Cell Pathways Goes Its Own Way

Cell Pathways' unconventional past kept it from establishing credibility, but that past could yet be a boon. The firm retains all rights to a product management still believes is a winner.

by Deborah Erickson

• Cell Pathways began as the pet project of a man suffering a rare inherited disease causing colon polyps. He'd heard an anti-inflammatory from Merck might help, and when it did, he asked the prescribing physician to research it further.

• Hopes that Merck would take up the work were dismissed, so the founders decided to develop a metabolite of the original drug on their own. They got some money from angel investors and set to.

• The small firm came to believe its compound triggered cell death by a novel mechanism—and decided utter secrecy was necessary to protect the discovery. That choice meant Cell Pathways built no scientific credibility and found no partners.

• A new CEO has attracted some investors, taken the firm public, and expanded its focus to cancer treatment. He too sought partners at first, before deciding the company had more to gain by keeping all rights to the product.

• Cell Pathways' credibility problem—compounded by a Phase III failure early in 1999—could be greatly healed if, as management now hopes, a revised data package convinces FDA to approve Aptosynafter all.

• The company insists it is not a one-trick pony, and says Aptosynis in fact the first in a new class of compounds with the power to treat and even prevent some cancers. But before it can argue for a platform, it must prove the product works.

There's a price to pay for going against cultural norms. Cell Pathways Inc. is learning this lesson right now, as it tries to recover from the February 1999 Phase III failure of its lead drug—a compound that management still earnestly believes in as a cancer therapy. The company has gone against convention from its very start. It was founded, not by experienced pharmaceutical executives and not even by a scientist with years of expertise in a field, but as the pet project of a computer scientist suffering from a rare hereditary disease, who recruited as his chief scientific officer a young gastroenterologist just finishing his GI fellowship. The duo believed that a drug marketed by Merck & Co. Inc. as an anti-inflammatory could treat and prevent polyps in the colon, and so help people afflicted with familial adenomous polyposis, or FAP. But Merck wasn't interested in developing the drug for that rare disorder. So Floyd Nichols and Rifat Pamukcu, MD, set out to do it themselves, initially scrounging some money from angel investors.

For years, virtually no one outside the company knew precisely what Cell Pathways was doing—which is precisely the way the company's founders wanted it. They refused to tell potential partners anything about the mechanism of action of the compound, exisulind (Aptosyn), which they've come to believe is a novel means of inducing apoptosis, or programmed cell death, in tumors. They were afraid that bigger players would make an end run around them, and develop this or a similar drug faster. But that secrecy came at a price. The company did not get the support it sought from Big Pharmas. The silence also meant it could build no credibility in the scientific and clinical communities. Rather than relying largely on CROs as most start-up firms do to save money, the company built its own clinical staff so that it would have more privacy and more control. Cell Pathways was well into Phase III trials with exisulind before it hired anyone with marketing expertise.

The company didn't get a CEO with pharmaceutical-industry experience until after Floyd Nichols died of FAP in the spring of 1996. By the time Bob Towarnicki, formerly EVP of the biotech holding company Integra LifeSciences Corp., joined in October of that year, Cell Pathways had just six weeks of cash left. Creditors who'd been waiting for payment were threatening to slaughter animals crucial to a nearly completed two-year study. The firm was barely hanging on.

Towarnicki quickly set about trying to help Cell Pathways overcome its counter-cultural beginnings, and better fit the profile investors expect of an emerging medical company. Some of his strategic moves have been in keeping with current practice in the biotech industry, but others are deliberately out of step. Towarnicki was willing to sell stock to raise cash so the firm could expand its focus beyond its small GI niche, towards cancer treatment. He took the company public in a poor market by a back-door route, via merger into a shell company. Recently, he has forged some alliances with major drugmakers, to test Aptosynin combination with their cancer drugs, and so possibly expand Cell Pathways' markets. With the exception of a licensing agreement in Canada, Towarnicki has not ceded any rights to the drug.

Unlike most biotechs, Cell Pathways retains nearly all the value in its drug, but just how much value Aptosynactually possesses remains an open question. In February 1999, when the firm un-blinded the results of its Phase III trial against FAP, management found that exisulind showed clinical significance of greater than 25% reduction in polyp formation, but failed to show statistical significance against the endpoint they'd set for the drug: 50% reduction in polyp formation. Cell Pathways has since re-analyzed the data and gathered more, hoping that the new package will convince FDA to approve the drug after all. The firm's executives still strongly believe in Aptosyn.

If all goes well, Cell Pathways will have sole rights (everywhere but Canada) to a compound that management says has been shown to kill many sorts of cancer cells while causing little apparent damage to normal ones. The drug may even prove capable of preventing precancerous lesions from progressing. Cell Pathways will sell this drug to various clinical specialists with a modest sales force, keeping all the revenues for itself. It will help people with a rare familial disease, and many others including those who form sporadic polyps in their colon, and men with prostate cancer. Big Pharmas will effectively promote the drug for free, because it synergizes with their traditional, toxic cancer treatments. Meanwhile, Cell Pathways will develop next-generation compounds it has already identified, patented, and determined to be far more potent than the first. The firm will go on to acquire other organizations and/or other technologies, growing into an oncology company. It will be a pioneer in the field of cancer prevention as well as treatment. These are cherished dreams for a company that has struggled many years, without much money, to realize its founders' vision.

