Baltimore Business Journal - May 19, 2003
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Guilford Gets Back On Track
Once-Struggling Biotech Firm Gets FDA Nod, Pfizer Deal
Robert J. Terry    Staff

Dr. Craig R. Smith took a moment to fantasize this week at the annual
stockholders meeting held by his company, Guilford Pharmaceuticals.

The act was notable not so much for the departure from the standard
dry recitation of proxy votes and financial numbers but because
Smith, Guilford's chairman, president and CEO, finds himself in a
position to fantasize at all.

Today, Smith can speak realistically of increasing sales of
Guilford's lead product from $5 million to $10 million, of moving new
products into development with the help of deep-pocketed partners and
of Guilford building momentum on its own behind a potential
blockbuster drug.

"Those are the kinds of things I have fantasies about, as the CEO of
the company," Smith said, eliciting chuckles from his audience. "So
far in 2003, we've made excellent progress toward achieving our
objectives."

Six months to a year ago Guilford Pharmaceuticals was reeling, stung
by a regulatory setback that threatened to derail the future of one
of Greater Baltimore's most prominent biotechnology companies.

But in recent succession, Guilford has won regulatory approval for
the expanded use of its Gliadel wafer, used to treat brain cancer
tumors. The company also freed up $40 million in working capital by
refinancing the lease on its research and development facility. And
most significantly, Guilford announced May 8 a $15 million deal with
Pfizer, the world's largest drug company, to license a class of drugs
to treat nerve degeneration disorders such as Huntington's disease.

Progress seemed elusive last year as Guilford's braintrust set out to
re-examine the company's long-term strategy and short-term goals.
Company executives knew they needed to focus research and development
efforts on a couple of promising drug candidates and look to strike
licensing deals for the rest.

But more importantly, they needed the U.S. Food and Drug
Administration to allow surgeons to use its Gliadel wafer in initial
brain cancer surgeries rather than just cases of recurring tumors.
Gliadel is a dime-sized wafer placed in cavities in the brain left
when tumors are removed; the wafer dissolves and releases a
chemotherapy agent.

When the FDA rejected Guilford's application, the company's stock
sagged along with its mood. But approval finally came in February,
culminating a 10-year effort to bring a new form of chemotherapy to
patients. With the expanded use, Guilford estimates the U.S. market
for Gliadel will grow from $35 million to between $110 million and
$125 million.

Smith is targeting sales this year of $20 million to $25 million.
Michael Kelly, vice president of sales and marketing, is gearing up
an effort to re-educate potential customers on new data showing
Gliadel's effectiveness as a first-line cancer treatment.

"Any time you reposition a product it's essentially like relaunching
a product," Kelly said.

Guilford cut its first quarter net loss from $13.5 million to $11.2
million even as revenues dipped from $6.2 million to $3.5 million.
But the company expects to see the benefits of Gliadel's expanded use
show up on its bottom line in the third and fourth quarter, and it
continues to prune expenses.

Guilford had $84.3 million in cash at the end of March.

Analysts and investors had been waiting for a licensing deal like the
one executed with Pfizer.

Guilford sought a partner to develop its Naaladase inhibitors, a
class of drug candidates which in animal tests have blocked the
release of an enzyme thought to spur nerve-degeneration disorders
like Lou Gehrig's disease and diabetic neuropathy, a loss of
sensation in the feet and hands.

The deal with Pfizer is significant because of that company's
standing as a leader in developing drugs for central and peripheral
nervous system disorders.

"These are the guys that are the world's experts," Smith said.

Under terms of the licensing deal, Guilford gets $5 million up front
and $10 million by the end of next March. If Pfizer doesn't pay the
$10 million, rights to the inhibitors will revert to Guilford, as
will data and other information collected by Pfizer. Guilford will be
eligible for milestone payments of up to $42 million for each drug
that is commercialized.

Brian D. Rye, an analyst with Raymond James & Associates, thinks the
market for these inhibitors could reach $1 billion, because a company
the size of Pfizer wouldn't bother investing otherwise.

"They're not looking to add new drugs to their pipeline unless it has
blockbuster potential," Rye said.

Guilford sees enough blockbuster potential for GPI 1485, a drug that
has shown promise in early clinical trials treating Parkinson's
disease and disorders following prostate cancer surgery, that it is
developing the drug on its own. Guilford is just starting, however,
the costly series of clinical trials in humans.

To bridge the commercialization gap, and subsequent revenue boost,
between Gliadel and, potentially, GPI 1485, Guilford is moving ahead
with the development of Aquavan, an anesthetic used for "conscious
sedation" in outpatient procedures such as colonoscopies. The company
believes Aquavan can be used in smaller doses and will have fewer
side effects.

There were nine million colonoscopies performed last year, according
to Smith, who estimates Aquavan's outpatient procedure market at
about $35 million.

SOURCE: American City Business Journals / Baltimore Business
Journal, MD
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