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Perlegen, Filing for IPO, Hopes to Parlay Its Services Chops Into Drug-Discovery Dollars


Perlegen Sciences hopes to raise as much as $115 million in an initial public offering to help it apply its genomics technology to internal drug development.

The company is faring well in the genomics services market, and the bulk of its revenues to date has come from genotyping contracts with academic centers and big pharma (see sidebar).

But its plan to test its fate in the public market signals that Perlegen is confident in its future strategy, which centers around its type II diabetes and dyslipidemia drug candidates and associated genomic indicators of efficacy and safety.

"Our business model is to bring in more late-stage compounds, and our finance strategy is intended to support [that]," Rob Middlebrook, Perlegen chief corporate development officer, told Pharmacogenomics Reporter this week in an interview.

Perlegen, an Affymetrix subsidiary, is one of a handful of companies performing genomics-guided development of existing compounds. Companies such as Genaissance — now Clinical Data — Gene Logic and Decode Genetics are also in that play.

As a public company, Perlegen will continue conducting genetic analysis of patient DNA samples in order to find genetic markers of response or of adverse events, usher compounds and specialized diagnostics through clinical trials and the US Food and Drug Administration approval process, and market them as drug-diagnostic companion products.

"Our business model is to bring in more late-stage compounds, and our finance strategy is intended to support [that]."

Perlegen said it plans to continue to partner with pharmaceutical firms, performing pharmacogenomic services for their therapeutics and "apply[ing] their commercialization expertise" to its own products.

The company is mum about how many compounds it expects to take into its pipeline in the next few years, but its SEC filing does give an idea of what Perlegen is looking for: It plans to in-license compounds that have "demonstrated efficacy and safety in a material subset of patients in Phase II or later clinical trials," and to develop drugs for markets with unmet medical needs, "such as metabolic and cardiovascular diseases," the company said.

Later, Perlegen plans to move into larger markets, such as central nervous system and inflammatory diseases, the company added.

Drug Hopes

Perlegen has two therapeutics under development in-house — netoglitazone and bezafibrate — and it seems to be staking out a specialty in metabolic diseases with three separate indications.

With netoglitazone, the company is shooting for indications in type II diabetes, as well as in type II diabetes with dyslipidemia. Perlegen obtained the compound, which is also known as PGX-510, in an April 2005 worldwide licensing agreement with Mitsubishi. Mitsubishi retained rights to the compound in Asia.

Netoglitazone is an insulin-sensitizing drug of the thiazolidinedione class, to which the type II diabetes drugs Actos and Avandia — marketed by Takeda Pharmaceuticals and GlaxoSmithKline, respectively — belong, Perlegen said. Those two drugs account for more than $4 billion in annual sales, the company added.

Perlegen hopes that it can develop genomic markers to avoid adverse events and to identify patients in whom netoglitazone will work. Thiazolidinedione drugs, or TZDs, produce adverse events in 7 percent to 15 percent of patients, including weight gain and edema, as well as tissue fluid buildup. "Our review of previous clinical trial data suggest that without genetic targeting, PGX-510 had a similar efficacy and safety profile to currently marketed TZDs, and would thus have been undifferentiated," Perlegen said in its SEC filing.

With its previous netoglitazone licensing partner Johnson & Johnson, Mitsubishi chaperoned the drug through phase 2b clinical trials. At that point J&J handed the rights over to Mitsubishi. Perlegen plans to initiate phase 3 trials in diabetes, and phase 2 trials in diabetes and dyslipidemia, as soon as it establishes appropriate genomic markers.

With its second drug, bezafibrate, also known as PGX-520, Perlegen has applied for a secondary patent covering its use as a dyslipidemia treatment with genomic tests, since the drug's patent has already expired. The drug, a member of the fibrate class, is currently available generically in Europe and Canada, but it has never been through phase 3 trials and regulatory approval in the United States. Because the drug's patent has expired, it is not necessary for the company to license bezafibrate.

As an example of the potential market for bezafibrate, Perlegen cites TriCor, marketed by Abbott Laboratories, which brought in $900 million in 2005. Perlegen plans to begin phase 3 trials with this drug when it develops genomic markers to improve the drug's safety and efficacy.

Standing Out in a Lackluster Market?

Perlegen is making its move to the public markets at a time when other publicly traded genomics firms, such as Sequenom, Third Wave, and Transgenomic, are performing less than brilliantly.