But if Cell Pathways doesn't win FDA's approval to market exisulind for the rare indication it views as a human model of other cancers, the company will be in serious trouble. The clinical and scientific communities—not to mention the financial markets—won't be interested in the story that Cell Pathways has only just begun telling about its drug's mechanism of action. Without proof that the first product works, no one is going to believe the company has an exciting platform for drug discovery. By now, other firms have their own treatments for FAP on the market and in development, and no theory is as compelling as news that a drug is genuinely helping patients. If Cell Pathways misses again, the stock that plummeted on the previous news of statistical failure will almost certainly tank once more. Investors who've already brought one class action suit could do so again. Short sellers will rejoice and the company's cash will dwindle, eroding management's ability to develop Aptosynand more potent versions of it.

Cell Pathways executives are hoping for the best but preparing for the worst. Even if FDA doesn't approve Aptosynfor FAP—a decision expected by the end of November—they plan to move forward with other trials where early data now look good. They are particularly optimistic about the results of a Phase II trial against prostate cancer. One way or another, management believes Aptosyn will prevail, and that it will come to be acknowledged as the first in a whole new class of anti-cancer drugs it calls SAANDs, selective apoptotic antineoplastic drugs. Cell Pathways hopes to capture the credit and the success itself, but management acknowledges that if luck turns against them, another firm could end up carrying the work forward.

From Desperation to Discovery

"When I met Floyd Nichols, he was a desperate man," Rifat Pamukcu recalls. Like most other people with FAP, Nichols had begun having sections of his polyp-filled colon removed as a teenager. By the time he presented to Pamukcu in 1988, then a GI fellow at the University of Chicago , the colon had been fully removed, but Nichols had not yet adopted a standard external ileostomy bag. Instead, surgeons had formed an experimental pouch of his small intestine, with a stoma, or hole, through the abdominal wall, through which he would drain the pouch contents. The pouch was full of polyps and he was bleeding from it. Surgeons wanted to take it too.

"Floyd was calling every physician expert in FAP—all twenty of them," Pamukcu says, to see if there was some other hope for treatment. One of the doctors was Randy Bert, MD, head of gastroenterology at the University of Utah . He told Nichols of an anecdotal case he'd just happened to hear about at the last session on the last day of a GI meeting. A retired physician named Waddell had tried treating some patients with fibroid tumors with non-steroidal anti-inflammatory drugs. The doctor prescribed Merck's sulindac (Clinoril), and although most patients experienced no effect on their tumors, a few that happened to have precancerous lesions, or polyps, serendipitously saw those growths disappear.

Pamukcu decided, after reading a pre-print of a paper on the work, that there was rationale for putting Nichols on sulindac, another Merck NSAID with fewer GI side effects. He wrote the prescription against the objections of Nichols' first attending physician and consulting surgeons. Within three to four months, all of Nichols' polyps were gone. Pamukcu noted that it took longer for the polyps to disappear from the stoma than from inside the pouch, and found it interesting that they were going away faster inside the pouch, an area exposed to effluent, than in the stoma, an area exposed to blood-borne drug. The observation suggested to him that some metabolite of the drug might be circulating in the effluent, promoting healing.

Nichols was thrilled that his polyps went away, and hoped that his experience would inspire Merck to carry the research further. To make his case, Nichols persisted in phoning the office of Merck's then-chairman Roy Vagelos after hours, figuring eventually he'd catch the top man without a secretary. Nichols did get through and his request was passed on to more appropriate channels. But Merck representatives pointed out that sulindac would be coming off patent soon—in April of 1989, and that it was not really worth the company's while to develop a drug for a patient population of just 15-25,000 people in the US. Merck representatives also said they were aware of reports that the drug had anti-tumor activity, and believed this was due to prostaglandin inhibition. Because NSAIDs were known to cause ulcers, Merck, like other research groups, felt that giving such drugs at doses high enough to prevent cancer would likely do more harm than good.

When Merck declined to pursue the research, Nichols and Pamukcu decided to do it themselves. By this time, Pamukcu had moved to the University of Cincinnati as a faculty member, and discussed the idea of starting a company with the school. But it wanted over 50% ownership of the start-up, and Nichols told Pamukcu absolutely not. Instead, he put up $200,000 of his own money to support a coalition of investigators, to be led by Pamukcu. One researcher at the University of the Pacific synthesized compounds while another at the University of Arizona did pharmacology work. In 1989, the coalition established a limited partnership; Cell Pathways didn't come into being as a corporate entity until 1993.

Merck had done a lot of work to understand sulindac's mechanism of action, and had published a monograph on it to educate physicians, Pamukcu notes. The firm had, for instance, prepared a case history explaining how the discovery of indomethacin (Indocin) led to development of a more ‘stomach-safe' compound, sulindac. Pamukcu's little group didn't have the resources to do that depth of research, such as measuring levels of metabolite in the stool of a monkey. "But the paper gave us some idea of what to expect in the studies we could afford to do," he explains. It turns out that sulindac breaks down in the body into two metabolites: sulindac sulfide and sulindac sulfone—exisulind. Pamukcu explains that after a patient ingests sulindac, exisulind floats around in the gut in high concentrations, "so we had to believe we'd see good safety with the metabolite alone. We also knew from Merck's data that it wasn't a COX inhibitor. Their patents and monograph said specifically that it was inactive as an NSAID."

