Lpath, a Developer of Lipid-Targeting Drugs, Nears a Fork in the Road

6/17/09

Is San Diego’s Lpath (OTC: LPTN) on the right path? The answer will emerge over the next several weeks as the biotechnology company wraps up a key clinical test of its experimental cancer drug. A successful outcome will position the cash-starved company to receive $39 million from development partner Merck Serono of Switzerland, enabling Lpath to continue its research. A poor result most likely means the Merck Serono deal has reached a dead end, putting the very existence of Lpath in doubt.

“It is a bit binary,” CEO Scott Pancoast deadpanned during a phone conversation last week.

Lpath develops antibody drugs that target bioactive lipids, fatty substances that regulate key cellular functions. The company’s experimental drug neutralizes a lipid called sphingosine-1-phosphate, which cancer cells use to form new blood vessels. The theory is that cancer cells will die if they cannot access the blood supply.

The effect of the drug sonepcizumab, dubbed Asonep, is similar to that of Genentech’s bevacizumab (Avastin), a blockbuster cancer medicine that blocks a protein called vascular endothelial growth factor (VEGF). Pancoast said sonepcizumab is potentially more powerful than bevacizumab because the Lpath drug also causes certain cells to destroy themselves, a process called apoptosis. Even so, taking on bevacizumab would be a formidable challenge.

But that’s getting ahead of the game. For now all eyes are on the early-stage trial, which was designed to assess the safety and biological activity of sonepcizumab. Lpath stands to receive up to $8 million from Merck Serono for achieving performance targets related to the trial, and an additional $31 million if the Swiss company exercises an option to develop the drug. Lpath will know the outcome of the trial by the end of August, Pancoast said, and Merck Serono has until October 29 to weigh the results and make its decision.

“They will either pay us $31 million and take over the program, or say ‘No thanks’ and give us the keys back,” Pancoast said. “Obviously, there is a huge delta in terms of Lpath’s economics between scenarios.”

The deal with Merck Serono, announced last October, could be worth up to $422 million over a number of years in milestone payments to Lpath. The San Diego biotech received an upfront payment of $18 million last fall, and could receive royalties ranging from seven to 10 percent of sales if a drug eventually is approved.

Getting the keys back, as Pancoast put it, would force Lpath to raise money fast in a terrible investment climate. The company’s most recent quarterly filing warns that Lpath’s history of losses – about $36 million to date– raise doubt about the company’s ability to continue as a going concern. Without an infusion from Merck Serono, Lpath lacks the capital to fund its operations into next year, the filing said.

Lpath is making progress raising cash through grants and development partnerships, Pancoast said. This month, Lpath received a $3-million, three-year grant from the National Cancer Institute to develop sonepcizumab. And the company is actively seeking a partner to help it develop the sonepcizumab for age-related macular degeneration, the leading cause of blindness in the elderly. In pursuing a blindness drug, Lpath is following a strategy deployed by Genentech, which modified the bevacizumab antibody for an age-related macular degeneration drug called ranibizumab (Lucentis). The drug prevents the growth of leaky blood vessels in the eye, the cause of blindness in one form of AMD.

“We’ve had indications of interest from several parties and hope to have a partnership within the next 12 months,” Pancoast said.

Armed with his PowerPoint presentation, Pancoast was in Denver last week on a mission to persuade investors to purchase the company’s stock, which is trading around 95 cents a share. Pancoast complained the company’s shares were undervalued, given the upside of the Merck Serono deal. “Four years ago, when we had one preclinical candidate, the stock was at 80 cents a share. I think we’ve made more progress than 15 cents,” he said.

At its current price level, the company, which has 23 employees, has a market capitalization of about $49 million, approximately its cash position if it receives an infusion from Merck Serono, a division of Germany-based Merck. Lpath had $6.7 million in cash at the end of the first quarter. Pancoast said he expected to see a “flurry of bets” placed on the stock when Merck Serono’s decision deadline draws near. Here’s his prediction: “We feel confident they will opt in.”

Denise Gellene is a former Los Angeles Times science writer and regular contributor to Xconomy. You can reach her at dgellene@xconomy.com Follow @

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