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Last week, Celgene (NASDAQ:CELG) announced a major partnership deal with Redwood City, CA-based OncoMed (NASDAQ:OMED). The two companies will develop up to six anti-cancer stem cell antibodies, and certain small-molecule stem cell drugs, based on OncoMed's research.

OncoMed will run the initial clinical studies, at which point Celgene will have the option to decide whether it wants to buy rights to them. U.S. profits would be shared in a 50-50 ratio in five of the six antibody drugs. Celgene will be getting the full worldwide rights to one of the antibodies, and international rights to all others.

Celgene is paying $155 million upfront cash and buying $22.25 million worth of OncoMed stock at $15.13 per share through a private placement. Another $3.15 billion in milestone payments is promised to OncoMed if all of the drugs make it through clinical trials, and hit certain regulatory and commercial goals. OncoMed to get royalty streams from all the drugs and Celgene, if it exercises the demcizumab option, will shoulder two-thirds of the development costs.

This is a big deal for OncoMed: it could make up to $790 million from its lead drug, demcizumab alone.

In July OncoMed completed a successful IPO and raised a net $87.3 million. Shares of the biotech, which had been languishing since the IPO, suddenly soared 97.9 percent on heavy volume after the deal was announced.

Oncomed

Oncomed is targeting pathways implicated in cancer science and stem cell biology, including the Notch, Wnt and other fundamental CSC (Cancer Stem Cell) pathways.

All of the company's product candidates were discovered in-house in Oncomed's laboratories.

Oncomed's lead drug is demcizumab.

Demcizumab, also known as OMP-21M18, is a monoclonal antibody optimized to block a key signaling pathway in cancer stem cells. It selectively targets DLL4 (Delta-like ligand 4), an activator of Notch signaling, which is an important pathway in cancer stem cells and cancer.

Last year, the company completed a dose-ranging Phase 1a trial of demcizumab in 55 patients with solid tumors heavily pretreated with various chemotherapy regimens. This trial resulted in a 64 percent disease control rate at the highest dose tested and 11 patients had some tumor shrinkage.

Based on these results, OncoMed initiated Phase 1b trials of demcizumab in first-line pancreatic and non-small cell lung cancer (NSCLC).

These trials combine the experimental drug with standard-of-care chemotherapeutic agents.

In July Oncomed began dosing patients with Abraxane as part of the standard-of-care combination with gemcitabine in a Phase 1b clinical trial evaluating demcizumab in advanced pancreatic cancer.

In September, OncoMed initiated a Phase 1b trial of demcizumab in combination with paclitaxel in platinum-resistant ovarian cancer. Following this trial, a Phase 2 trial is planned with the endpoints of progression-free survival and response rates, as well as overall survival, biomarker endpoints and safety.

Data were presented in October at the International Conference on Molecular Targets and Cancer Therapeutics from the ongoing Phase 1b trial of demcizumab in combination with carboplatin and pemetrexed for advanced non-small cell lung cancer and of demcizumab plus gemcitabine in pancreatic cancer. The data demonstrated that demcizumab can be safely combined with multiple chemotherapy agents.

Early results are encouraging. In the pancreatic trial, investigators observed an 86 percent disease control rate, one partial response and five individuals with stable disease, out of the first seven patients enrolled.

The preliminary data from the NSCLC cancer study are even better. All of the first ten patients responded to therapy, with six achieving a partial response and four with stable disease. The company is testing higher doses of the drug to determine an optimal dose for use in Phase 2 trials.

The trials are conducted by Oncomed. Celgene has an exclusive option to license demcizumab during or after completion of mid-stage trials.

Patents

Oncomed has over 300 patents issued or pending.

As of April 30, 2013, the company was the sole owner of 15 issued patents in the U.S. and 33 in foreign jurisdictions, as well as approximately 231 patents pending applications in the U.S., Europe and elsewhere.

Oncomed has also licensed from the University of Michigan 12 U.S. issued and 15 foreign patents.

The core patent family relates to demcizumab and it covers both the composition of matter and methods of use of demcizumab. The main U.S. patent expires in 2028, other patents will generally expire in 2027.

Cancer stem cells

Cancer drugs that are widely used today are successful in killing the bulk of tumor cells, but more often than not, fail to lead to a durable cure as the cancer often returns.