The Nichols-funded research coalition knew that Merck's composition-of-matter patents on sulindac would extend to protect many, perhaps thousands, more compounds. So they filed use patents early in 1990 covering administration of the compound to treat precancerous and cancerous neoplasia. At the time, Waddell still thought the drug was working as a prostaglandin inhibitor. Pamukcu thought otherwise, but none of the investigators knew for sure what the drug's mechanism of action might be. Still, Nichols' healing and knowledge that sulindac had been safely used in humans inspired them to seek additional financial support to commercialize exisulind.

The group attracted angel investors for its first three rounds, raising nearly $4 million between 1990-92. They accepted that Floyd Nichols wanted to see a drug developed for his rare disease, but from the start, Pamukcu says that "every investor saw FAP as a model for colon cancer. If the drug could heal and prevent colon polyps in people with the inherited disease, chances were good that it would work in the wider population too." By round D in 1992-93, a few small venture capital groups including Technology Partners and Northwood Ventures were willing to back the coalition, whose members at that point still preferred for tax reasons not to incorporate.

Most VCs, however, didn't want to support such an unconventional union and a mysterious metabolite. That was fine with Floyd Nichols, who didn't want to give up shares in the company. Pamukcu recalls, "We'd always argue. I'd say, ‘A hundred percent of nothing is nothing,' but that's the way it was. The growth of our company was definitely hindered by lack of money."

Killing Softly, Silently

Angel money allowed the researchers to continue testing exisulind in different cancer cell lines, and begin testing it in animal models. The scientists found that the compound killed all 52 lines in which they tried it, and was showing activity in the animals without any signs of toxicity. "But when we'd say that, people would get up and walk out of our meetings," Pamukcu says. His guess is that may be because at the National Cancer Institute , compounds that kill all cell lines are assumed to be too toxic and therefore rejected as drug candidates. "Excessive toxicity would have been a reasonable assumption, if we hadn't already known the compound was safe in humans."

"We figured we had a gentle drug in our hands, gentle enough to be taken chronically, for prevention. That's how we planned to distinguish ourselves from the Big Pharmas and the toxic cancer drugs they are very good at making and marketing," Pamukcu says.

"Normally, you'd take this sort of research and apply for an NIH grant to develop it, but Floyd kept looking over his shoulder at Merck," Pamukcu recalls: "They were thinking of sulindac strictly as an anti-inflammatory drug, not as an anti-cancer drug, and that was our advantage. They didn't realize what they had. Floyd had already tried rousing the sleeping lion once, to tell it about exisulind, and he didn't want to make that mistake again."

Nichols convinced the researchers to publish nothing substantive about what they were working on. "We got paranoid," Pamukcu declares, explaining, "We felt that a small company like ours couldn't afford to publish our work, or let anyone know that this compound was not working as an anti-prostaglandin—that it was not a COX inhibitor—until we'd gathered animal safety data. We clammed up and at that point, the drug became perceived as snake oil."

It's An Enzyme Thing

It wasn't until "about 1993 or ‘94" that Pamukcu and his collaborators began to figure out the mechanism by which exisulind shrinks existing colon polyps and prevents others from forming. The compound wasn't inhibiting cell proliferation, they determined, but actually inducing cell death. One way they honed in on the mechanism involved macerating colon-cancer samples, and separately chopping up samples of tissue from the tumor-free margin around the cancer. When the researchers screened the samples for enzymes, they found that certain ones known as cyclic GMP phosphodiesterases (PDEs) were grossly elevated in the cancerous tissue. Pamukcu says, "When we drop the drug in the test tube with the tumor tissue, cGMP PDE levels go down to normal levels. But when we put exisulind in with normal tissue, cGMP PDE levels do not drop below normal."

Pamukcu believes exisulind works by blocking certain members of the cGMP PDE family—and that this inhibitory step turns on various proteins called kinases, ultimately triggering apoptosis. "We think there is a pathway that regulates whether or not a precancerous cell immortalizes itself. That event occurs by the overexpression of cGMP PDEs. When one or more of these enzyme isoforms is overexpressed, a signal that would ordinarily tell the cell to die is not translated into death," he explains. Inhibitors directed to one or more of the cGMP PDEs allow the cell to go ahead and process the signal, and so die normally instead of endlessly proliferating the way cancerous cells do.

So far, Cell Pathways researchers have determined that exisulind interacts with the PDE5 and PDE2 isoforms. Both need to be inhibited to induce apoptosis, or else PDE2 compensates for PDE5, by overexpressing, Pamukcu explains. "This is not a single-protein effect, it's a cyclic GMP PDE effect," he says. These days, drug developers tend to want to be able to talk about drugs that hit a single target, he acknowledges, but that's not the way to regulate this signaling path, he believes. He's not worried that his theory doesn't match the popular notion of what a good target should be. Cell Pathways has "patented all around the pathway, so we think we're covered," he says, adding, "We've now got about 2,000 compounds directed to cyclic GMP PDE." The firm has filed to use patents on compounds that other companies have developed for other purposes or abandoned.

