Everett, Wash.
Published: Tuesday, November 13, 2007

Sonus charts plan for future

After the failure of a chemotherapy drug, the Bothell biotech will weigh all options.

By Eric Fetters
Herald writer

 BOTHELL -- Sonus Pharmaceuticals Inc. has declared its lead drug candidate dead, but it isn't giving up work on developing more anti-cancer formulations.

Less than two months after the Bothell-based biotechnology firm delivered news that its would-be chemotherapy drug failed a critical test, Sonus began outlining Monday where it plans to go next.

The immediate future doesn't include selling the company.

"We are not in the mode to do a deal for the sake of doing a deal," said Michael Martino, Sonus' chief executive officer, told investors and analysts during a conference call.

But, he added, the company is still open to all options that make financial sense.

Martino announced Sept. 24 that its once-promising chemotherapy drug, Tocosol paclitaxel, failed in late-stage human tests. Phase 3 study results showed Sonus' treatment was less effective against breast cancer than the most widely used chemotherapy drug on the market. The side effects from Tocosol also were worse.

As a result, Sonus and its big pharmaceutical partner on the drug, Bayer Schering, halted further development of the drug. The company's shares lost 84 percent of their value in one day.

Last week, Sonus revealed it is cutting four vice president positions and 12 non-executive employees -- in total, about 25 percent of its staff.

"These were all extremely difficult decisions," Martino said of the layoffs. "Our organization was very lean by competitive comparisons to begin with, and we had built an outstanding team as Tocosol paclitaxel had developed through clinical trials."

When first announcing the clinical trial failure, Martino said there was a chance Sonus would try to further develop Tocosol paclitaxel on its own. After analyzing the test results further, however, he said Monday that's no longer realistic.

He said it would take another $30 million to $50 million and an additional three years beyond the drug's scheduled launch date of 2009 to get the drug to the regulatory approval stage, and there's still no assurance it would work.

Even if it did, Sonus' drug would be entering the chemotherapy market amid new competitors.

"The three-year launch delay makes it very difficult for Sonus to financially justify the continued development of Tocosol paclitaxel," Martino said.

He added that some unnamed companies have talked to Sonus about licensing the drug candidate and developing it further themselves. Those talks are still "very preliminary," Martino said.

In the meantime, Sonus is focusing on Tocosol camptothecin, the only other drug candidate it has advanced to the human-testing stage. Also an anti-cancer treatment, Sonus said its underlying technology is not affected by the paclitaxel failure. Enrollment of patients in a phase 1 test of camptothecin is ongoing, and Sonus should know more by mid-2008 about that drug's chances of success, said Elaine Waller, senior vice president of clinical research.

The two things Sonus has in its favor are time and money. Bayer Schering has made a final payment of $6.9 million to Sonus, which expects to end the year with about $30 million in cash. With that and with its reduced staff and expenses, the biotech should have enough to keep operating until the fall of 2009.

"That gives them a while to create some kind of value here," said Chris Holterhoff, biotech research analyst with ThinkEquity Partners.

For the third quarter, Sonus lost $5.8 million, or 16 cents a share, down from a $6.3 million loss in the same period last year.

Holterhoff said he thinks there's a "good possibility" that another company will acquire or merge with Sonus. In the meantime, he said the company seems to be making the best out of a bad situation.

"I think they're doing the only thing they can do with a failed phase 3 drug," he said.

Before Monday's conference call, Sonus shares closed trading at 50 cents, up 4 cents.

Reporter Eric Fetters: 425-339-3453 or fetters@heraldnet.com.
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