Staff Writer

Maxygen, Inc.'s shares and bank balance both grew rapidly on news that Tokyo-based partner Astellas Pharma Inc. exercised its option to buy out Maxygen's 83.3 percent equity interest in the companies' joint venture, Perseid Therapeutics LLC, for $76 million.

Maxygen and Astellas agreed to the joint venture in June 2009. Built on Maxygen's protein pharmaceuticals assets, Perseid began operations in September 2009 and focused on discovery and development of protein pharmaceutical programs including CTLA-4 Ig (Astellas ASP2408), for which a Phase I study began in January for treatment of rheumatoid arthritis and other autoimmune indications. (See BioWorld Today, Sept. 22, 2008.)

Maxygen shares (NASDAQ:MAXY) were up 98 cents, or 23.8 percent, to close at $5.09 Thursday.

The Astellas deal, which is expected to close in the second quarter, also topped off Maxygen's bank account at more than $200 million. The company closed 2010 with about $128 million in cash.

But a Maxygen program that wasn't part of the Astellas deal might prove to be extremely valuable for the Redwood City, Calif.-based company: Phase II candidate MAXY-G34 for chemotherapy-induced neutropenia and acute radiation syndrome (ARS) indications. ARS, or radiation sickness, has been getting renewed attention this week as the world monitors the status of Japan's damaged nuclear power plants.

ARS is a serious illness that occurs when the entire body. or most of it, receives a high dose of radiation, usually over a short period of time, according to the Centers for Disease Control and Prevention, in Atlanta. Many survivors of the Hiroshima and Nagasaki atomic bombs in 1945 and many of the firefighters who first responded after the Chernobyl Nuclear Power Plant accident in 1986 became ill with ARS, the CDC said.

The cause of death in most cases of ARS is the destruction of the person's bone marrow, which results in infections and internal bleeding, the CDC said. MAXY-G34 is a pegylated granulocyte-colony stimulating factor (G-CSF), a natural protein that stimulates bone marrow to produce neutrophils, a white blood cell that helps defend the body against bacterial infections, Maxygen said. The company retains all rights to MAXY-G34 for commercial development of all therapeutic areas.

In May 2009 Maxygen gave Cangene Corp., of Toronto, an option to acquire an exclusive license to MAXY-G34 as part of Cangene's competitive contract bid to the Biomedical Advanced Research and Development Authority (BARDA) to develop a treatment for ARS. Cangene paid Maxygen a nonrefundable $500,000 up-front fee, but was eliminated by BARDA last summer. The agreement expired in July 2010.

Reached In Vienna, Maxygen CEO James Sulat told BioWorld Today that the thought of MAXY-G34 having value in Japan "has crossed our minds but we have not done anything to capitalize." He added that while MAXY-G34 has not been tested for ARS, there is "reason to believe it would be effective, but it is too early to make predictions."

In December 2008, Maxygen completed a Phase IIa trial of MAXY-G34 for treatment of chemotherapy-induced neutropenia in breast cancer patients. But the company has said that it will continue to delay Phase III manufacturing and a Phase IIb trial for chemotherapy-induced neutropenia until it finds a partner who will share costs.

Sulat said that remains the strategy for G34 for chemotherapy-induced neutropenia, but added that there could be a different strategy for ARS, possibly using government funds.

He noted that a nearly 3-year-old patent dispute with Amgen Inc., of Thousand Oaks, Calif., over G-CSF has made finding a partner more difficult.

In the meantime, Maxygen is flush with cash, a scenario that is not unusual for the company. In July 2008 it sold preclinical hemophilia drug MAXY-VII to Bayer AG in a $120 million deal that included a $90 million up-front payment. Soon afterward, Maxygen licensed its preclinical autoimmune and transplant drug MAXY-4, which is similar to Bristol-Myers Squibb Co.'s rheumatoid arthritis drug Orencia (abatacept), in a back-end loaded $170 million deal with Astellas Pharma Inc. The companies later expanded the deal into a joint venture around the rest of Maxygen's early stage programs. In late 2009 and with $203 in the bank, the company put some of its cash to work and launched an unusual modified "Dutch Auction" tender offer to repurchase 6.5 million shares. (See BioWorld Today, July 3, 2008, Sept. 22, 2008, and Nov. 16, 2009.)

Now, with MAXY-G34 its sole remaining asset, Sulat thinks it might be time to add to the pipeline. "Historically, we have looked to return some amount of it to our shareholders," he said. "We look for opportunities to redeploy some of it. That could be our portfolio, but because the portfolio is shrinking, we might look to the outside."

Maxygen and Astellas originally each contributed about $10 million to Perseid. Sulat said that Maxygen will have no further obligations to Perseid and will be left with about a dozen employees; Perseid will become a wholly owned subsidiary of Astellas. Under the companies' joint venture arrangement, Maxygen transferred its protein pharmaceutical programs and related assets and research and development personnel to Perseid and gave Astellas the option to acquire all of Maxygen's ownership interest at prices that escalated each quarter – from $53 million at the start to $123 million over the three-year term ending Sept. 18, 2012.