He suspects, but hasn't yet demonstrated, that exisulind can kill different cancer cell lines because it switches on not just one form of protein kinase, but a variety of them. So far, his experiments reveal that when exisulind is present, and cyclic GMP levels rise, protein kinase G is activated, which then effects multiple downstream targets including beta-catenin, and Jun kinase which appear to be involved in controlling apoptosis. All may be back-up systems for each other. "I think nature must have set things up this way, so that cells would not be dependent on just one system to get the message to die," he muses. This thought is consistent with other apoptosis research, which has revealed that individually regulating p53, members of the Bcl-2 family including Bax and other inducers of programmed cell death, generally is not sufficient to yield a therapeutic effect.

The first cGMP PDE inhibitor to demonstrate clinical efficacy was Viagra, "and you see how recent that was," he asserts. The side effects associated with that drug underscore his point about the troubles that can arise if the wrong enzyme isoforms are inhibited. Viagrabinds to PDE5, but sometimes cross-reacts with PDE6, a similarly structured enzyme. When it does, people who've taken the drug see blue for hours afterward. Viagra doesn't induce apoptosis, because it does not stay active in the cell long enough and doesn't effect PDE2, Pamukcu explains. "As in all drug development, we'll know a lot more 10 years from now," he observes. For now, he says it looks like "a minimum of PDE5 and PDE2" need to be inhibited to induce apoptosis—and that exisulind works this way.

"This is an area that's very new; it's a different way of looking at things that has definitely not been in vogue," Pamukcu declares. To put the research in perspective, he notes that cyclic AMP was recognized as an important intracellular messenger way back in the 1950s. It's now known to be involved in many normal cell functions, such as regulating levels of insulin in islets, and the twitchiness of cells in airways. It wasn't until 10, 20 years later that cGMP and PDEs were discovered.

"Understanding about cGMP is close to 30 years behind cyclic AMP… only a few researchers in the world have studied it in depth," Pamukcu declares. One of those experts, W. Joseph Thompson, PhD, joined Cell Pathways as VP, research in June 1998 from the University of South Alabama College of Medicine, where he was professor of pharmacology. "He was a secret member of our scientific advisory board for two years before that. But we wouldn't even acknowledge each other at scientific meetings, because that would have tipped everyone to what we were working on," Pamukcu says.

Expanding to Opportunity

"Cell Pathways' paranoia about its research wasn't completely uncalled for," observes CEO Bob Towarnicki. Integra LifeSciences, his previous firm, had to bring suit against a former Big Pharma partner for doing very much the sort of thing that Cell Pathways founders had feared—taking research and ideas developed by Integra, and shared in confidence, then going off to pursue similar work with another group. Integra recently won its case, and a $15 million settlement, when a jury found that Merck KGAA had infringed its patent.

Secrecy may have protected the company's insights, but it certainly did nothing to enhance its scientific or clinical credibility. "They kept things quiet so long, that a pedigree didn't develop," Towarnicki declares. Ordinarily, researchers share their work with others in the academic community, so that peer review is effectively an ongoing process that occurs over years—not just something that happens when data is submitted, out of the blue, for publication. Theories get discussed, experiments are re-done and revised, and the scientists doing the work become known in their fields and associated with that work. Cell Pathways did none of that, and the lack of interaction with the outside world did have repercussions that Bob Towarnicki had to begin addressing immediately, and which linger still. Reticence to discuss science also hinders marketing, especially in the oncology community, which is research-focused.

Pamukcu says it's now clear to him that, early on, Cell Pathways had a "tunnel vision" of exisulind as a preventive treatment for FAP. That narrow view kept him and other staff from fully seeing what else the drug might do—and consequently crimped the pitch they made to Big Pharmas. "We were very focused on Floyd's GI disease, and on the idea of preventing polyps from becoming cancerous," Pamukcu says. Even the data he'd gathered, showing that exisulind killed all sorts of cancer cell lines, somehow existed past the blinkers the company wore in the name of focus and cash conservation. While Floyd Nichols was alive and running the show, Cell Pathways researchers couldn't quite envision the mild, gentle drug that FAP patients were going to take chronically as something strong enough to treat fast-moving cancers.

Cell Pathways always positioned exisulind as a drug for cancer prevention, not as a treatment—and Big Pharmas simply weren't very interested in that unfamiliar concept. Towarnicki says, "My first week with the company, I'm sitting in Big Pharma offices trying to raise money and they're not interested at all. They're saying, ‘We're not interested in developing a drug for cancer prevention, because it's an unproven regulatory path. We don't know how to do a trial to show that. Besides, why would we sell a drug for a couple of thousand dollars a year when we could charge $10,000 for six months of treatment?"

