Xcyte with its 'Xcellerated T Cells' Gone with the Wind

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Friday, December 16, 2005

Once a rising star, Xcyte hits end of line

Core technology sold, merger in works for biotech

By JOHN COOK

SEATTLE POST-INTELLIGENCER REPORTER

The top brass at Xcyte Therapies didn't think it would end this way.

After nine years and more than $150 million in financing, the Seattle

cancer research company sold off its core technology on Thursday for

$5 million to Invitrogen Corp. and then merged the remaining assets --

basically its cash and Nasdaq stock symbol -- with a privately held

ish company by the name of Cyclacel Ltd. The new company, which

will be based in Short Hills, N.J., under the name Cyclacel

Pharmaceuticals, is expected to begin trading on the Nasdaq stock

exchange under the ticker symbol CYCC.

The asset sale and merger means the end of the road for Xcyte, which

hit the wall earlier this year after the Food and Drug Administration

questioned the design of the company's clinical trial for chronic

lymphocytic leukemia. The FDA's decision stung the publicly traded

company at a difficult time, eventually forcing it to cut staff and

discontinue research operations.

" That was a .50-caliber shot in the heart, " said Arch Venture

Partners' Nelsen, an early investor and board member. Xcyte

was attempting to pioneer a new treatment in which it generated T

cells from a patient's own blood in order to attack cancer cells.

The company's staff, which has dwindled to five people in the past 11

months, will be let go, and its headquarters will be shut down. Only

Xcyte Chairman Henney will be involved in the new

company. Xcyte shareholders will own 20 percent of the new entity,

while Cyclacel shareholders will hold the rest.

The reverse merger, which still needs to gain approval of the

companies' stockholders, is not a complete surprise. In July, Xcyte

engaged an investment bank to evaluate a possible merger or sale.

Kirkman, the acting chief executive officer at Xcyte, said the

merger with Cyclacel is the best situation given the circumstances.

" I am not unhappy at all today, " he said. " I think this was a good

outcome for the shareholders. "

Henney agreed, saying that Xcyte did not have the resources to take

the T cell technology forward on its own.

" I think it is a good deal given where we are, " he said.

Asked about selling off Xcyte's technology for just $5 million,

Kirkman said there is still a lot of work to be done to bring the

cancer treatment to market.

" Somebody is still going to have to invest a fair amount of money to

get there, " he said.

Nelsen -- who in August 2000 boasted that Xcyte could be one of the

most revolutionary immunology companies in the United States -- said

he was disappointed that the company didn't get the opportunity to

test its Xcellerate Technology in advanced clinical trials. Nelsen

blamed the FDA for Xcyte's demise, saying the company collapsed after

encountering an inconsistent and overprotective FDA.

" It is more the FDA's fault than anything else I can think of, " he

said. " The FDA gave the company a very clear signal and then they

changed their mind. "

The asset sale is the second blow for Xcyte founder Ron Berenson, who

previously created Bothell-based CellPro. CellPro collapsed in the

late 1990s after a bitter patent infringement lawsuit with s

Hopkins University, Baxter Healthcare Corp. and Becton Dickinson & Co.

Berenson, who left the CEO post of Xcyte in July, could not be

reached for comment.

While some involved with Xcyte had mixed emotions, Wall Street

reacted positively to the deal. Shares of Xcyte gained 59 percent, or

19 cents, to close at 51 cents. The stock, which has traded below $1

since late April, received a delisting notice from the Nasdaq stock

exchange earlier this week. It went public at $8 per share in March

2004.

Kirkman said Xcyte evaluated about 50 private and public companies in

the past six months as it looked at alternatives. It decided on

Cyclacel because the cancer research company is entering Phase 2

clinical trials for a drug to treat non-small cell lung cancer. The

lead drug, known as a cyclin-dependent kinase inhibitor, is in a hot

area of cancer research, Kirkman said. " They are probably as far

along or farther than anybody else at this point in that space, " he

said.

The new company will have about $30 million in cash.