CAL BIO’s LOSS OF NAZLIN LICENSEE LILLY IS "BLOW"

CAL BIO's LOSS OF NAZLIN LICENSEE LILLY IS "BLOW" to the company's end-of-the-year financial results, Cal Bio CEO Richard Casey told securities analysts Jan. 8 at Hambrecht & Quist's Life Sciences conference in San Francisco. "This year has been a bittersweet year for Cal Bio in that we were headed for a very outstanding year...then the very end of the year, the eleventh hour plus 59 minutes, Lilly gave us some bad news on the nasal insulin license," Casey reported. In December, Lilly decided to terminate its license for the use of Cal Bio's Nazdel technology for the intranasal delivery insulin for Type II (non-insulin dependent) diabetes. As a result, Cal Bio ended the year with losses of $8 mil., equal to its losses in 1988. "Clearly that would have looked a lot better a couple of weeks ago if Lilly had made their milestone payment," Casey remarked. Lilly expressed concern over the intranasal insulin dosage required to treat diabetics in its Phase II trial with Nazlin. "They are afraid that the dosage required for optimum clinical effectiveness in obese Type II diabetics, [who] are very tough patients,...was higher than they had been projecting compared to the subcutaneous administration," Casey explained. The termination of the license "came as some surprise to us as you might imagine," Casey maintained. He added that "just a few weeks earlier we were at Lilly discussing the program with them and I was convinced that they were going to continue." Commenting that the "Lilly announcement has been a blow to [Cal Bio]," he said, however, that the company "intend[s] to go forward and exploit this technology to the fullest." Casey said that by the end of January the company "will make the key decision as to whether we will in fact go out and try to relicense the product to other major drug companies." Cal Bio still has "a great deal of confidence in nasal insulin, particularly in Type I diabetics where it has never been tested." The rights to data on Nazlin, generated by Lilly, reverts to Cal Bio. Consequently, the company will send a contingent to Lilly "in the next few weeks," Casey said, to "debrief over a several day period with Lilly scientists and business managers." * Almost exactly a year ago, Wyeth-Ayerst dropped its Nazlin development program with Cal Bio. Termination of the license, in that case, resulted from Wyeth-Ayerst being unable to obtain a cost-effective supply of insulin for clinical trials. In April, Cal Bio reacquired rights to Auriculin (atrial peptide for congestive heart failure), although Wyeth's parent American Home Products still held a 14% equity in Cal Bio ("The Pink Sheet" April 17, T&G-11). Cal Bio had entered the licensing agreements with both Wyeth-Ayerst and Lilly in the fall of 1985. One of Cal Bio's goals "in the next five years," Casey said, is to reduce the company's operating loss to close to zero by 1993-94. The company's expenses were $20 mil. in 1989 and its cash level was $34 mil., down only $2 mil. from 1988. During 1989, Cal Bio expects four therapeutic products to be in the clinic: nasal calcitonin (Phase I/II), nasal growth hormone (Phase I/II), fibroblast growth factor (Phase II), and Auriculin (Phase II). Casey announced that the company is in negotiations with a European partner for FGF and expects by mid to late 1990 to conclude another "major collaborative R&D agreement, analogous to the MetaBio/Pfizer deal," that will focus on cardiovascular therapies. Under its agreement with Pfizer, Cal Bio is developing improved insulins, insulin releasing agents, and Adipsin, a drug for obesity.