Neoleukin Therapeutics Inc. and Aquinox Pharmaceuticals Inc. agreed to a merger in which Aquinox acquires Neoleukin, and Neoleukin becomes the official company name. The combined company plans to develop and commercialize computationally designed protein therapeutics for unmet needs in immuno-oncology, inflammation and autoimmunity.

The deal, which closes Thursday, has Aquinox acquiring all of privately held Neoleukin's outstanding capital stock in exchange for common and preferred shares. When the deal closes, the Nasdaq ticker will be NLTX. In the meantime, Aquinox (NASDAQ:AQXP) shares were up 1.39% to close at $2.92 on Tuesday.

The agreement is a rebirth of sorts for Aquinox, which smashed against the pharma shoals a little more than a year ago as its once-daily, oral rosiptor (AQX-1125) failed a phase III trial. Top-line results from the Leadership 301 trial, done in association with Astellas Pharma Inc., showed the study fell short of its primary endpoint, sensitivity, subpopulation and secondary endpoint analyses. The flameout was so severe the company stock crashed 84.7% in a single day. Only weeks previously analysts had written encouraging words about the company and the first-in-class SHIP1 activator for treating interstitial cystitis/bladder pain syndrome, which could have become the first such therapy to reach the market in 20 years. (See BioWorld, June 28, 2018.)

In the meantime, Lipella Pharmaceuticals Inc. took over the space by recently completing a phase IIa, placebo-controlled, double-blind dose-escalation study evaluating the safety and efficacy of LP-08 (liposomal sphingomyelin) for treating interstitial cystitis.

In the intervening year, Aquinox restructured by reducing its expenditures to maximize its cash reserves while reviewing its options and eventually settling into the merger. Seattle-based Neoleukin is just down the road from Vancouver-based Aquinox. The corporate headquarters will be in Seattle at Neoleukin's existing facility, which includes the lab, leaving a subsidiary office in Vancouver.

"Aquinox in the past year has nicely prepared the entity for this merger, so there is only a small number of employees now, mostly on the financial side," Jonathan Drachman, the new company's president and CEO, told BioWorld. "Key members will stay on and Neoleukin will grow from there. Overall, the company will be close to 20 people."

The deal provides additional capital for Neoleukin to prep an IND, generate clinical data, develop more preclinical programs, and advance its computational technology.

"We're expecting to submit an IND before the end of next year and to be in the clinic shortly thereafter," Drachman said.

Kamran Alam, interim chief financial officer and the only surviving Aquinox manager, told BioWorld that when the deal closes the company should have about $65 million to bring the lead molecule into the clinic by the end of 2020.

Drachman added that there was Neoleukin seed financing done in the past and that it hasn't been disclosed.

"The goal is to be a fully integrated drug development company, not just doing research but commercializing our own drugs," Drachman said. "There will be multiple opportunities to do deals as well."

Neoleukin's lead product candidate is NL-201, a new protein designed to mimic the therapeutic activity of the cytokines interleukin-2 (IL-2) and IL-15 to treat various cancers by activating T cells and NK cells, while limiting toxicity with minimal loss of activity. IL-2's effects are mediated by interactions with a receptor that has three parts: alpha (CD-25), beta (CD122) and gamma (CD132). IL-2's toxicity is exacerbated by CD25. The platform creates a protein stimulating IL-2 signaling without binding to CD25. The protein, NL-201, interacts only with the IL-2 receptor's beta and gamma chains to expand antitumor effector T cells.

The science comes from the University of Washington's Institute for Protein Design, led by its director, David Baker. Daniel Silva will become Neoleukin's vice president, head of research. Both Baker and Silva are among the authors of "De Novo Design of Potent and Selective Mimics of IL-2 and IL-15," the basis of the company platform, appearing in the Jan. 10, 2019, issue of Nature.

The platform will enable Neoleukin to create additional molecules to activate or inhibit the immune system, Drachman said.

When the deal closes, senior leadership will include Umut Ulge as vice president of translational medicine and Carl Walkey as vice president of corporate development.

SVB Leerink is financial advisor and Cooley LLP is legal counsel to Aquinox. MTS Health Partners is financial advisor and Fenwick & West LLP is serving as legal counsel to Neoleukin.