Calistoga Pharmaceuticals CEO Carol Gallagher was playing with a strong hand of cards, holding onto an emerging cancer drug she could have sold for a mint to any number of Big Pharma companies hungry for innovative new products.
But she and Calistoga’s board took an unusual tack, selling the Seattle-based company for as much as $600 million to an HIV drug powerhouse that’s still a newbie to the cancer drug business—Gilead Sciences (NASDAQ: GILD).
While Gilead may not have the experience of a Pfizer, Roche, or Novartis in cancer, it sees the cancer drug landscape evolving into something right up Gilead’s alley, Gallagher says. The vision is that a cancer diagnosis will become less like a short-term death sentence, and more of a chronic disease that must be managed regularly, like HIV. As DNA sequencing gets fast and cheap enough for many more doctors to see what’s going wrong at a molecular level, patients will be treated with cocktails of drugs aimed at specific molecular targets, through convenient oral pills, that offer mild side effects compared to chemotherapy, says Gilead’s chief scientific officer, Norbert Bischofberger. Calistoga’s drug candidates fit right into this vision, he says.
If Gilead and Calistoga are right about this broad shift, then they could capture a toehold in a cancer drug market estimated to be worth $84 billion in 2012, according to Cowen & Co.
“We think a lot about where the field is going, and like us, Gilead believes people can live with the disease without a lot of side effects,” Gallagher says. “Patients will live longer lives, and have better quality of life. That’s what Gilead has done in the HIV space. They have this shared belief with us.”
Calistoga, of course, had lots of other reasons to sell the company now. Its venture capitalists, like all VCs, wanted to see a return on the more than $90 million they’ve invested since 2006. The company, as you’d expect, looked at all the usual strategic options it had to maximize the opportunity with its lead drug—an IPO, a partnership, an acquisition, Gallagher says.
The time was right to get acquired, Gallagher says, because of the resources Gilead can throw behind its cancer drug vision. Calistoga’s drugs also “won’t get lost in the shuffle,” like they might in a massive portfolio of cancer drugs at another Big Pharma company, Gallagher says. Calistoga’s lead drug, CAL-101, will instantly become the most valuable cancer drug asset at a company with a market valuation of $31 billion, and which generated $7.95 billion in sales last year. And cancer isn’t the end of the story—Bischofberger says there is reason to believe that drugs like Calistoga’s could be effective against inflammatory diseases.
“We really have a shared vision of how we can use targeted therapies to change patients’ lives in cancer and inflammatory disease,” Gallagher says.
Of course, Calistoga wouldn’t be in a position to sell at all without some promising results for its drug from clinical trials.
A little bit of science is required to understand why Calistoga became a hot property the past couple years. It is one of the companies with a specific drug aimed at a molecular target known as the PI3 kinase pathway—which is involved in multiple cell processes like proliferation, growth, migration, and cell survival. Research has shown over several years that when this pathway gets switched into an overactive mode, it can lead to cancer and inflammatory diseases. Multiple big pharma companies, including GlaxoSmithKline, Novartis, Roche, and Sanofi-Aventis, as well as small companies like San Diego-based Intellikine and Cambridge, MA-based Infinity Pharmaceuticals (NASDAQ: INFI), have wagered on this field over the past few years.
Calistoga has sought to separate itself from the pack by specifically designing its lead drug, and others in its pipeline, to hit a certain variation of the PI3 kinase known as the delta isoform, which is believed to only appear on certain blood cells. The idea is that you can have the therapeutic benefit while avoiding the side effects of drugs that block a broader spectrum of PI3 kinase types.
Calistoga has tested this drug in patients with multiple leukemias and lymphomas, and while it hasn’t worked for all of those diseases, and it has shown some liver-related toxicity at high doses, the drug has shown a promising combination of safety and effectiveness for patients with chronic lymphocytic leukemia and indolent “slow-growing” non-Hodgkin’s lymphoma. The most recent presentation came in December at the American Society of Hematology in Orlando, FL, in which Calistoga reported that after more than 177 patients enrolled in its first major study, its drug was keeping tumors from spreading more than a year. For those who want to deep-dive into the data, check this presentation from last month at the JP Morgan Healthcare Conference, particularly the waterfall charts on pages 16 and 20.
What Calistoga didn’t have, and which Gilead does, is a lot of money to move these clinical trials forward. Calistoga’s plan for 2011 was to move first into a pivotal study that could earn FDA approval of CAL-101 for indolent non-Hodgkin’s lymphoma, while starting a pivotal study for the chronic lymphocytic leukemia population later in 2011. Instead of pinching pennies like a VC-backed startup, Gilead, Bischofberger says, will be in position to charge ahead with both pivotal clinical trials simultaneously.
“Because they were a smaller company, they didn’t have much resources,” Bischofberger says. “They were planning to first go to non-Hodgkin’s lymphoma and delay the (chronic lymphocytic leukemia) trial for a year, for purely financial reasons. We wouldn’t do that, we’ll take both indications right away into Phase III.”
Gilead also offers the possibility that Calistoga’s team won’t need to call up the moving vans if they want to stay employed. While Gallagher says no decisions have been made yet about integration, Gilead has shown interest in retaining most of the Calistoga team at its new $50 million research center along Lake Union.
Gilead first came to Seattle in 2006 through its $365 million acquisition of Corus Pharma. Gilead has made such a sizable investment locally in a group of people with expertise in lung disorders, it has an interest in consolidating many of the Calistoga employees into its new facility, Bischofberger says. The Calistoga team should be able work well with Gilead’s lung disease experts, he says, because the PI3kinase inhibitors are thought to be useful for inflammation, particularly inflammatory disorders of the lungs like asthma and chronic obstructive pulmonary disease.
Calistoga has 23 employees, and while there could be some cuts on the administrative side of the business—“you don’t need two CFOs, or two CEOs,”—Bischofberger says, Gilead hopes to retain most of the Calistoga team because it has people with necessary skills in cancer drug R&D.
“Gilead has said they are very interested in planning to retain these employees, and adding this entity to what they have already been building here in Seattle,” Gallagher says. “We saw that as an attractive opportunity for our team.”
Besides Calistoga’s lead compound, Gilead will be able to pour more resources into other compounds at an earlier stage of development, Gallagher says. Other PI3 kinase blockers designed for different diseases—like CAL-120 and CAL-129—are expected to enter clinical trials this year, Gallagher says. Another drug, CAL-263 for inflammatory diseases, will get more of a development push.
While there are a number of competitors pushing hard in the PI3 kinase field, Calistoga believes it has a three to four-year headstart on rivals in the niche of delta-isoform specific drugs. Gallagher credited three early Calistoga employees—Roger Ulrich, Mike Gallatin, and Niell Giese—with seeing the opportunity for these types of compounds before others in the industry.
As for Gallagher herself, she said she doesn’t know what her next move will be, whether it’s at Gilead or somewhere else. While it will take a few months for the dust to settle on integration work, the fact that Calistoga has just 23 employees means there ought to be fewer “headaches,” in merging the companies, than there might be if Gilead were buying a 500-person company, Bischofberger says.
Before the Gilead acquisition, Calistoga had been planning to add 15 employees in Seattle to manage the increasing amount of work it anticipates in developing its drug candidates, Gallagher says. She wouldn’t say how the hiring plan might change when Gilead starts calling the shots officially when the deal closes in the second quarter.
“We want to make sure there’s a smooth transition,” Gallagher says. “We really think it’s a strategic match.”
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