Oncology company OSI Pharmaceuticals Inc. is fronting $55 million to Serono SA for U.S. marketing rights to the cancer indications of a long-approved but oft-shuffled drug.

Melville, N.Y.-based OSI will market Serono's Novantrone (mitoxantrone concentrate for injection) for its approved oncology indications in exchange for the initial payment. Serono also will receive maintenance fees in return for commissions on net oncology sales.

"In this challenging market, we believe we have negotiated a deal that meets our strategic goal and delivers a modestly cash flow-positive outcome by 2004 and beyond," OSI CEO Colin Goddard said in a conference call. "We see Novantrone as a quality, well-respected oncology product with a cadre of loyal users built around its two approved oncology indications."

He said the company estimates the product could generate $20 million to $30 million in revenue from cancer sales annually. More than 15 years ago, the FDA approved the drug for acute nonlymphocytic leukemia, which includes myelogenous, promyelocytic, monocytic and erythroid acute leukemias. Novantrone has been approved for more than five years to relieve pain associated with advanced hormone-refractory prostate cancer.

Jim Birchenough, an analyst with Lehman Brothers Inc. in New York, rated the acquisition as neutral to OSI's near-term financials but more substantive in the long term.

"Strategically, this is a move made by OSI for longer-term gains beyond this year," he told BioWorld Today. "I think, nearer term, it's a neutral event given that the focus this year clearly is going to be on Tarceva and this really does not affect that."

Tarceva (erlotinib HCl), OSI's most advanced candidate, is in Phase III trials in lung and pancreatic cancers. Results are expected in the middle of this year.

For Serono, the deal provides a continued stake in Novantrone's cancer sales but also positions the Geneva-based company to better exploit the drug's use in certain advanced forms of multiple sclerosis. In 2000, the drug was approved for secondary progressive, progressive relapsing and worsening relapsing-remitting forms of the disease - indications that remain in Serono's control. The company already operates in the multiple sclerosis space with Rebif, a drug that competes on the market with Avonex (from Biogen Inc.) and Copaxone (from Teva Pharmaceuticals Ltd.).

Total 2002 sales for Novantrone, for which U.S. rights to oncology and multiple sclerosis were acquired by Serono from Thousand Oaks, Calif.-based Amgen in December for an undisclosed amount, totaled about $80 million. Before its multiple sclerosis approval, the drug generated U.S. oncology sales between $50 million and $60 million, Goddard said.

Novantrone is a DNA-reactive agent that intercalates into DNA through hydrogen bonding, causing crosslinks and strand breaks. It also interferes with RNA and is an inhibitor of topoisomerase II. Amgen obtained Novantrone as part of its acquisition of Seattle-based Immunex Corp. (See BioWorld Today, Dec. 18, 2001.)

As part of its marketing plans, OSI said it would build commercial operations to include a sales force and an associated marketing and sales management infrastructure. That sets the stage for expected sales of additional products down the road.

"The tangible and intangible benefits of this transaction are significant," Goddard said. "They include opening up the possibility for future in-licensing and regional co-promotion deals for other marketed products, and the ability to direct market in the U.S. our future pipeline products, thereby leading to improved economic retention on those products."

Birchenough also pointed to the down-the-road impact of OSI's planned sales infrastructure outside of Tarceva.

"I think the purpose of building a sales force is to have something to in-license products into, and perhaps to be a more credible partner for co-promotion arrangements in oncology in the future," he said. "This is done with long-term, strategic thinking in mind."

For OSI, the Serono deal represents its second recent acquisition of a marketed cancer product. Last month it said it planned to buy Cell Pathways Inc. in an all-stock arrangement valued at $32 million, a purchase that would include the Horsham, Pa.-based firm's rights to Gelclair, a bioadherent oral gel designed to provide pain relief for oral mucositis/stomatitis. It is sold in the U.S. to cancer patients through a co-promotion agreement with Warren, N.J.-based Celgene Corp. and to dental care providers in an agreement with Chicago-based John O. Butler Co.

Long term, though, the Cell Pathways acquisition added the potential of CP461, a second-generation version of Aptosyn (exisulind), Cell Pathways' lead clinical candidate that was rejected by the FDA in September 2000 for polyposis. (See BioWorld Today, Feb. 11, 2003.)

Assuming the deal closes, Goddard said OSI should receive revenue of $30 million in 2003 and $60 million for the following year. The latter estimate does not include any projected sales of Tarceva, the small-molecule inhibitor of the EGFR gene at the top of its pipeline. Goddard said OSI's cash burn would drop below $100 million in 2004, an estimation that also does not include potential Tarceva revenue, while the company would end 2003 with about $250 million in cash.

In late January, OSI said enrollment was completed in a 700-patient trial studying Tarceva as monotherapy to treat second- or third-line patients with incurable stage IIIB/IV non-small-cell lung cancer for whom standard chemotherapy has failed. An alliance between OSI, South San Francisco-based Genentech and Basel, Switzerland-based F. Hoffmann-La Roche Ltd. has completed target enrollment for all four major Phase III trials for Tarceva involving about 3,500 patients. The first trial began about a year and a half ago. (See BioWorld Today, July 26, 2001.)

Deeper in its pipeline, OSI features a number of earlier-stage clinical programs. Among them, Goddard said OSI211 is heading into Phase II trials. OSI said two other anticancer compounds, a farnesyl transferase inhibitor and an anti-angiogenesis compound, are in Phase I trials with New York-based Pfizer Inc.

OSI's shares (NASDAQ:OSIP) fell 7 cents Wednesday to close at $13.22. Serono's stock (NYSE:SRA) fell 2 cents to close at $10.79.