Boston Business Journal October 6, 2003

 

ArQule continues its transition into drug developer

Cyclis purchase and new trials point to focus on products
Mark Hollmer
Journal Staff

WOBURN -- Sept. 30 represented a crucial day in ArQule Inc.'s master plan to reinvent itself.

That was the day the company announced that it had launched Phase I human clinical trials for CO-501, the product it hopes will reduce and kill tumors via injection by switching on cell "checkpoints" so cancer cells read their inherent DNA damage and die.

That's significant news, considering how many drug developers don't even reach clinical trials, but the 10-year-old ArQule had acquired the drug a month earlier -- when it bought the drug's developer, Cyclis Pharmaceuticals Inc. of Norwood, for $25 million in stock and cash.

Therefore, Sept. 30 is also a milestone in ArQule's evolution from a chemistry services company that handles some early research projects for larger pharmaceuticals to a biopharmaceutical drug and development company in its own right.

"It was an important strategy for our company," said president and CEO Stephen Hill. "Good drugs come from a combination of good biology and good chemistry."

The Cyclis purchase meant so much to ArQule's long-term plans that on Oct. 1 it named Chiang Li as chief science officer and vice president and head of ArQule's Biomedical Institute. Li, former vice president of research at Cyclis, helped come up with the science behind CO-501. He will handle discovery research for the combined company, along with other scientists brought on from Cyclis.

Future products will involve combining biology and chemistry to create synthetic versions of CO-501 to treat other cancers, and a larger development partner will likely be in the cards at some point, Hill said.

"We're excited by the science at Cyclis," Hill said. "It gives us the ability to add what is really innovative and strong in the biology science and match that up with ArQule's strength in chemistry."

ArQule, compared with some other smaller drug-development companies, is relatively well off.

The public company brings in revenue from its chemistry services business such as its $345 million deal with Pfizer Inc. that will last through 2008. In its 2003 second quarter, which ended June 30, ArQule brought in $15.5 million in revenue and reported $1 million in net income, versus a $4.9 million loss and $16.2 million in revenue for the same period in 2002. At the end of its fiscal second quarter, ArQule had $83 million in the bank, though that number will likely be lower when the company releases its fourth-quarter earnings in a few weeks, due in part to its Cyclis purchase.

ArQule employs just under 300 people -- about 128 less than its peak a year ago, due to layoffs stemming from its acquisition of Menlo Park, Calif.-based Camitro Corp. for $95 million. Park said the layoffs were necessary because the company ended up not being able to commercialize the technology they bought.

Moving ahead alongside with its chemistry services business, ArQule is focusing on cancer therapeutics and inflammation drugs. A potential pill to treat rheumatoid arthritis will likely enter final preclinical animal studies by the end of this year, he said.

ArQule may still be in transition from its original business focus, but it's on the right track to diversify, said John Woolford, a vice president at Legg Mason Wood Walker Inc. in Baltimore. "The stock market values products more than just plain chemical services," he said.

But chemical services and collaboration to help launch research for larger biopharmaceutical companies is both lucrative and steady, said John Hanlon, chief financial officer of Pharmacopeia Inc. in Princeton, N.J., one of ArQule's competitors in its initial business line.

Hanlon said his company has considered expanding into research and development beyond its limited capacity, but for now remains focused on generating positive cash flow through collaboration with and outsourcing business from other companies.

"The odds against bringing a successful drug to market are enormous," he said. "But I'm sure ArQule must feel a good chance of success."