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With Validated Tech and Drugs in the Clinic, Quark Boldly Prices IPO at $12-$14 a Share

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Quark Pharmaceuticals, which recently changed its name from Quark Biotech, this week said in an amended filing with the US Securities and Exchange Commission that it expects to price its initial public offering of 5 million shares of common stock at between $12 and $14 a share.
 
Assuming that the shares float at $13 a share and that the IPO’s underwriters exercise an over-allotment option to buy an additional 750,000 shares, Quark expects the offering to net $67.3 million.
 
The company said it will use the proceeds from the offering to support its R&D activities, general administrative operations, and for working capital and general corporate purposes.
Specifically, Quark intends to commit $36 million to complete phase II trials, and to begin preparations for phase III testing, of its two phase I drug candidates.
 
About $13 million will be used to fund R&D for future pipeline products, with the remainder being used to finance sales, marketing, general, administrative, and other business-related activities.
 
“We may also use a portion of the net proceeds for the potential acquisition of, or investment in, other product candidates, intellectual property rights, or companies that complement our business, although we have no current understandings, commitments, or agreements to do so,” Quark said in the filing.
 
“We may also seek to obtain debt or other non-equity financing to cover a portion of the costs to compete development and [commercialization of] any or all of our drug candidates, to fund development of our preclinical and early-stage product candidates.”
 
Quark noted in its SEC filing that while its initial focus is on RNAi-based therapies for diseases associated with oxidative stress, it is also conducting in vivo proof-of-concept studies on antibody-based drugs.
 
Timing
 
Should shares of Quark begin trading on the Nasdaq exchange within the expected range, the IPO would be the most successful thus far in the RNAi field.
 
Earlier this year, microRNA firm Rosetta Genomics began trading its common stock in the US at $7 per share, significantly lower than the $11 to $13 range at which the company first expected its stock to trade (see RNAi News, 3/1/2007).
 
The only other IPO for an RNAi-related company was Alnylam Pharmaceuticals’ in 2004, which saw the company’s stock go public at $6 a share (see RNAi News, 6/4/2004). Alnylam had, at one point, expected its stock to debut at $13 a share.
 
Although Rosetta and Alnylam both ended up slashing the proposed share prices in their IPOs, Quark may not have to since it has a couple of things working in its favor that the other two companies did not: a validated core technology and products in the clinic — including one already licensed to a big pharma.
 
At the time of Alnylam’s IPO, widespread recognition of RNAi was just beginning. Since then, the technology has not only advanced scientifically but also gained greater acceptance from both the investment and research communities, which would likely make Quark an easier sell on Wall Street.
 
Key examples of RNAi’s maturity include Merck’s $1.1 billion acquisition of Sirna Therapeutics (see RNAi News, 1/4/2007); Novartis’ broad partnership with Alnylam (see RNAi News, 9/9/2005) that included the big pharma taking an almost 20 percent stake in the RNAi firm (though that equity position has since fallen to around 14 percent); and the awarding of the Nobel Prize to RNAi pioneers Andy Fire and Craig Mello (see RNAi News, 10/5/2006).
 
In contrast, the miRNA field, though expanding rapidly, has yet to achieve the same kind of acceptance now seen by RNAi.
 
Additionally, when Alnylam went public it was still a year and a half away from its first phase I trial, while Rosetta’s most advanced drug program currently remains in the lead selection stage. Rosetta is also developing miRNA-based diagnostics, but doesn’t anticipate its first product — a test for cancer of unknown primary — to reach the market until next year at the earliest.
 
Quark, meanwhile, has two RNAi drugs in human trials, including a wet age-related macular degeneration treatment called RTP801i-14.
 
Last year, Quark licensed the drug, which targets the novel gene RTP801, to Pfizer (see RNAi News, 9/28/2006). Though financial terms of the arrangement were not disclosed at the time, Quark said in the SEC filing that it has already received from Pfizer $26.1 million in upfront fees, milestones, and cost reimbursements.
 
Quark could receive an additional $299 million in milestones and up to $309 million in royalties, assuming that RTP801i-14 is commercialized for three different indications.
 
In an ongoing, dose-escalating phase I/IIa study, Quark is evaluating a single intravitreal injection of RTP801i-14 in up to 42 patients with the AMD hallmark choroidal neovascularization. Though the trial is designed to determine the drug’s safety and tolerability, other endpoints include changes in visual acuity.
 

“We may also use a portion of the net proceeds for the potential acquisition of, or investment in, other product candidates, intellectual property rights, or companies that complement our business.”

Quark said in the SEC filing that it expects to complete the study before the end of 2007, at which point it plans to begin a phase II dose-ranging trial. Pfizer holds the full rights to the drug in all ophthalmic and non-ophthalmic indications, and will take over all further development and commercialization responsibilities following phase I testing.
 
Quark’s other phase I RNAi drug is AKIi-5, which is being developed for acute renal failure in patients undergoing major cardiovascular surgery (see RNAi News, 4/5/2007). The company is currently enrolling up to 16 patients undergoing cardiac surgery in this dose-escalating trial, which it expects to conclude by the end of the year.
 
Quark is also poised to begin clinical testing of AHLi-11 for acute hearing loss associated with acoustic trauma or ototoxic drugs such as aminoglycoside antibiotics. In its SEC filing, the company said that it expects to be able to file an investigational new drug application to begin human testing of AHLi-11 as a treatment for cisplatin-induced hearing loss in the second half of the year.
 
Officials from Quark were not available for comment as the company is currently under an SEC-mandated quiet period.
 
The Financials
 
In its amended SEC filing, Quark also reported its recent financial performance, posting a profit for the first quarter of 2007 as revenues increased on payments from Pfizer.
 
For the quarter, Quark’s revenues surged to $14.5 million from $275,000 in the first quarter of 2006. According to the company, the rise reflects revenues from Pfizer, which more than offset decreases in service revenue and grant money.
 
The Pfizer infusion also helped Quark to post a $7.5 million net profit in the first-quarter, compared with a $6.2 million net loss a year ago.
The company’s research and development spending fell slightly in the quarter, to $5.3 million from $5.9 million in the same period last year, primarily as a result of a $3.2 million drop in preclinical expenses that offset higher license fees and other costs.
 
Quark’s general and administrative expenses in the first quarter rose to $1.9 million from $692,000 the year before, in part due to the forgiveness of a $350,000 loan made to CEO Daniel Zurr in 1997.
 
As of March 31, Quark had cash and cash equivalents totaling $26.8 million. The company said that these funds, the money raised through its planned IPO, and $50 million in anticipated R&D funding and milestone payments from existing collaborators, are expected to fund its operations through the first half of 2009.

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