Peplin slumps as Allergan collaboration ends

Peplin's share price has dropped 30 per cent today (Monday) on heavy trading after the company announced late on Friday that its collaboration with Allergan was to be discontinued, and all rights for the development and commercialisation of the company's topical skin cancer drug, PEP005 Topical, as well as data and IP generated during the collaboration, are to be returned to the Brisbane-based company.

But according to CEO Michael Aldridge, the return of the project is not bad news for the company, as the program has had an enormous amount of value added to it over the life of the collaboration. "It's tough in the short term but it could be very valuable in the long term," he told Australian Biotechnology News.

Aldridge said that Allergan had run into "budgetary constraints" after failure to get approval from the FDA for another product, which meant it couldn't guarantee that the PEP005 program would continue to receive the funding required to keep to the development plan. Peplin's management decided that rather than have the program put on the backburner, it would rather take it back to continue the development program itself.

"The only alternative was to give it back to us," Aldridge said. "The important thing to remember is that there is nothing wrong with the product at all."

Peplin will receive a cash payment of US$1.3 million dollars, bringing the total payments by Allergan for the program since the collaboration agreement was signed in 2002 to US$5.3 million. In addition, all clinical data from the ongoing Phase I clinical trial will be handed over to Peplin for analysis and reporting at the conclusion of the trial, and the two INDs filed by Allergan will be assigned to Peplin.

Aldridge said the trial results would be reported early next year, and the company planned to continue with the development program, initiating Phase II trials in Australia as originally planned by Allergan next year.

Allergan will also recoup certain development costs in case of relicensing of the product to another party or commercialisation by Peplin, to a cap of US$4 million, and will retain the option to negotiate for a re-license of PEP005 in 2006, if it has not been licensed already.

Peplin now faces a new challenge as it rises to meet the obligations of developing the drug on its own. With two other applications of PEP005 -- a treatment for bladder cancer which will be the subject of an IND filing by the end of the year, and a treatment for leukaemia in late preclinical development -- high on the list of priorities, the company plans to review its resources to ensure appropriate allocation.

"Financing [of the skin cancer program] is not going to be a big issue -- it was never going to be an expensive program," Aldridge said.

The company will also hold licensing discussions with a number of potential partners for the skin cancer product over the next few months. Aldridge said the company would now have a much more attractive package encompassing global rights, including North and South America, to the skin cancer product to offer potential partners.

But he said that the company would probably not license out PEP005 for all potential applications as one package, preferring to develop separate licensing agreements for the dermatological markets including skin cancer, and the oncology markets.

At the time of writing, Peplin's share price was down to AUD$0.50. Prior to last week's trading halt, the company's shares had closed at $0.71.