An Arresto development

Gilead to acquire fellow Bay Area company Arresto for $225 million to bolster existing pipeline

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FOSTER CITY, Calif.—Venturing just several miles down the road to initiate a little inorganic growth, Gilead Sciences Inc. is acquiring Palo Alto, Calif.-based Arresto Biosciences Inc.—a privately held, development-stage biotechnology company focused on medicines to treat fibrotic diseases and cancer—for $225 million from cash on hand, plus potential future payments based on achievement of certain sales levels.

As of mid-January, there was no confirmation that the deal was finalized, but Gilead earlier reported that it anticipates the deal will close in the first quarter of this year, subject to satisfaction of certain closing conditions. Arresto's website, however, appears to have been deactivated already, based on ddn's unsuccessful attempts to access the site since Jan. 18.

Part of what makes this deal interesting to market watchers is the focus on monoclonal antibody (mAb) work at Arrestos and the fact that Gilead is known as a major player in the market for AIDS/HIV-related medications. As Jason Kantor, an analyst with RBC Capital Markets in San Francisco, notes, "The deal is unusual, because it is the first antibody for Gilead."

Arresto develops medicines that target enzymes involved in the synthesis of the extracellular matrix, which appear to play a role in the etiology of a variety of fibrotic diseases and cancer. The company's lead product is AB0024, a humanized mAb targeting the human lysyl oxidase-like-2 (LOXL2) protein. The company recently initiated a Phase I study evaluating AB0024 in patients with idiopathic pulmonary fibrosis (IPF). A Phase I study of AB0024 in patients with advanced solid tumors is also ongoing.
Around the same time the acquisition deal was announced, Gilead ended a Phase III trial for ambrisentan in IPF indications due to lack of efficacy; this may well mean that Arresto's AB0024 will become Gilead's lead antifibrotic compound.

As The Motley Fool wrote on Dec. 20, the day the acquisition deal made the news and two days before Gilead pulled the plug on the ambrisentan trial, "At worst, AB0024 acts as a backup compound if ambrisentan fails, and at best, the drug might complement ambrisentan clinically and allow Gilead to flex its IPF sales force against InterMune's Esbriet, which is headed toward an approval in the EU and eventually in the U.S."

So, on the surface, the acquisition seems like a good plan, but The Motley Fool also wondered about larger implications, noting that AB0024 attacks a protein involved in making fibroids that cause IPF, but adding that the protein is also involved in making the matrix that forms around tumors—in fact, AB0024 is also being tested against solid tumors.

"Remember, Gilead is a company specializing in antiviral drugs. Expanding into heart drugs and IPF seemed reasonable; you can only develop so many compounds for HIV and hepatitis," The Motley Fool reports. "The number of patients in these indications is relatively small, which can keep sales costs down. But cancer? Does Gilead really want to get into that highly competitive business? Look at how much its peers spend on hocking their drugs to large markets."

Aaron Bouchie at BioCentury, for his part, writes: "in the broader scheme of things, Arresto will fit nicely with Gilead's efforts to build franchises in liver, pulmonary and cardiovascular diseases, while potentially giving the company a re-entry into cancer."

"Arresto's research and development expertise is well aligned with Gilead's areas of focus, including our ongoing clinical program for ambrisentan in IPF," said Dr. Norbert W. Bischofberger, Gilead's executive vice president of research and development and chief scientific officer, in the news release about the deal. "We look forward to working with the team from Arresto to advance the development of novel therapies for serious fibrotic diseases and explore their potential for the treatment of tumors."

As of ddn's press time for the February 2011 issue, Gilead still hadn't made any official announcements about the future of the ambrisentan program subsequent to the recent Phase III trial failure.

Responding to some of the raised eyebrows from analysts like Kantor at RBC, Gilead spokesperson Nathan Kaiser tells ddn, "The acquisition of Arresto was driven primarily by the synergies between their pipeline and our current areas of focus. Of note, preclinical efficacy for AB0024 has been demonstrated in fibrotic disease across multiple organ systems that fall within Gilead's R&D expertise, such as the lungs and liver. That said, we remain interested in pursuing additional opportunities to acquire companies, drugs or technologies that have the potential to augment or complement our current therapeutic areas of focus."

Zacks Investment Research currently has a "Neutral" recommendation on Gilead, and analysts there say, "We remain optimistic on the growth potential of Gilead's HIV franchise drugs, Truvada and Atripla and the company's progress with its pipeline. However, the company's HIV drugs are facing patent challenges from companies seeking to launch generic versions of the drugs. Small acquisitions of early-stage companies like Arresto and CGI Pharmaceuticals (mid-2010) are minimally dilutive and add to the company's pipeline. However, they are unlikely to reduce investor concern regarding HIV franchise patent expiration over the next decade."

Zacks also notes, however, that the Arresto acquisition represents "a good strategic fit given Gilead's respiratory/early-stage cancer franchise."

There is no word yet on any changes that might be made to Arresto in terms of the company's current home, staffing, branding and the like. As Kaiser says, "Gilead will work on an integration plan as the transaction progresses."

"Gilead shares Arresto's vision of bringing innovative new therapeutic options to patients with unmet medical needs," said Dr. Peter Van Vlasselaer, Arresto's president and CEO in a prepared statement about the deal. "Arresto was founded based on the promise of selective antibody therapies and I am confident the combined resources of our companies best position us to build upon our early scientific results."

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