A few months later, Towarnicki recalls sitting next to Pamukcu at the H&Q conference in January 1997, watching a presentation by British Biotech PLC , and wondering at the firm's $2.3 billion valuation. "They were talking about just one cancer drug, marimistat, which they had in trials for six indications," Towarnicki recalls. "I turned to Rifat and said, ‘Can we have exisulind in trials for six indications next year?" Pamukcu replied, "Yeah, if you can get me the money, we've got the data to support that." The CSO says he knew they'd confront a roadblock at the company, because "following Floyd, no one would believe we could extend the drug to cancer treatment." Towarnicki acknowledged the staff's resistance, but made plain that this was the company's new plan.

"I revamped the corporate presentation right away, because FAP and colonic polyps were not an established market," Towarnicki explains. He and Pamukcu, along with the firm's scientific advisory board, went over all the data the company had generated through the years, compared the drug's killing capacity to market opportunities, and selected new indications. They'd test it against sporadic polyps, prostate cancer, breast cancer, Barret's esophageal cancer, and lung cancer as well as FAP. They were markets the company could look forward to selling into with a small sales force, by targeting oncologists.

Once he'd shifted the company's focus from just cancer prevention to cancer treatment and could begin talking about bigger commercial opportunities for Aptosyn, Towarnicki was able to convince institutional investors to support Cell Pathways' work. Goldman Sachs gave $2 million in December 1996, even though Towarnicki didn't disclose exisulind's suspected mechanism of action to the decision-maker Bob Granovsky. "Goldman extracted their price in shares, as I knew they would, but we needed the cash," Towarnicki says, noting that just being able to mention Goldman's name as a backer helped open doors to other money. New York Life came in with $1.5 million in March 1997—but only after Towarnicki conceded to disclose the mechanism under a confidentiality agreement.

The company carried on a dialogue with one large firm for a year, permitting extensive due diligence. The potential partner was going to take rights to the technology platform for cancer treatment, while Cell Pathways would pursue prevention. Both parties thought they could develop the molecule as different products. The talks derailed in late 1997, however, because negotiators came back saying they needed worldwide rights for all indications. Towarnicki said, "Okay, then buy us, because there's nothing left after that," but the Big Pharma didn't want to pay what he felt the firm was worth.

Towarnicki had also set his sites on taking the company public, registering to do so in October 1997. But capital market conditions went from poor to worse for emerging medical companies, and the stock offering he'd hoped to do turned out to be impossible. Towarnicki found another way to get the firm listed: in November 1998, he traded equity in Cell Pathways to buy out a publicly traded but failing computer graphics company, using it as a shell for his own firm (see, "Shell Game,"START-UP, October 1998 brought Cell Pathways $28 million in cash, in a poor market.

Now the company could afford to pursue its expanded clinical agenda, which included hiring clinical staff to do so. That decision had raised eyebrows, because it was an expensive step directly in contrast with the out-sourcing that most biotechs had been doing. Towarnicki explains: "There was no Big Pharma there for us to lean on. Since we were going to have to go to the market directly, we figured we ought to get to know the customers." Management also decided against using a CRO because Pamukcu had been unimpressed by their time lines and the experience he'd had with them in running Phase I trials for exisulind. "If you're a small company, you get their C-teams," he says.

The decision to build clinical capacity was not well received by certain members of the investment community, Pamukcu notes: "They said, ‘You don't have the expertise and you can't hire the expertise.' But we think we've assembled a good team…our location here in Pennsylvania has helped with that, because we're near Merck, and [the since-merged] SmithKline Beecham and Rhone-Poulenc Rorer. Strong people have come out, as those companies have merged."

Late, Lite Talk

The cash infusion also helped Cell Pathways ramp up pre-marketing efforts for Aptosyn, then a year from finishing its Phase III trials against FAP. At the time, hardly anyone in the clinical community had heard about the drug. Usually, pre-marketing begins when a drug is still in Phase II, and may entail hosting satellite symposia at conferences, distributing pamphlets about the drug, etc. But Cell Pathways had put off such tasks to protect its science. The firm never presented itself to the scientific community and only began calling on clinicians in the summer of '98, says Lloyd Glenn, VP of sales and marketing, who joined the firm from Elan Corp. PLC 's subsidiary Athena Neurosciences Inc. , where he was VP, marketing.

The marketing group tried to be more traditional than the rest of company, using proven methods, like identifying and calling on opinion leaders, but "we were a little handcuffed," Glenn declares. He reckons that Cell Pathways had "about five percent awareness among gastroenterologists and probably zero percent awareness among oncologists and urologists," when it first started visiting. Glenn says, "It was tough to get in to see any of the docs. They had never heard of the company, or the class of drug, and then when we did get in, we didn't have a lot to say, because we still weren't talking about the mechanism in any but the most general terms."

Glenn told clinicians that the company had discovered an enzyme which stopped apoptosis, and that its drug blocked that enzyme. "It was like a high-school level we were talking at. Most of the docs were very nice, and said, ‘Come back and see me when you have more details.' But some weren't at all pleased that we wouldn't tell them the mechanism, and questioned whether a small company like us would have enough money to complete the trial," he recalls.

Cell Pathways had told physicians it expected to file an NDA for Aptosynfor FAP on June 1, 1999. When the Phase III results showed in February that the trial had failed, the company faxed those results to all the doctors it had met, to let them know what had happened, even though it didn't know why the failure occurred.

