Thursday, May 29, 2008

Ixempra Is Not Enough? BMS Buys Kosan

In an era where single Phase III projects are commanding up-front payments in the hundreds of millions of dollars--and even preclinical projects can boast the occasional triple-digit upfront payment--it might seem odd that Bristol-Myers Squibb only had to put up $190 million to acquire Kosan Biosciences.

After all, Kosan not only has tanespimycin, a Phase III cancer drug in a hot therapeutic class--Hsp90 inhibition--but it also has several other programs, including two in the clinic: a Pfizer-partnered motilide project in Phase I for GI disorders and an unpartnered Phase II program based on epothilones, molecules that could potentially be used to treat the same cancers as taxanes like Taxol.

Still, the Bristol offer, at $5.50 per share, represents about a 230% premium over the company's beaten down share price before the deal ($1.65). The market--and, probably Bristol as well--attached very little value to Kosan's unpartnered projects beyond the epothilones.

Bristol, after all, has pioneered the class of drugs with its first-in-class Ixempra, which was approved as both mono- and combination-therapy after a six-month priority review in October 2007. Landing KOS-584 and two other candidates, one in the clinic and one ready for an IND filing, helps solidify its leadership position in the epothilone field.

That the deal isn't centered more around tanespimycin probably says more about the difficulties Kosan has faced with this particular molecule than it does about the value of Hsp 90 inhibitors generally. Remember Hsp90, as a target class, has been the driver of multiple buyouts and licensing deals in the past couple years. Among them: Pfizer's acquisition of Serenex and Infinity's co-dev deal with MedImmune.

Instead it probably has more to do with the fact that tanespimycin is one of several Hsp90 inhibitors in development that are derived from geldanamycin, a natural compound relatively high in molecular weight that might have trouble reaching an important hotbed of Hsp90 activity, the interior of the mitochondria (a phenomenon we wrote about here).

We concede that this is a debatable point. Kosan's Helen Kim (then a recently appointed president and CBO brought onboard in January '08 to focus the firm on a few key assets and since promoted to CEO) told us in early March of this year that it remained unclear whether there would be a clear-cut difference in efficacy between geldanamycin-derived compounds and synthetic compounds inhibiting Hsp90. (Our feature on the Hsp90 space can be found here.)

Still at that time the market was ascribing zero value to any of Kosan's programs: it was trading around the same value as its cash on hand. In the end whether you believe Kosan was fairly or unfairly valued by BMS will depend on what you think of tanespimycin's chances.

Meanwhile, Kosan's epothilones are clearly commanding more interest. These molecules target a tumor cell's skeletal infrastructure, much like taxanes, but via a different mechanism, and molecules like Ixempra have been specifically designed to overcome drug resistance. As we noted in this December 2007 piece about Bristol's oncology business, Cornelius and co. are counting on Ixempra as a key part of its strategy to regain leadership in the cancer arena.

Kosan's epothilone programs--which also have potential in neurodegenerative disease--were also the subject of an insurance policy in the event the acquisition doesn't close. If the deal falls through BMS will license Kosan's epothilone programs and IP for $25 million upfront plus milestones and royalties.

Oddly enough that $25 million was the same up-front paid by Roche when it licensed Kosan's same programs back in 2002 (that deal dissolved in October 2007 after Ixempra's approval).

We wonder what Kosan was worth then.

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