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Buying Majority Stake in Nascent Pharma, CombiMatrix Hopes for Long-Term Payoff

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CombiMatrix’s plans to spend $4 million to become the largest stake holder in a nascent drug discoverer has two possible upsides: The Acacia unit gets in on the ground floor as a pharmacogenomics-technology provider for an up-and-coming biotech, and the investment may also earn a windfall for CombiMatrix if the drug maker, Leuchemix, goes public or releases a successful drug.

For CombiMatrix, the equity stake may also help it revive a slumping stock price — if it can convince investors that the company is not abandoning its core businesses, and help them learn more about the drug maker.

“One [thing] we want to do is diversify,” according to Bret Undem, a CombiMatrix spokesman. But “we have no intentions of deemphasizing the other areas of our business.”

Investors reacted disapprovingly on news of the equity investment Monday, sending shares in CombiMatrix sliding 10.5 percent, or $.35, to close at $3.

“Our shareholders are probably not familiar with who Leuchemix is — obviously we need to educate and let people know what Leuchemix is about,” said Undem.

The company has seen its shares dive more than 65 percent since Jan. 29, when they closed at their 52-week high of $9.30 (see graph).

If Leuchemix’s pipeline of small molecules starts producing viable candidates, and the company goes public, CombiMatrix can, like other private-equity investors, cash out and reap a windfall.

CombiMatrix “took a stake in [this] drug-discovery company with the hopes that they’re successful, and that we would gain from their success,” said Undem.

Terms of CombiMatrix’s equity position in Leuchemix, which was part of a Series A round of financing that will span the next two years, will allow the drug developer to use the chip technology in its own research, Undem said.

“If the board of Leuchemix decides that our technology can be useful, certainly CombiMatrix will help them” with it.

Amit Kumar, CombiMatrix’s CEO, decided to invest in Leuchemix because he was “impressed” with its management — which includes former Deltagen CEO Bill Matthews and a former Roche Bioscience official — and its pipeline, according to Undem. Leuchemix is developing drugs for acute myelogenous leukemia, and hopes to expand its pipeline to include products for chronic myelogenous leukemia, myeloma, and lymphoma.

“While we are very excited about the prospects of the DNA microarray, biodefense, and nanotechnology thrusts of our business, we continue to see tremendous opportunities to invest in drug development,” Kumar said in a statement. “External investment in firms such as Leuchemix will complement the internal efforts we have undertaken in the area of siRNA drug discovery and development. We are pleased to be executing on our strategy with this transaction, which will provide us with a significant ownership position in a promising company.”

Undem didn’t disclose whether CombiMatrix will make additional equity investments in Leuchemix, but said he’s not aware of any plans at the moment.

Asked whether the acquisition is a prelude to an ultimate acquisition of Leuchemix, Undem said: “Not necessarily. We finished June with $28.9 million in cash; I think our interest was to acquire a piece of this company.”

The investment is not CombiMatrix’s first foray into therapeutics, though. The firm has an ongoing collaboration with Spanish non-profit research institute IrsiCaixa to develop two siRNAs as anti-HIV agents. Based on early data from the collaboration, CombiMatrix plans to advance the siRNAs into animal testing.

It also is working with IrsiCaixa on research and development of siRNAs targeting hepatitis C virus.

CombiMatrix, of Mukilteo, Wash., holds exclusive, worldwide rights to the siRNAs.

Kumar has maintained that CombiMatrix is not likely to bring its siRNA drug candidates through clinical trials on its own.

“The key is, we don’t plan to develop these compounds from start to finish all the way,” he told RNAi News, Pharmacogenomics Reporter’s sister publication, in July.

“Long-term, we plan to do a partnership … or multiple partnerships,” Kumar said. “Whether [they’re] delivery partnerships or clinical partnerships, it’s hard to say right now.”

Kumar anticipates that any future wide-scale partnership would likely be with a big pharmaceutical firm rather than a pure-play RNAi company. “We’re focusing more on larger organizations that have significant capital,” he said.

CombiMatrix currently sells or develops its custom array technology to the biodefense and biowarfare-detection communities, which have awarded the firm around $10 million in contracts.

It also is applying its chip platform to nanotechnology, highlighted by a recent developmental deal with Intel. The firm has been tight-lipped about the scope of that collaboration, but said it would disclose more details as it achieves certain milestones.

Kumar acknowledged that it has to do with miniaturizing the chip design to bring the electrodes down to the nanometer scale. This, he said, is only possible using advanced lithography, “which only exists in the R&D labs of Intel and others.”

— KL, EW

SOURCE: Nasdaq

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