Failure's Aftermath

Management emphasizes that Cell Pathways devised "the cleanest trial ever in FAP" by working with experts in the field, but point out they were working without benefit of a previous model. No one had ever attempted to do a trial to demonstrate prevention of the disease. As it turned out, the expert clinicians were not able to accurately predict the rate at which their FAP patients would form polyps: some formed none, some as many as 240 in the course of a year. Cell Pathways thought it had selected patients who would form 10-40 polyps. The outliers were enough to skew the data, Cell Pathways execs assert; they ended up getting exactly the patients they'd sought to exclude. That's why the drug didn't meet the statistical endpoint of 50% reduction in polyp formation, even though all patients benefited, they say.

"If we knew then what we know now about disease progression in FAP, we almost certainly would have structured our trial differently," Towarnicki says. Hindsight suggests it would have been better to follow all the patients for a year, to see what their actual rate of formation would be, before putting them on the drug. This is, in effect, what Cell Pathways ended up doing, as an extension of the original trial. The company went further back into patients' records to get actual data about their rates of polyp formation, rather than educated estimates of what those rates would be. FDA allowed the company to put the placebo patients on drug, and to monitor them again to see the drug's effect. The company was also allowed to continue treating the original group that got the medication, and Pamukcu says, "The longer they're on it, the better they do. Now we've got to prove that statistically in a manner that FDA will accept."

Clinicians have been more accepting of the firm's explanations for its Phase III failure than investors have been, management says. "Because we went back and re-analyzed the data to see what went wrong, some investors have accused us of data dredging. But doctors understand why we needed to go back and why that deeper look gave positive results that didn't show up in the Phase III trial as we ran it," says Pamukcu.

The company is still feeling the fall-out from its Phase III disappointment. Just one analyst at a small Philadelphia brokerage firm currently follows Cell Pathways, although the lack of coverage probably also stems from the fact that it never did an IPO and so never had bankers to encourage analysts to champion it. The stock is presently trading near $26 a share—despite the run-up in biotechs this year, the same price as before the February 1999 setback at FDA. A handful of investors continue shorting the stock heavily, so much so that Towarnicki says he feels his "stock price is being held hostage." But management also accepts that its past misstep, and the uncertainty of FDA's imminent decision on Aptosynfor FAP, must be making both investors and analysts leerier than they'd be if the decision point were farther off.

Cell Pathways has been telling Wall Street analysts and the media that it's not a matter of ifits drug will be approved, but a matter of when. The FDA must make its decision about the drug's appropriateness for FAP patients by November 25, 2000. If the new data package does not convince the agency to approve Aptosyn for regression and prevention of that disease after all, Cell Pathways will find it much harder to mount another trial for that indication. That's because FDA gave GD Searle & Co. approval to market its NSAID Celebrex (celecoxib) as a treatment for FAP in December 1999—just as its parent Monsanto Co. announced it would merge with Pharmacia & Upjohn Inc. and form Pharmacia Corp. [See Deal]. Once a treatment becomes established for a rare disease, it's very difficult for newcomers to recruit patients into clinical trials that would have them forego that drug. If Cell Pathways had gotten its approval on schedule, the shoe would have been on the other foot.

Although FDA originally asked Searle to show that Celebrexwould prevent polyps, not just cause regression of existing ones—the same demand it had earlier made of Cell Pathways—the agency later decided that satisfactory regression data was sufficient for Searle to win marketing approval.

Cell Pathways' managers admit feeling somewhat dismayed that FDA allowed Searle to bypass the prevention endpoint that they were asked to meet in FAP, but of course they don't speak ill of the agency. Aptosynturned out to be a test case, they explain, because FDA was still wrestling with how to handle preventive medicine when Cell Pathways applied for an IND in December 1993. Cell Pathways made its appeal to FDA's gastrointestinal division, but executives say the drug ended up being handed over to the oncology unit and regarded as the first cancer preventive drug.

Cell Pathways now thinks that its original Phase III stumble could even work to its advantage—if FDA agrees the firm has now adequately demonstrated that Aptosynworks in FAP. For one thing, the FDA has now established a precedent of approving drugs to prevent disease. Cell Pathways managers note that AstraZeneca PLC 's tamoxifen (Nolvadex), originally approved as a treatment for breast cancer was later approved in October 1998 as a cancer-preventive treatment for patients at high risk of developing breast cancer. FDA's willingness to extend the labeling of Searle's Celebrex shows that the agency sees value in treatment of precancerous lesions.

The delayed launch of Aptosynmeans Cell Pathways can benefit from all the work Searle has ended up doing, explaining to doctors the new insight that polyps can be successfully treated with NSAIDs. Cell Pathways believes it can build on that introduction, because its drug is derived from an NSAID. The smaller firm will emphasize that Aptosyn has fewer GI side effects and that it has followed some patients on the drug for five years already, versus the six months Searle monitored patients in its clinical study. Cell Pathways can now also adjust the pricing structure of its drug in response to Searle's, and plans to do just that.

