EntreMed receives cash infusion as it is about to run out of money

But Celgene deal may lead to takeover of drug firm

January 03, 2003|By Julie Bell | Julie Bell,SUN STAFF

EntreMed Inc. said yesterday that it had sold rights to a line of its experimental drugs to Celgene Corp. in a New Year's Eve deal worth about $27 million, giving the Rockville drug developer what amounted to a last-hour reprieve as it was about to run out of cash.

Neil J. Campbell, company president and chief operating officer, described the licensing of EntreMed's thalidomide analogs - variations of the drug thalidomide - as part of a plan that will lead to the company's "rebirth."

But Ivonne E. Marondel, an analyst at Gerard Klauer Mattison, said it appeared the company was selling off assets in a fire sale and might eventually be taken over by Celgene.

The Warren, N.J., pharmaceutical company will own 49 percent of EntreMed if it converts all the stock options and warrants to be issued as part of the deal.

"It's kind of a desperate move," said Marondel, who said she quit following EntreMed in detail in November.

EntreMed had warned in November that it had sufficient cash to last only through the fourth quarter, which ended Tuesday as the Celgene deal was being negotiated.

EntreMed said Nasdaq granted an exemption to its rules, effectively allowing the deal with Celgene to go through without shareholder approval.

Shares of EntreMed gained 34 cents, or 39.5 percent, to close at $1.20 yesterday on the Nasdaq stock market, which had threatened to delist the stock. EntreMed has appealed the delisting effort and shares continue to trade.

The deal calls for EntreMed to get $16.75 million in cash in exchange for giving Celgene convertible preferred stock and warrants. The preferred stock is convertible into 16.75 million shares of common stock, while the warrants give Celgene rights to buy 7 million more shares after six months at a price of $1.50 per share.

Celgene also is paying EntreMed $10 million to settle lawsuits the two filed against each other over disputed rights to thalidomide analogs.

Celgene licensed thalidomide from EntreMed in 1998 for certain uses and now sells it under the trade name Thalomid. Thalidomide, best known for causing birth defects when used overseas as a morning sickness remedy by pregnant women, is approved in this country only for leprosy.

But doctors, exercising their right to prescribe any drug approved for one disease as a treatment for any other, increasingly have prescribed it for cancer.

Thalidomide analogs are thought to be a potentially more effective cancer treatments than thalidomide itself. EntreMed's thalidomide analog ENMD 0995 entered first-stage clinical trials in November as a potential treatment for multiple myeloma.

It was difficult to tell yesterday exactly how many months of cash the Celgene deal will mean for EntreMed. The company's budget calls for it to spend about $12 million in cash reserves this year.

But Campbell, the company's president, declined to say how much of the proceeds would remain after the costs of the deal are deducted. EntreMed, which Marondel estimated had $11 million in near-term liabilities in mid-September, also may need to pay some debts with the proceeds.

A large chunk of its debt - EntreMed's obligation to repurchase shares held by Bristol-Myers Squibb Co. at a cost of up to $3.8 million - was renegotiated in mid-December. The terms have not been disclosed.

Campbell, however, said the Celgene deal gives the company enough to address "near-term and intermediate-term" needs.

"This deal puts us on a firm financial footing," he said, adding that the company continues to explore other licensing agreements for protein drugs Endostatin and Angiostatin. "As we conclude these deals, we'll be making other announcements just like this one."

Clinical trials of Endostatin and Angiostatin in cancer patients continue, though EntreMed has said it won't advance them into further trials without finding another company willing to financially back them.

EntreMed also is continuing to advance a third anti-cancer drug in clinical trials, Panzem. Like Endostatin and Angiostatin, Panzem is designed to work by blocking the formation of tiny blood vessels that feed diseases, including cancer.

The deal announced yesterday also calls for Celgene to get the option, for one year, of licensing one of three EntreMed product candidates that have yet to reach human testing. It was unclear what those product candidates might be. EntreMed lists three proteins, three gene-therapies and a vaccine on its Web site as being in the discovery stage.

Celgene said in a separate release that it had paid $2.5 million to Children's Hospital in Boston and would pay another $2.5 million by 2006 in connection with its acquisition of rights to the thalidomide analogs, which are based on discoveries made there.

Celgene also said it would pay Children's $1.5 million to sponsor research at the hospital for five years.

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