But while genomic tool providers haven't fared well recently, other companies that have built their businesses around genomic services appear to be seeing a turnaround in the market.

In February, Gene Logic reported an increase in fourth-quarter 2005 revenue to $22.4 million from $20.1 million in the year-ago period. The company's genomics services business reported its fourth profitable quarter in a row, including a 27-percent increase in revenue to $17.5 million from $13.8 million in the fourth quarter of 2004. "We expect [SNP genotyping] to be an important growing area of new business for us in 2006," Mark Gessler, Gene Logic CEO said during a late-February conference call with investors.

Like Perlegen, Gene Logic has set out to bolster its core services business with downstream drug-development activities, but the firm has yet to see a financial payoff from this strategy. Gene Logic's drug-repositioning business, which the firm acquired from Millennium in 2004, posted $272,000 in revenue for the fourth quarter and experienced a net loss of $2.9 million — a jump from a loss of $1.7 million in the fourth quarter of 2004.

Unlike Perlegen, Gene Logic's drug segment partners with pharma to reposition compounds, rather than in-licensing them. The business now counts four partners, having gained two partners, Pfizer and Roche, in the third and fourth quarters of 2005, respectively.

Clinical Data, on the other hand, has decided to concentrate on identifying the responder population of only two drugs — the selective serotonin inhibitor vilazodone, which the company is hoping to eventually re-submit to the FDA, and clozapine, a schizophrenia drug whose dangerous adverse events currently prevent its use in first-line therapy. Clinical Data has in-licensed vilazodone from Merck and plans to create a companion diagnostic, while it hopes to develop a diagnostic guiding the prescription of clozapine, which is currently on the market as a generic drug.

Perlegen Reveals Growing Revenues,
Widening Losses in IPO Filing

In its IPO filing with the SEC this week, Perlegen reported full-year 2005 revenues of $40.5 million, up 46 percent from $27.8 million for the full year of 2004. Of that amount the company received $23.3 million from contract revenue, $15.8 from research revenue, and $1.3 million in royalty revenue from Affymetrix in 2005.

Net losses for the year ended Dec. 31, 2005, were $21.9 million, a jump of 37 percent over the company's 2004 net losses of $15.5 million.

R&D expenditures also grew in 2005. For the recent year, Perlegen spent $33.6 million on R&D, an increase of 78 percent from 2004 R&D spending of $16.4 million.

At Dec. 31, 2005, the company had $106.8 million in cash, cash equivalents, and short-term investments.

"In the fourth quarter of 2005, in accordance with our strategy to develop our own targeted medicines, we elected to focus our collaborative efforts on our relationships with key pharmaceutical companies" rather than contract genomics work, the company said in its recent SEC filing. "As a result, we expect that research funding and contract revenue from the not-for-profit sector will decline in 2006 and beyond as we pursue these types of arrangements on a more limited basis," the company said.

"The major spend at this moment is in the developments on vilazodone," as well as the company's effort to develop a test for adverse responders to clozapine, said Israel Stein, Clinical Data CEO, in an interview this week. The company's pharmacogenomic services business, meanwhile, "is moving toward profitability" as a result of the company's recent acquisitions, he said.

Clinical Data posted 39-percent growth in revenues for its third fiscal quarter ended Dec. 31, 2005, to $19.9 million from $14.3 million in the year ago period. The firm did not break down its financial data by business unit. Clinical Data reported a $42.8-million third-quarter net loss in the quarter driven by $40.1 million in aggregate purchased in-process R&D expenses related to Genaissance's development of the drug vilazodone and a diagnostic to accompany the existing drug clozapine.

Stein declined to characterize the state of the drug-repositioning market. Asked whether Clinical Data is considering taking on new drugs to reposition, Stein said the company will begin with its vilazodone effort, and if it proves successful, Clinical Data sees "interesting opportunities in this class of drug." He declined to say whether the firm would consider other classes of drugs.

Clinical Data has high hopes for its own repositioning efforts, however. Stein estimated that the potential market for vilazodone in the neuropsychiatric drug arena is approximately $20 billion for antidepressants, with about $10 billion to $12 billion of that in the United States. Vilazodone stands to capture perhaps 4 percent to 5 percent of that market due to the large amount of trial-and-error prescribing that currently goes on, which a Clinical Data diagnostic would attempt to address, Stein added.

Clinical Data plans to complete a phase III vilazodone study by mid-2007 and file the drug for approval with the FDA as early as the end of 2008, said Stein.

— Chris Womack ([email protected])

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