This failure may be explained by the presence of a small minority of cells in the tumors called cancer stem cells which are resistant to existing therapies.

Cancer stem cells are few in numbers in the tumor but are able to travel anywhere in the body and metastasize, that is initiate new tumors. Metastatic tumor sites are the cause of death in more than 90 percent of cancer patients.

Cancer stems cells have been found in many types of tumors, including leukemia, myeloma, breast, prostate, colon, brain, lung and others.

The existence of CSCs is a fairly recent discovery (in the last decade) and the fight against them is led by a few pioneering companies, among them Oncomed.

At this point it is too early to judge the anti-CSC drugs' clinical efficacy.

If the hypothesis is correct, CSC-targeted therapies should bring significant clinical benefits over conventional treatments. But progression free survival and overall survival are the key proofs of efficacy and to obtain these kind of data will take some time.

The stability of the anti-CSC drugs is another major unknown. Most likely a combination of the traditional therapies and the newer anti-CSC drugs will yield the most successful outcomes.

Rivals

OncoMed's two main competitors in the cancer stem cell field are Stemline Therapeutics (NASDAQ:STML) and Verastem (NASDAQ:VSTM).

Verastem develops small molecule drugs that target cancer stem cells. To find drug targets, Verastem uses high-throughput screening of compound libraries of cancer stem cells. Many CSCs are not stable in culture and the search is continuous to find ones with stability.

Verastem's lead product, defactinib (a FAK inhibitor) is currently in Phase 2 trials for lung cancer and pleural mesothelioma.

Stemline targets both CSCs and tumor bulk. To identify new targets, Stemline is using two of its own platform technologies: StemScreen-1 and StemScreen-2. StemScreen-1 identifies targets from gene expression analyses on CSCs isolated from primary tumor tissue and cell lines, while StemScreen-2 is a high-throughput platform that tests live, labeled CSCs in their native environment.

One of the lead products, Stemline's SL-401 is developed as an orphan indication, and is targeting IL-3 (interleukin-3 receptor).The company plans to initiate a 200-patient, randomized Phase 2b trial of SL-401, with overall survival as a primary endpoint. This study will provide one of the first meaningful clinical head-to-head comparisons between a CSC-targeted therapy and standard chemotherapy.

Stemline's other clinical-stage program, SL-701, is a synthetic vaccine comprised of two peptides (IL-13Ra2 and EphA2) delivered via subcutaneous injection. In the company's 22-patient Phase 1&2 in pediatric glioma, an aggressive form of brain cancer, 86 percent of patients achieved disease control.

Investors' summary

OncoMed reported a net loss of $3.5 million in the third quarter of 2013, compared to $3.7 million for the third quarter of 2012. Net loss per share was $0.15 per share, compared to $3.45 per share for the third quarter of 2012.

For the nine months ended September 30, net loss was $21.7 million compared to $17.9 million for the same period a year ago. The changes in net loss were mainly due to an increase in collaboration revenue, offset by an increase in operational expenses.

Collaboration revenues for the third quarter of 2013 were $12.9 million, compared to $7.7 million for the third quarter of 2012, an increase of $5.2 million. This increase was primarily due to a $10 million milestone payment from Bayer received in August 2013.

For the nine months ended September 30, 2013, collaboration revenue totaled $18.8 million compared to $17.8 million for the same period in 2012.

For the nine months R&D expenses were $33.2 million compared with $30.4 million for the same period in 2012. The increase was primarily driven by clinical costs resulting from higher patient enrollment for various programs in 2013 compared to 2012.

Cash and cash equivalents as of the end of the third quarter were $128.6 million, compared to $66.2 million as of December 31, 2012. The cash increase was driven by net proceeds of $87.3 million from OncoMed's initial public offering in July 2013 and partner payments received as of September 30, 2013. With the addition of the $15 million milestone payment from Bayer in October, the month-end cash for October stood at $148.7 million.

The Celgene deal is the third partnership for OncoMed and it is bigger than the previous ones with Bayer and GlaxoSmithKline (NYSE:GSK).

Oncomed CEO Paul Hastings noted, after Celgene's upfront payment, the company now has about $322 million in cash on hand. That gives OncoMed the financial flexibility to advance the drugs in its pipeline without raising more financing from outside sources for some time.

Source: Oncomed, Celgene Vs Rivals In Cancer Stem Cells Race