Fibrocell in $135 million deal to bring skin-disease gene therapy to market

Shares of Fibrocell Science Inc., one of the Philadelphia area’s pioneering cell-therapy and gene-therapy developers, jumped as much as 70 percent from Friday’s close in morning trading, as the company said it has traded expected profits for its leading gene therapy candidate in exchange for the cash it needs to bring products to market.

The deal is a shot in the arm for Fibrocell, whose prospects have by now attracted a generation of investors without delivering hoped-for profits.

Fibrocell, based in Exton, Chester County, said it has signed a collaboration deal with Parsippany-based Castle Creek Pharmaceuticals “to develop and commercialize its lead gene therapy candidate FCX-007, for the treatment of recessive dystrophic epidermolysis bullosa," a genetic condition diagnosed at birth, which causes the outer and inner layers of young patients’ skin to separate, resulting in open sores, scarring, and skin cancer.

The company says up to 2,500 Americans suffer from the condition, which has been incurable.

Fibrocell says Castle Creek will pay as much as $135 million if it meets development and sales targets over the next few years. The company plans to use its share of proceeds to hire manufacturing, quality and distribution staff. Fibrocell agreed to give Castle Creek an exclusive U.S. license for the therapy.

Castle Creek, a unit of suburban Chicago-based Paragon Biosciences, will spend up to $20 million in pre-FDA licensing development and manufacturing costs (plus 70 percent of additional costs if expenses pass that target). Castle Creek will also pay Fibrocell $7.5 million upfront, $2.5 million for the first patient enrolled in the Phase 3 clinical trial, and $30 million when it gains regulatory approval for the commercial market — and another $25 million when the treatment reaches $250 million in net sales and $50 million more of its first $750 million in net sales.

Plus, Castle Creek will pay 30 percent of its gross profits from the treatment’s sales.

Fibrocell will split the upfront, milestone and profit-sharing payments with its therapy development partner, Intrexon Corp. of Germantown, Md., a publicly traded company whose shares have fallen in recent years.

Fibrocell’s own share of the upfront payments alone should be enough to keep the company going for an additional year and a half, the company said.

John Maslowski, Fibrocell chief executive, said the FDA has agreed to fast-track the treatment so his firm can start a Phase 3 clinical trial this spring with 15 to 20 patients. He said Castle Creek cash will free Fibrocell to boost clinical development of another therapy, FCX-013, for scleroderma, a hardening of connective tissue, for example in a patient’s hands, which affects an estimated 90,000 Americans.

Founded as Isolagen Inc. in 1993 to develop wrinkle creams and other skin treatments, the company filed for bankruptcy reorganization after the 2008 financial crisis made it tough to raise capital. In 2009, the company sold shares in an initial public offering, adopting the name Fibrocell. The company has raised more than $100 million, mostly in equity, since its IPO, according to its SEC filings.

The stock traded at more than $100 a share in the early 2010s, and employed 71 professionals in 2013, but failed to meet earlier targets; shares have recently traded for under $2, and head count totaled 19 on Dec. 31. The potential value of the Castle Creek investment is several times Fibrocell’s recent market value of about $17 million prior to the news. Fibrocell shares closed Monday at $2.54, up $0.76 (42.70 percent).

“We talked to a variety of life science companies,” settling on Castle Creek because it already focuses on “orphan” genetic diseases and on skin therapies, Maslowski said in a conference call with investors Monday morning.

Castle Creek has invested in other epidermolysis bullosa therapies, which Fibrocell’s product complements, said Greg Wujek, chief executive of Castle Creek, in a statement.

Castle Creek, a unit of suburban Chicago-based Paragon Investments, raised $72 million from Fidelity Management & Research Co. and Valor Equity Partners last fall to invest in small firms such as Fibrocell. “Sales and marketing [would be] an enormous expense” for Fibrocell without help from outside investors, Maslowski said.

Fibrocell hired the investment bank Cannacord Genuity last year to find a partner. Maslowski said the bank helped bring Fibrocell and Castle Creek together.

If they perform as expected, the systems used to develop FCX-007 could become “a platform” for treatments targeting other diseases, said Fibrocell vice president Sean Buckley.