with mucositis and one phase II ovarian cancer

candidate, ProLindac. “Our goal has always been to make Access a leader in the oncology space,” stated Stephen R. Seiler, Access’ president and CEO, “and this acquisition fills out our product pipeline extremely well.”

Access Pharmaceuticals expects to close the transaction in the second quarter. Upon completion, Somanta’s shareholders will receive an aggregate of 1.5 million shares of Access common shares. This translates into an approximately 13% share of the combined company.

Each of Somanta’s drug candidates acts by a unique mechanism of action and has the potential to target a wide range of

different cancer types. It has one drug, sodium phenylbutyrate, in phase II trials for recurrent glioblastoma and prostate cancer. Alchemix, Prodrax and Angiolix are in preclinical evaluation. Alchemix is pan-target inhibitor that is effective in chemo-resistant tumor cells by targeting and irreversibly binding to DNA. Prodrax, a technology platform, is a family of prodrugs that enables compounds to remain inert until they reach the hypoxic region of tumors. Angiolix is a humanized monoclonal antibody, which appears to induce cell death selectively to tumor blood vessels using a different mode of action than VEGF-oriented therapies.

— Querida Anderson

Stemline In-Licenses Compound that Targets Leukemia Stem Cells

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temline Therapeutics, Inc. in-licensed the exclusive, worldwide rights to a phase I compound. SL-401 targets the interleukin-3 receptor (IL-3R), which is over-expressed on multiple hematological cancers, inhibiting tumor growth. Importantly, according to Ivan Bergstein, MD, CEO, in acute myeloid leukemia (AML), IL-3R is over-expressed on both leukemia blasts as well as leukemia cancer stem cells.

Leukemia stem cells have been notoriously resistant to chemotherapy, according to Dr. Bergstein. “Thus, SL-401 could represent a key component to the leukemia arsenal.” He envisions the drug as a single-agent or in combination with chemotherapy.

“SL-401 constitutes the first concerted clinical effort to target leukemia stem cells,” pointed out Dr. David Rizzieri of Duke University Medical Center and investigator on the current trial. In this evaluation, 30 adult patients with relapsed, refractory, or poor risk AML were treated with escalating doses of SL-401 without dose limiting toxicity. The researchers observed one durable complete response in a patient refractory to standard chemotherapy, two partial responses, and three minor responses.

Although the terms of the deal haven’t been disclosed, Stemline paid the Scott & White Cancer Research Institute/Texas A&M Health Science Center College of Medicine, the licensor, an upfront fee and will continue to invest in R&D, says Dr. Bergstein.

With six more candidates in its pipeline, two of which target the IL-3R receptor, Dr. Bergstein asserts that the company certainly has an interest on this target based on the amount of published material and its success seen so far in the clinic for leukemia. He is also confident that the company’s platform technology, StemScreen, will keeping adding to its pipeline of anticancer drugs.

— Querida Anderson