Calistoga Pharmaceuticals CEO Carol Gallagher was playing with a strong hand of cards, holding onto an emerging cancer drug she could have sold for a mint to any number of Big Pharma companies hungry for innovative new products.
But she and Calistoga’s board took an unusual tack, selling the Seattle-based company for as much as $600 million to an HIV drug powerhouse that’s still a newbie to the cancer drug business—Gilead Sciences (NASDAQ: [[ticker:GILD]]).
While Gilead may not have the experience of a Pfizer, Roche, or Novartis in cancer, it sees the cancer drug landscape evolving into something right up Gilead’s alley, Gallagher says. The vision is that a cancer diagnosis will become less like a short-term death sentence, and more of a chronic disease that must be managed regularly, like HIV. As DNA sequencing gets fast and cheap enough for many more doctors to see what’s going wrong at a molecular level, patients will be treated with cocktails of drugs aimed at specific molecular targets, through convenient oral pills, that offer mild side effects compared to chemotherapy, says Gilead’s chief scientific officer, Norbert Bischofberger. Calistoga’s drug candidates fit right into this vision, he says.
If Gilead and Calistoga are right about this broad shift, then they could capture a toehold in a cancer drug market estimated to be worth $84 billion in 2012, according to Cowen & Co.
“We think a lot about where the field is going, and like us, Gilead believes people can live with the disease without a lot of side effects,” Gallagher says. “Patients will live longer lives, and have better quality of life. That’s what Gilead has done in the HIV space. They have this shared belief with us.”
Calistoga, of course, had lots of other reasons to sell the company now. Its venture capitalists, like all VCs, wanted to see a return on the more than $90 million they’ve invested since 2006. The company, as you’d expect, looked at all the usual strategic options it had to maximize the opportunity with its lead drug—an IPO, a partnership, an acquisition, Gallagher says.
The time was right to get acquired, Gallagher says, because of the resources Gilead can throw behind its cancer drug vision. Calistoga’s drugs also “won’t get lost in the shuffle,” like they might in a massive portfolio of cancer drugs at another Big Pharma company, Gallagher says. Calistoga’s lead drug, CAL-101, will instantly become the most valuable cancer drug asset at a company with a market valuation of $31 billion, and which generated $7.95 billion in sales last year. And cancer isn’t the end of the story—Bischofberger says there is reason to believe that drugs like Calistoga’s could be effective against inflammatory diseases.
“We really have a shared vision of how we can use targeted therapies to change patients’ lives in cancer and inflammatory disease,” Gallagher says.
Of course, Calistoga wouldn’t be in a position to sell at all without some promising results for its drug from clinical trials.
A little bit of science is required to understand why Calistoga became a hot property the past couple years. It is one of the companies with a specific drug aimed at a molecular target known as the PI3 kinase pathway—which is involved in multiple cell processes like proliferation, growth, migration, and cell survival. Research has shown over several years that when this pathway gets switched into an overactive mode, it can lead to cancer and inflammatory diseases. Multiple big pharma companies, including GlaxoSmithKline, Novartis, Roche, and Sanofi-Aventis, as well as small companies like San Diego-based Intellikine and Cambridge, MA-based Infinity Pharmaceuticals (NASDAQ: [[ticker:INFI]]), have wagered on this field over the past few years.
Calistoga has sought to separate itself from the pack by specifically designing its lead drug, and others in its pipeline, to hit a certain variation of the PI3 kinase known as the delta isoform, which is believed to only appear on certain blood cells. The idea is that you can have
