Ardea Lands Bayer Partnership

Ardea Biosciences’ balance sheet gets boosted by Bayer partnership

Early this morning in a news release, Ardea Biosciences, Inc. (RDEA - Analyst Report) announced that it has entered into a global agreement with Bayer HealthCare (BAYRY - Analyst Report) to develop Ardea’s small molecule mitogen-activated ERK kinase (MEK) inhibitors for the treatment of cancer or other indications. The current focus will be on cancers.

Pursuant to the agreement, Ardea will grant Bayer a worldwide, exclusive license to develop and commercialize Ardea’s MEK inhibitors for all indications. The agreement is valued at $407 million, not including royalties. This amount includes an upfront cash payment to Ardea of $35 million, as well as additional cash payments upon achievement of certain development, regulatory and sales-based milestones. Ardea is also eligible to receive low double-digit royalties on sales of products under the agreement.

The lead compound in this program is RDEA119, which is currently being evaluated in advanced cancer patients as a single agent in a phase I study and in a phase I/II study in combination with sorafenib (Nexavar) from Onyx Pharmaceuticals (ONXX - Analyst Report)/Bayer HealthCare. Preliminary phase I data have demonstrated that RDEA119 has a long half-life and favorable pharmacokinetic properties, allowing for once-daily oral dosing. Results form the phase I/II combination study with sorafenib are expected in 2H09.

Ardea also holds MEK Inhibitor (MEKI) Back-up Program. The compounds in MEKI Back-up Program are from several chemical classes that are distinct from the RDEA119 chemical class. Based on early preclinical data, it is believed that RDEA436 may potentially share certain of the positive attributes of RDEA119, and may have even greater potency than RDEA119.

The company has completed a first-in-human micro-dosing study of RDEA436, a second-generation MEK inhibitor for the treatment of cancer and inflammatory diseases. Based on an encouraging pharmacokinetic profile, the company has nominated it as a development candidate. Ardea received regulatory approval in December 2008 to initiate a phase I study of RDEA436 evaluating safety, pharmacokinetics and inflammatory disease biomarkers in normal healthy volunteers.

Both RDEA119 and RDEA436 are potent inhibitors of MEK1/2, an important step in cell cycle regulation. Both compounds suppress tumor cell growth in vitro and in vivo, have significant anti-inflammatory activity, and have limited potential for central nervous system (CNS) toxicity, a problem for other members of this class.

Under the terms of the agreement, Ardea will be responsible for the completion of the phase I and phase I/II studies currently being conducted for RDEA119. Thereafter, Bayer will be responsible for the further development and commercialization of RDEA119 and any of Ardea’s other MEK inhibitors.

The news is certainly positive to Ardea, as it strengths its balance sheet dramatically. As of December 31, 2008, the company had $57.7 million in cash, cash equivalents and short-term investments. Cash burn in 2008 was $46.8 million. Management anticipates 2009 net cash usage to be between $38 million and $43 million. It is expected that the current level of cash and cash equivalents will be only sufficient to meet Ardea’s funding needs till 2Q10.

With the upfront payment of $35 million and potential milestone payments, the company’s balance sheet is strengthened. But we remind investors that Ardea is still an early stage development company, it has a long way to go to bring any product into market. We are neural on the company’s shares.