"Celebrexcould cost patient about $3,600 a year—we'd be about $2,500 a year, which we think is a much more appealing price for a chronic medication that is taken orally and thus not reimbursed by Medicare," Lloyd Glenn asserts. Cost-effectiveness would have been part of Cell Pathways' argument, even if Celebrex were not a competitor. In patients with sporadic polyp formation, for instance, he argues that the drug can save money by delaying sigmoidoscopies to monitor the colon. In FAP patients, Cell Pathways can also speak both to cost and to serious quality-of-life issues in this high-risk population. Surgery to remove a rectum is $20,000, Glenn notes, "and if you do it, those people suffer nocturnal stooling and in some cases experience sexual dysfunction and infertility. Our drug could spare them that."

The ability to adjust pricing of the drug is to some degree a matter of luck. Glenn explains that Searle did studies of its drug, testing doses of 200 mg and 800 mg. "They were hoping the 200 mg dose would work, and if so, they could've priced at about $1,500 per patient, but it didn't work out that way."

Towarnicki says Cell Pathways has answered many of the questions raised by ODAC, the Oncology Drug Advisory Committee that advises FDA, about clinical outcomes that Searle left unanswered. Durability of effect is one issue where Cell Pathways feels its data is particularly strong: the firm says it can show that patients get better over time, while Searle has followed patients only for six months. Cell Pathways has also been able to show histologically that its drug is actually reversing the cancer process, not just changing the surface appearance of the polyp, while Searle had only polyp counts without histological data. Towarnicki wishes he could discuss the issues in person with either the advisory or review committee, but has not been asked to do so. FDA's decision rides on the quality of the data package the firm has assembled this time.

Beyond FAP

Whether or not FDA approves Aptosynfor use in FAP, Towarnicki insists he foresees plenty of other opportunities for the drug. For instance, the tiny FAP market is a natural springboard to the much larger one of sporadic polyp formation, he points out. Some 28 million Americans are estimated to have colon polyps that could lead to cancer, and of these, 2.8 million people see doctors for annual colonoscopies. Management is particularly enthusiastic about the drug's prospects as a treatment for prostate cancer, one of the four most prevalent cancers. More than one million men diagnosed with it are now living in the US, Towarnicki says, and 178,000 new patients are identified annually. Approximately 39,000 deaths will be attributed to the disease this year in the US.

Currently, hormonal drug therapy is the only treatment for men with prostate cancer. Those who get the therapy have cancer that is progressing, but may not yet have metastasized. Yet only about 20% of patients with prostate cancer get the therapy, mostly because of bad side effects. Men who take Lupron, which stops testosterone production, often grow breasts, and develop hormone-resistant cancer 24-36 months after the drug treatment. Despite its drawbacks, Towarnicki points out that the lack of alternatives to hormonal therapy has created "a billion-dollar market for Lupronalone in the US, as well as smaller markets for anti-androgens such as Casodex, Eulexin and Nilandron."

To get a piece of the market, Cell Pathways is testing Aptosynin men who've already had their prostates removed. About a third of the 180,000 men who've had the procedure in the US still show rise in PSA levels, Towarnicki says, explaining that, "We think this is a strong indicator of metastasis, since they have no prostate left. What else would be accounting for the rise in PSA?" The firm is betting that FDA will view the marker as an acceptable indicator of disease progression in this sub-population. The Phase II data show that Aptosyn reduces, but does not completely stop, the rise in PSA levels in those patients.

"We could have a large market here, if we delay progression of the disease and the need for hormone therapy by a few years," Towarnicki asserts. He notes that other males, who've had radiation therapy because their cancer has broken through the capsule of the prostate, might also benefit from the drug.

Data presented by the principal investigator on the Phase II/III prostate study, Erik Goluboff, MD of Columbia-Presbyterian Medical Center of New York-Presbyterian Hospital at the American Urological Association (AUA) meeting in May has prompted hundreds of calls from physicians, Towarnicki says. "They're interested because this is a drug that has been taken safely by people for years, and prostate cancer patients want treatment so badly. Now the word is getting around in the patient community." The company has put some patients on the drug on a compassionate use basis at Columbia University and the University of California, Los Angeles . This is the kind of pre-marketing work that other firms do routinely, but which Cell Pathways is learning to do for the first time.

At Last, Allying and Marketing

While these and other clinical trials of Aptosynas a single agent move ahead (See Exhibit 2), Towarnicki has been making additional strategic moves to strengthen the company and boost its odds for success. At first glance, the deals may seem conventional, but a closer look reveals their twists.

In July, he signed a deal with Aventis SA [See Deal] that will enable Cell Pathways to co-promote the anti-androgen Nilandron. The company is renting 13 representatives from a contract sales organization, and plans to send them out to call on 2,200 doctors responsible for 55% of all anti-androgen prescriptions.

The deal with Aventis is not the usual sort of licensing agreement, Towarnicki emphasizes: Cell Pathways paid nothing, and gave up nothing, to get the rights to co-promote Nilandron. The idea is to get experience selling in the market where Aptosynis headed, and to generate revenues to help pay for clinical trials. The deal is structured so that Cell Pathways gets a cut if sales move above a certain baseline. Towarnicki is confident that will happen. Nilandron was launched at the same time as taxotere, he notes, and so hasn't gotten all the attention it could use.

