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Originally published December 7, 2006 at 12:00 AM | Page modified December 7, 2006 at 7:40 AM

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Icos starts trial of drug, opts not to disclose it

Shareholders who will vote in two weeks on the pending acquisition of Icos by Eli Lilly have not been told about the company's latest advance...

Seattle Times business reporter

Shareholders who will vote in two weeks on the pending acquisition of Icos by Eli Lilly have not been told about the company's latest advance on another potential drug candidate.

Last week the company initiated an early-stage clinical trial in Europe of an experimental drug for psoriasis.

Icos has not disclosed that advance in a news release or regulatory filing, but spokeswoman Lacy Fitzpatrick confirmed the development when asked. She said Icos chose not to issue a news release on the new clinical trial, like it has in the past, because at the company's current size such news isn't a material event that would be meaningful to investors.

Eli Lilly's October offer to acquire the company for $2.1 billion, or $32 a share, has run into opposition from one of Icos' top shareholders and a leading proxy advisory firm, who have argued the company is worth much more.

They've also criticized how the deal was struck and claimed company management is getting unjustified sweeteners to complete the deal.

Chris Young, who has studied the deal for proxy adviser Institutional Shareholder Services, said Icos management has recently "flip-flopped" from bullish to bearish, as takeover targets often do once a deal is made. Instead of touting positive news, it has begun downplaying Cialis' future prospects.

Icos executives are meeting with major investors to urge approval of the deal.


Clinical progress: Last week Icos advanced a new drug against psoriasis into an early-stage clinical trial in Europe. The drug, called IC 776, is designed as an oral pill that inhibits certain white blood cells involved in inflammation.

Another candidate: Icos is expected to enter clinical trials soon for another drug candidate, IC 83, that works to enhance the effectiveness of chemotherapy drugs.

What it does: Icos is best known for co-developing the impotence drug Cialis with its partner Eli Lilly.

Source: Seattle Times research

As recently as August, Icos Chief Executive Paul Clark told investors that the psoriasis drug was advancing toward clinical trials. But it has not updated the progress since Lilly bid to buy the company in October.

"This is something we would ordinarily discuss in a quarterly conference call," Fitzpatrick said. But Icos isn't expected to have another conference call.

Critics of the Icos sale price have based their analyses on the prospects for Icos' lone marketed product, the impotence drug Cialis, and haven't factored in other drugs emerging from its labs that could be valuable to Lilly. Besides the psoriasis candidate, Icos also expects to start human testing in the next two months of a drug that enhances cancer chemotherapy.

The psoriasis drug candidate, IC 776, is pursuing a large market. Research firm Decision Resources has estimated the psoriasis drug market will expand from $1.5 billion in 2005 to $3.5 billion by 2015.

The Icos drug is designed to inhibit specific white blood cells. The company has said that if it survived clinical trials, the treatment would have an advantage over existing biotech drugs because it would be an oral pill, rather than an injection. Icos previously tried to develop a similar drug, but scrapped it after midstage clinical trials.

The other drug, IC 83, is designed to block enzymes that tumors use to repair themselves after being damaged by chemotherapy. In animal experiments, it has been tested in tandem with Eli Lilly's Gemzar, a chemotherapy drug expected to reach $1.4 billion in sales this year.

In a May 2005 conference call with investors, Clark called IC 83 "highly novel" and in August he thought it should advance into clinical trials within six months.

Icos' most recent quarterly report, filed Nov. 2, said little about the two drugs except that they were its most advanced compounds in animal testing.

Scott Greenburg, a corporate securities partner with Preston Gates & Ellis, said SEC rules on disclosure are vague. At a minimum, he said, if shareholders are interested in a piece of information and consider it relevant to their decision to invest, a company has to consider disclosing it.

How the clinical advances might have influenced Icos' stock price as an independent company is unknown. Investors sometimes ignore news that a drug has entered trials, preferring instead to wait for positive results.

Pat Gray, one of Icos' original scientists and now a consultant to Arch Venture Partners, said he's not sure the news would have boosted Icos' value since it's difficult to handicap any drugs' odds of success.

He said it could take seven to eight years for the psoriasis drug to navigate clinical trials. Even then, he said, it will be hard to beat Raptiva, a Genentech drug that hits the same biological target.

As for the mood at Icos, Gray said many employees feel they are receiving generous severance but don't want to let go of the research programs in which they've invested their careers. So far, about 390 of Icos' 550 employees in Washington have been given termination notices, and many more are expecting the same.

"Most people are pretty upset with how management has treated them," Gray said.

Luke Timmerman: 206-515-5644 or

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