Aphton Corp. agreed to terminate its co-promotion and licensing deal signed with Sanofi Pasteur in 1997, regaining worldwide rights to its lead cancer drug, Insegia.

The move, along with the recent restructuring of its long-term debt, aims at "eliminating two major overhangs" for Aphton, said Patrick Mooney, chairman and CEO of the Philadelphia-based company, adding that the "No. 1 priority" is to find a new partner that will help fund Insegia's ongoing development.

The original agreement with Sanofi Pasteur (then Aventis Pasteur) called for Aphton to bear all the development and regulatory costs of Insegia in indications such as pancreatic and gastric cancers, while Sanofi Pasteur would provide the marketing and sales force in North America and Europe. The deal included a "very high royalty rate" on the back end, but provided "no significant consideration up front," Mooney said.

"Aphton was always chronically underfunded throughout the years, and was never able to pour enough money into the clinical trials," he told BioWorld Today. "If we had a corporate partner with deep pockets, we could have done multiple trials at twice or three times the size."

Aphton began pushing to dissolve the agreement following Insegia's Phase III miss in pancreatic cancer in February, and found the partner willing.

"It was a mutual decision," Mooney said of the termination. "Aventis recently had been acquired by Sanofi, and, because it was a marketing deal only, [Insegia] was not considered part of their internal pipeline. So it was a lower priority for them."

In exchange for terminating the agreement, Aphton agreed to pay Paris-based Sanofi a single-digit royalty on sales of Insegia, and Sanofi forgave a $1.9 million payment owed by Aphton. Sanofi also agreed to make efforts to sell supplies of diphtheria toxoid, one of the ingredients of Insegia, through 2009.

Now that the drug is no longer attached to Sanofi, Aphton is able to seek a new partner to help develop and commercialize the drug. "We're not so worried about the back-end now," Mooney said. "If I got a 15 percent royalty on a drug that's approved, that would be a home run. We need money up front to fund our operations, so we can get this drug moving through the clinic."

Insegia (G17DT immunogen) is designed to target the growth hormone gastrin. The drug acts on the immune system to generate antibodies to gastrin and the gastrin receptor, which could neutralize the hormone's ability to help cancers grow.

Although the drug showed positive results in a first Phase III study in pancreatic cancer, it missed its endpoint in a larger Phase III trial earlier this year when it failed to improve overall survival in patients when used in combination with gemcitabine. Those results caused the company's stock to fall more than 45 percent Feb. 15, closing at $1.70. (See BioWorld Today, Feb. 16, 2005.)

Mooney said Aphton "probably won't pursue" the pancreatic cancer studies any further "unless we found a partner who wants go forward" in that indication.

"We feel that the right place to pursue this drug is in gastric cancer," he added. "We've had what we believe is strong proof-of-concept data from Phase II. And, from a marketing perspective, it's more attractive because there's no approved drug in that indication."

In addition to Insegia, Aphton is continuing development with two drug candidates added to its pipeline through its acquisition of Vienna, Austria-based Igeneon AG signed late last year. The first product, IGN101, a cancer vaccine aimed at treating non-small-cell lung cancer, is in a "potentially pivotal" 760-patient Phase II/III trial, Mooney said.

The second candidate, IGN311, is in a Phase I/II study. IGN311 is a fully humanized monoclonal antibody designed to target the Lewis Y antigen, which is overexpressed in epithelial cancers.

Aphton is seeking partners for both of those drugs, as well, although IGN311 already has gained an Asian marketing partner. In July, the company signed a deal with Celltrion Inc., of Incheon, South Korea, to develop, manufacture and sell the drug in certain Asian markets.

While Mooney described the relationship with Sanofi as "an encumbrance on moving forward with Insegia," he said the company's senior convertible debt is "an absolute stranglehold."

Two years ago, Aphton issued the notes, which had a maturity date of March 2008, though holders would have been able to exercise a redemption option as early as April 2006. Because the price called for $2.50 per share, and Aphton's shares now are trading around only 50 cents, the company was facing the possibility of paying out $20 million. As of Sept. 30, Aphton's cash, cash equivalents and short-term investments totaled $15 million.

After negotiating with the noteholders, the company entered a binding letter of agreement that would cancel the notes, in exchange for $3 million in cash and shares of the company's Series A convertible preferred stock with an original stated value of $10 million. Aphton also agreed to issue 6.5 million shares of its common stock. That transaction is expected to close Nov. 18.

The restructuring is expected to improve the company's opportunities for partnering its drugs, as well as raising money through public offerings, Mooney said.

"We feel like a veil of opacity has been lifted on our pipeline," he said. "Investors can focus on our development efforts, rather than our potential liquidity crisis or the inability to move our drug forward."

The company, which released its third-quarter earnings this week, posted a net loss of $8.7 million, or 14 cents per share, for the three months ending Sept. 30.

Aphton's shares (NASDAQ:APHT) closed at 48 cents Thursday, down 1 cent.