Eventually, perhaps as soon as a year from now, Cell Pathways hopes to buy the sales force it has just begun leasing from Innovex Inc. The firm's vision is to have 80 reps calling on gastroenterologists, 100 on urologists, and 100 on oncologists. "I certainly wouldn't want to go with a partner," Lloyd Glenn asserts, because it's simply not necessary for the markets the company is pursuing. He points out that there are only 8,000 urologists, 8,000 oncologists, and 8,000 gastroenterologists in the US—versus, for example, 50,000 ob-gyns. "It's like Athena, dealing with neurologists, and Biogen Inc. selling Avonex to specialists in MS. I know Cell Pathways can do the same thing."

In the past year, Cell Pathways has also entered into alliances with four major pharmaceutical companies: Aventis, Roche , Eli Lilly & Co. and Glaxo Wellcome PLC , soon to be formally merged into Glaxo SmithKline [See Deal]. The large firms have agreed to split the costs of trials that will test Aptosyn in combination with their own approved drugs against various types of cancer. (See Exhibit 3) One trial may begin by the fourth quarter of 2000; others in 2001. Cell Pathways' clinical staff will recruit the patients and monitor the trials. The companies hope that Aptosyn's allegedly novel mechanism of action will bring patients additional therapeutic benefit, without increased toxicity. So far, Pamukcu says animal data indicates that the drug seems to have an additive effect, almost like an adjuvant.

Skeptics say these 50/50 cost-sharing deals indicate that major pharmaceutical firms aren't interested enough to assume the risk and pay the full cost of testing Aptosyn. But Bob Towarnicki argues that these deals are a key example of the way Cell Pathways' unconventional evolution could pay off. If combination therapies featuring Aptosynresult in better outcomes for cancer patients, Towarnicki expects to have the sales forces of major pharmaceutical companies carrying the flag for the drug at no cost to Cell Pathways. He says, "These aren't licensing deals. We haven't settled for some royalty agreement. If Aptosyn makes the products already developed by Big Pharmas work better, it will only be in their interest to promote our drug, and it won't cost us anything past the shared expense of the trial."

But the cost of running clinical trials, even when the cost is shared, is already an issue for Cell Pathways. The firm has been telling clinicians—particularly oncologists—who phone up proposing to test Aptosynin various protocols, that it cannot afford to pay them to do that work. Ordinarily, a company would pay a physician $5,000 per patient to do a study. "Some clinicians are excited enough to do the trials just for free drug," Lloyd Glenn says, "but we're having to tell others, ‘Great idea, but we can't afford it.'"

The company has just $32 million in cash in the bank now, and although management plans to keep the burn rate at about $2 million a month, that money will go fast. It should be enough to get the job done, if Aptosynis approved for use in FAP, because then Cell Pathways will begin generating some revenues on sales to offset new marketing costs and to support the other clinical work.

The small revenue stream Cell Pathways would get from selling its drug to FAP patients would be far less valuable to it than the resulting boost in investor confidence. If the drug makes it through FDA, Cell Pathways will be hailed as a winner, and many people will want to hear all about the mechanism of this gentle cancer-killing drug. Cell Pathways will still have to win regulatory approval for each new clinical indication after FAP, but it won't have to wait any longer to be seen as a success. It will almost certainly benefit from off-label prescription writing by oncologists, who are always eager to try new drugs, particularly ones reputed to have minimal side effects. The company will be on its way to becoming a pioneer in preventive cancer treatment. Its stock should go up, and it should be able to raise money to develop next-generation versions of the drug that management views as not just a drug, but the foundation of a compelling platform.

If the company is turned away by FDA, however, the story will be much different. It will be much harder for Cell Pathways to follow through with its plans to commercialize Aptosyn—not only because cash reserves will begin drying up, but because so much doubt will be cast on the drug's mechanism of action. Management insists the firm will pull through even if Aptosynfails in its original indication, and it could, particularly if the promising prostate data hold up. But in the wake of a second failure, without much cash in the bank, progress will surely be difficult.

By now, Bob Towarnicki figures Cell Pathways has more to gain by following its own unique path than by trying at this late date to look like other development-stage drug companies. That is why, although he says recent clinical data has spurred several major pharmaceutical firms to seek rights to Aptosyn, he has rebuffed their offers. "We've come this far on our own. Why should we give away all the value we've built now?" he asks, adding, "If it works out, it's going to be great."

When Towarnicki turned Cell Pathways from what was essentially a private research institute into a public company, he took on the responsibility to work in shareholders' interest. He may be doing so, by perpetuating the go-it-alone strategy he inherited, and thus intensifying the risk-reward potential for investors. Towarnicki didn't have to retain all the rights to Aptosyn; he could have traded some to get rights to something else that would have extended the firm's chances beyond this drug and the platform it may represent. Some industry observers say Cell Pathways' evolution reveals naivité or timidity, others say it shows traces of bitterness, even greed. Still others say the firm has shown true courage of conviction.

For Cell Pathways, there is no Plan B beyond Aptosynand the platform it may represent. That's the bet that Towarnicki has made, and he appears always to have been honest with investors about it. The company could end up rolling in clover, or it could go bust. What you see is what you get.