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Cytori Buys San Antonio-based Azaya’s Drug Delivery Tech for Stock

Xconomy Texas — 

San Antonio — Cytori Therapeutics, a San Diego, CA-based developer of drugs that use patients’ own fat tissues to make cellular therapies, is buying the assets of San Antonio-based Azaya Therapeutics in a mostly stock deal, with potential future payments that are dependent on the progress of two drug candidates Cytori is acquiring.

Azaya shareholders are receiving $2 million in Cytori (NASDAQ: CTYX) stock, though $500,000 of it is being held in escrow for 15 months. The deal also includes a $2 million cash payment to pay off costs associated with the construction of Azaya’s new manufacturing facility in San Antonio, where Cytori plans to continue manufacturing one of the drugs in the deal. Cytori’s stock was trading at $1.60 per share as of 2 p.m. in New York Thursday, down 3 percent from the previous day’s close.

The deal gives Cytori a pair of experimental nanoparticle cancer drugs, each of which are meant to help deliver old chemotherapies more safely and effectively. One, named ATI-0918, delivers the generic chemotherapy drug doxorubicin (marketed as Doxil in the U.S. and Caelyx in Europe). Azaya has yet to show the drug is “bioequivalent” to doxorubicin in the U.S., though it completed a trial in Europe and plans to file for approval there in 2018, according to Cytori. Cytori plans to talk to the FDA to help get a study started in the U.S. The other drug candidate, ATI-1123, is meant to help deliver another popular chemotherapy, docetaxel. ATI-1123 has only completed Phase 1 testing.

After the acquisition closes in the next month or so, Cytori aims to find partners to help develop both drugs, according to Cytori CEO and president Mark Hedrick.

The deal may be a low-cost flier for Cytori, which is hoping it can help bring to market two drugs that Azaya has been trying to find a partner for during the past few years. Azaya thought it had a deal completed in 2015 with Lake Forest, IL-based Hospira, but after that generic drug maker sold to Pfizer in a deal valued at $17 billion, Pfizer pulled the plug on the Azaya deal, says John Kerr, Azaya’s chairman and co-founder.

“That left us in a very, very difficult financial situation. We were forced to basically shut down the operations,” Kerr said in a telephone interview. “From about November of 2015 until July of 2016, we were really scrambling to try to find an alternative.”

After a potential deal with another Big Pharma partner fell through, Azaya turned to Cytori, Kerr said. While the Hospira deal included “substantial upfront cash funding,” the Cytori agreement didn’t.

That leaves Azaya with Cytori stock and milestone payments as the primary eventual payout. Azaya shareholders are eligible for $16.25 million in downstream payments and up to $100 million in total royalties. If Cytori flips the drugs to another company or licenses it, Azaya shareholders could get more.

“We were sort of in the right place at the right time,” Cytori’s Hedrick said during a conference call with investors Thursday. “It’s an incredible late-stage asset, and we’re very fortunate to bring this technology in for our stockholders.”

Cytori also gets the intellectual property for Azaya’s drug delivery technology, which uses lipid nanoparticles to help shepherd drugs such as chemotherapies to their targets. Kerr and Chandra Singh (who is no longer with the company) founded Azaya in 2003.

Cytori has been developing experimental cell therapies for a variety of conditions, such as the skin disorder scleroderma. It may use Azaya’s technology to help with its preclinical work, Hedrick said.

Azaya says that manufacturing liposomes is difficult, especially in terms of finding consistent quality. Cytori believes there’s plenty of upside to be had if it can finally bring Azaya’s drugs to market—regardless of whether there’s competition from generics.

“Most people think a generic product, that’s kind of like falling off a log,” Kerr said. “Well this is kind of the opposite of that.”