NeoPharm places big bet on brain medicine

Shuffling jobs, priorities: Firm puts resources into cancer drug as its debut

Guillermo Herrera thinks it's time NeoPharm Inc. went to market.

Since he was appointed CEO in October, Mr. Herrera has jettisoned research jobs in anticipation of adding marketing staff to sell what he believes will become the 16-year-old Waukegan-based company's first product: a brain cancer drug that has produced a string of promising results in late-stage human tests.

"I believe a company becomes a company only when it sells products," says Mr. Herrera, 53, a former Abbott Laboratories marketing executive and NeoPharm's fourth CEO in the last two years.

He hopes the drug, for now called IL13, could be presented for approval to the U.S. Food and Drug Administration (FDA) early next year, depending on results from a key trial of nearly 300 patients. Approval could result in the drug being sold sometime next year. Mr. Herrera is building a 30-person marketing team ahead of IL13 hitting the market.

NeoPharm wanted to present IL13 for FDA approval as early as this summer, but last week the company announced that testing would continue through yearend. That news sent shares down more than 20% to close at $5.19 Friday.

CEO Guillermo Herrera hopes NeoPharm's cancer drug will get FDA approval next year. Photo: Erik Unger

Mr. Herrera's shake-ups in the workforce and shuffling product priorities were followed by the departure of NeoPharm's top scientist. The moves also engendered skepticism among analysts, who wonder whether his big bet on the brain cancer drug could sap momentum from other promising therapies that are further from FDA approval but represent bigger market opportunities.

"He's focusing on their lead product, but NeoPharm is more than a one-pony show," says Paul Keough, a Chicago analyst at Pennsylvania-based Susquehanna Financial Group LLLP. He thinks the company's long-term prospects are ill served "when you lay people off and delay research programs."

In April, Mr. Herrera cut 20 employees — 23% of NeoPharm's workforce — to free up $7 million, partly to help fund the final testing and launch of IL13, which treats an aggressive form of brain cancer called glioblastoma. Chief Scientific Officer Imran Ahmad resigned a few days later, citing personal reasons. Two weeks ago Chief Financial Officer Lawrence A. Kenyon, a specialist in early-stage research finance, announced his resignation, giving Mr. Herrera the chance to appoint a commercial-focused CFO. Mr. Kenyon declines to comment.

Mr. Ahmad headed a research division that produced two promising drugs, now in human testing, that use liposomal technology, deploying tiny fat particles for better absorption of cancer drugs. Some analysts say Mr. Ahmad's resignation and NeoPharm's "reprioritization" of other products from that division raise the stakes for IL13's success. Mr. Ahmad wouldn't comment.

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Mr. Keough projects that one of the drugs, a breast cancer therapy now in human testing, could bring in $59 million in its first year, or three times more than his $20-million forecast for IL13's first year. But the projected launch of the breast cancer drug was pushed back two years, to 2010, after Mr. Herrera's decision in April to pursue a larger clinical trial for that drug.

"They're putting more of their eggs into this (IL13) basket," says Jonathan Aschoff, an analyst at Brean Murray Carret & Co. in New York.

Mr. Herrera says plans are unchanged for the two liposomal drugs, though he concedes that some other nascent therapies are being shelved to conserve cash. Even after completing a $39-million stock offering in January, the firm still has less than two years of cash left to cover operating expenses, about $60 million.

"We could have six projects going at once, but we don't have the money," Mr. Herrera says. "The reality is, this company needs to make money, and IL13 is going to be the first (product)."

His bosses seem to agree.

"He's doing the right thing at the right time, based on the stage of this company," NeoPharm director Erick Hanson says. "The goal has to be getting IL13 to market."

Mr. Herrera spent 24 years at Abbott, where he led the European rollout of blockbuster rheumatoid arthritis drug Humira. NeoPharm's board tapped him after a turbulent proxy battle initiated by founder and past Chairman John Kapoor, who remains a director and the firm's largest shareholder, with 18% of the outstanding shares. Mr. Kapoor declines comment.

©2006 by Crain Communications Inc.