Xenova's Phogen joint venture signed a $21 million therapeutic vaccines deal

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Tuesday August 14 5:20 AM ET

Xenova Leaps on $105 Mln Cancer Drug Deal

By Ben Hirschler, European Pharmaceuticals Correspondent

LONDON (Reuters) - British biotechnology company Xenova Group Plc

said on Tuesday it had signed a North American licensing deal worth

up to $105 million for its leading cancer drug with Vancouver-based

QLT Inc.

The news boosted Xenova shares 22 percent, offsetting a miserable run

for the stock which has more than halved in price since its poorly

received merger with Cantab Pharmaceuticals in February.

XR 9576, seen as a potential blockbuster if it lives up to its

promise in fighting multidrug resistance in cancer, will enter

pivotal Phase III clinical trials in the first half of 2002 and could

be filed for approval with regulators in 2005.

It is designed to inhibit the most common form of multidrug

resistance, which results from overproduction in the cancer cell

membrane of a protein that pumps the drugs out of the cell.

Chief Executive Oxlade said Xenova had been approached by a

number of major pharmaceutical firms keen on partnering XR 9576 but

that QTL offered better terms, without the conflicts of interest that

would have come with an established cancer player.

``We've got terms that are far better than we were negotiating with

any of the pharmaceutical companies that were interested in the

programme,'' he told Reuters.

QLT, best known for bringing photodynamic cancer therapy Photofrin

and eye treatment Visudyne to market, will build up its cancer

business and establish a dedicated XR 9576 sales force of around 50.

CASH INJECTION

The deal provides a vital cash injection for Slough-based Xenova,

which axed a quarter of its staff in a cost-cutting drive in June and

had 18.1 million pounds ($25.78 million) in the bank at the end of

that month.

Under the arrangement, Xenova will receive an upfront payment of $10

million and QLT will provide up to $45 million in funding to develop

XR 9576, plus milestones of up to $50 million as the product

progresses through clinical trials.

In addition, Xenova will receive royalties on eventual sales of 15 to

22 percent, depending on the level of North American sales. The UK

company retains rights to XR 9576 in Europe and the rest of the

world, where it expects to strike further deals.

Analysts at ING Barings believe XR 9576 -- if approved by regulators -

- could achieve peak annual sales of 600 million pounds, although

actual sales will depend on the number of cancers for which the drug

can be used.

Xenova said QLT -- which will take on responsibility for the Phase

III trials -- would initially seek approval for the drug's use in

combination with chemotherapy in advanced non-small cell lung cancer.

Other potential cancer indications include breast, ovarian, acute

myeloid leukemia, sarcoma and colorectal.

Xenova Finance Director Abrams said the company, which

reported a net loss per share for the six months to June 30 of six

pence against seven pence a year earlier, now had reserves to last it

some 18 months but this could be extended by signing other deals.

OTHER DEALS

One such agreement was announced on Tuesday when Xenova's Phogen

joint venture signed a $21 million therapeutic vaccines deal with

Genencor International Inc of California.

Oxlade said he saw ``four of five'' more collaboration opportunities

over the next one or two years, including partnerships for products

no longer viewed as core.

These include a prophylactic vaccine for genital herpes and a

nicotine addiction product. But Xenova will be keeping a novel

cocaine addiction vaccine which has U.S. government funding.

Oxlade said Xenova was entering a period of increased newsflow which

should lift the shares and could trigger a further cash inflow from

warrants.

The warrants, exercisable through the end of October, could bring in

10 million pounds -- but only if the share price moves up smartly.

The warrant exercise price is 85 pence, still well short of the

Xenova share price of 48p, even after Tuesday's 8-1/2p advance by

0814 GMT.

($1-.7021 Pound)