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OncoGenex, Toiling in Dendreon’s Shadow, Scopes Out Partners For Prostate Cancer Drug

Xconomy Seattle — 

Name the Seattle biotech company with a drug shown to help men live longer with prostate cancer, which recently raised cash, is negotiating with potential partners, and has seen its stock boom from as low as $2 to $30 a share yesterday.

Hint: It’s not Dendreon (NASDAQ: DNDN), the developer of the first-of-a-kind treatment for stimulating the immune system against prostate cancer.

Give up?

It’s Bothell, WA-based OncoGenex Pharmaceuticals (NASDAQ: OGXI). This company, which was so obscure at one point last year that zero shares changed hands one day, has suddenly morphed into one of the surprise biotech success stories of 2009. Whereas its neighbor across Lake Washington has been known to unfurl a giant banner proclaiming success, OncoGenex has a way more low-key style. Yesterday, I caught up with CEO Scott Cormack, who dialed in from his office in Vancouver, BC, where he spends part of his time.

How understated is OncoGenex? Last month, when the company decided to raise some money to give it a little more cash cushion while it was negotiating with partners, it could have easily raised $50 million or more, but it only took $9.5 million. And instead of hiring an underwriter to pitch the shares, Cormack and Stephen Anderson, the chief financial officer, just started personally calling institutional investors one Friday afternoon in July. After a couple hours, they sold 475,000 shares at $20 apiece, at just a two percent discount to the prior closing price, without any fancy derivatives, or warrants, and without having to pay any of the usual commissions to a banker. The money should give the company about 10 more months of operating cash, to take it to December 2010, Cormack says.

“We just picked up the phone and started dialing,” Cormack says. “We didn’t have an awful lot of runway left.”

Selling OncoGenex stock was that easy for a reason. Researchers reported the company’s experimental prostate cancer drug, OGX-011, was able to help men live longer than standard chemotherapy in a clinical trial of 82 patients, according to data presented at the American Society of Clinical Oncology (ASCO) meeting in May. Men with terminal prostate cancer who got the OncoGenex drug in combination with docetaxel, the standard chemotherapy, lived a median time of 23.8 months, about 6.9 months longer than those who got docetaxel by itself.

OncoGenex has a lower profile than Dendreon, partly for both business and scientific reasons. OncoGenex, originally based in Vancouver, BC, failed in an effort to go public on its own, but found a way onto the Nasdaq last year when it merged into the shell of a failed public company, Bothell, WA-based Sonus Pharmaceuticals. The OncoGenex treatment also doesn’t have quite the gee-whiz factor of Dendreon, which is attempting to introduce the first FDA-approved treatment that can actively stimulate the immune system to fight prostate cancer cells like a virus. The OncoGenex drug is an antisense therapy, which means it is genetically engineered to block the RNA that gives rise to a protein called clusterin, which is associated with enabling tumors to resist chemotherapy.

Still, the magnitude of the survival benefit in the OncoGenex trial was slightly longer than the one seen in Dendreon’s pivotal study, so this generated a lot of interest in the cancer community. An estimated 30,000 men die of prostate cancer each year in the U.S., and analysts are predicting the Dendreon therapy will easily eclipse $1 billion in annual sales at its peak.

OncoGenex has mapped out a game plan to build up enough evidence to get FDA approval of its therapy, although the trials haven’t yet started. The company is planning to run a pair of clinical trials enrolling a combined 1,100 patients—some getting their first course of chemotherapy, and others getting their second course.

OncoGenex only has 26 employees, so it doesn’t have enough people or resources to pull off a trial that big by itself. The company is in talks with potential partners, who are discussing a variety of options to divvy up the worldwide commercial rights, and the costs of running such big trials. One early budget projection for those trials was about $70 million, according to what Cormack told me back in December, before the ASCO hubbub, when his company only had $17 million in cash in the bank.

The talks involve more than one pharmaceutical company, and are “competitive,” Cormack says, although he wouldn’t say how many companies are in the running. He’ has been scoping a number of options, in terms of the usual financial mix of upfront payments, milestones, and royalties, as well as global deals versus more regionally focused collaborations. OncoGenex is also vetting partners for their cancer drug development expertise and, how broad their vision is for the product, and mulling how involved its team wants to remain in the future development plans, or whether it wants to mostly hand off the ball.

Because the clusterin protein plays a role in multiple cancers, OncoGenex is hopeful that a partner will want to think bigger than just prostate cancer, and consider opportunities to test the drug further for lung and breast malignancies, Cormack says.

Partnership talks always take a good amount of time, although Cormack says he’s confident the deal can get done by the end of this year. He’ has been trying to send a signal to Wall Street that he’s serious about doing a deal, and not trying to find a way to do the trials alone, and he’s hopeful that the latest financing will have proved his point.

“If you believe that we’re going to do a partnership deal, and that is going to bring in more money and expertise, then why would you raise more money and unnecessarily dilute your existing shareholders?” Cormack says. “If we had raised $60 million, people would have said, ‘they’re not that confident they’re going to do a partnership, and maybe they’ll do it themselves.”

That’s partly why Cormack isn’t seizing the moment to do any empire building. The company has 26 employees, andsays it isn’t hiring. The core management team is made up of Cormack, Anderson, Cindy Jacobs, the chief medical officer, and Monica Krieger, the vice president of regulatory affairs.

Staying lean may not be great for all the talented unemployed people in town, but it’s the kind of thing potential acquirers like to see in a company that’s dressed up for a sale. Fewer HR headaches, or integration issues can crop up that way. Cormack says he’s not ruling any options out.

“Our focus is on doing a partnership, but having said that, if an offer came to acquire the company, it wouldn’t be the first time that partnership talks evolved into something else,” Cormack says.