In a strategic shift that illustrates its relentlessly shaky cash position, Nuvelo said it will put on the block all of the pharmacogenomics assets that belonged to Variagenics, as well as the microarray business cultivated by Hyseq, its former corporate incarnation, SNPtech Reporter has learned.
Reporting his company’s second-quarter earnings last week, CEO Ted Love said Nuvelo will “monetize” non-core assets acquired from Variagenics last November.
Up until then, Love assured Variagenics’ investors, customers, and employees that though certain “non-core assets” would be sold following the acquisition, the firm’s SNP database and other assets would remain to contribute to the new firm’s drug-discovery efforts.
“Variagenics’ knowledge of SNPs and what those SNPs can do ... means we might be able to integrate it” for clinical trials, Love said.
Variagenics’ technology could have been used to solidify relationships with drug or diagnostic makers, and Love had every reason to be optimistic about it. In fact, two weeks before Hyseq bought Variagenics for $56 million in stock and renamed itself Nuvelo, Variagenics licensed to Celera Diagnostics the patent rights to a human gene, methylenetetrahydrofolate reductase, that is linked to certain neurological and cardiovascular diseases.
“The breadth of discussions for Hyseq and Variagenics, in terms of partners, has increased,” Love said at the time. “We think that as a new company we will be able to do broader and deeper deals.”
Not any more. Variagenics’ molecular diagnostics business, its SNP database, and the NuCleave platform are all up for grabs, said Nuvelo CFO Pete Garcia. Moreover, the Sunnyvale, Calif. drug maker is considering selling to Affymetrix the 90 percent share in ownership of a genomics subsidiary the two firms have co-owned since 2001.
Though Variagenics’ most prized possession — the $56 million in cash it had on hand — was designed to sustain Nuvelo through the end of 2004, the company will most likely run out of cash before then. To help bridge the gap, Nuvelo secured a $10 million line of credit from its chairman, George Rathmann, last year, and decided formally to sell everything that’s not directly linked to its drug candidate alfimeprase.
Nuvelo is still cutting it close. The firm had around $26.6 million in cash, cash equivalents, and short-term investments as of June 30, and the $10 million credit line brings up the cash position to $36.6 million. Considering Nuvelo burns around $3 million each month, according to Garcia, the firm will eat through $51 million between now and December 2004. This leaves it $14.4 million in the hole. Nuvelo is banking that Variagenics’ pharmacogenomics assets and Hyseq’s microarray unit will make up the difference.
“The idea is to have the company focus on a technology or on a business that we think will derive the most value, and we think that that is developing therapeutic products,” Garcia said in an interview with SNPtech Reporter this week. “We don’t have the bandwidth” for the other disciplines.
“Give the company’s limited resources, we had to identify that we have to either spin out or sell other assets that weren’t core to that,” Garcia said.
He defined these assets as Hyseq’s microarray business that goes with the moribund HyChip platform the company had been nurturing. This product, which Nuvelo said can sequence genes without relying on specific reference genes or sequences, was being co-developed with Applied Biosystems in 1997 as part of a five-year partnership.
ABI released Nuvelo from the partnership in October 2001 and became a non-exclusive partner in order to help Hyseq reach a settlement in a patent-infringement suit with Affymetrix, said Garcia. He added that ABI has the option to develop the HyChip for commercial use, though he doubted the company would do so. An ABI spokeswoman confirmed this is accurate.
“We are taking a look at what to do in [the HyChip] area,” said Garcia. One option is to sell to Affy a small subsidiary called N-Mer, which was responsible for developing the HyChip platform with ABI. The subsidiary is itself a unit of Hyseq’s gene-sequencing subsidiary Callida Genomics, which is 90-percent owned by Nuvelo and 10-percent owned by Affy. Terms of the joint venture, struck as part of the firms’ 2001 legal settlement, give Affy the right to buy out N-Mer and give up Callida.
“I think what we’re trying to do is to derive some value to where we can have this asset be worth something to Affymetrix, or to another party,” said Garcia. He said that Affy has not indicated it wants to buy N-Mer, but declined to say if Nuvelo approached Affy with the offer. Garcia also conceded that not buying N-Mer and the HyChip might make sense for Affy because the platform is for gene sequencing research rather than expression.
Variagenics’ molecular diagnostics program faces a similar fate. “Though we think it has value, it didn’t have the same kind of value as our program in the therapeutic area,” said Garcia. This program was created for Variagenics to license to diagnostic companies its SNPs and haplotypes. (The NuCleave genotyping platform on which those SNPs and haplotypes were identified also wears a ‘For Sale’ sign.)
Variagenics’ last molecular diagnostics deal was with the Korean firm GeneMatrix, which aimed at developing products to predict drug response in certain cancers.
Also on the block is Variagenics’ pharmacogenomics program, which comprises gene-expression profiling, pathway analysis, molecular modeling, haplotype analysis, and heterozygosity technologies. This program helped Variagenics pen R&D collaborations with drug makers like Amgen, Boeringher Ingelheim, and Isis Pharmaceuticals.
Lastly, Nuvelo has shuttered a facility in Cambridge, Mass., and laid off the 80 staffers who had been employed there. Garcia said a small number of these employees have been retained as consultants. Nuvelo is considering subleasing the space, Garcia said.