By John McCamant, The Medical Technology Stock Letter

Isis Pharmacauticals' (ISIS) baby is going to a new home. Pfizer (PFE) is acquiring Excaliard Pharmaceuticals, an Isis spinoff out of Carlsbad, Calif.

Excaliard was founded in 2006 with technology from Isis. This is an excellent example of an Isis satellite partnership program in which it licenses out drug development candidates it doesn't have the internal resources to develop.

In other words, Isis has discovered more legitimate drug development candidates than it can handle.

Exact terms of the deal aren't being disclosed, but Isis said it is getting $4.4 million upfront, and as much as $14 million over time for its equity stake, plus further milestones and royalties.

EXC-001 is the lead drug development candidate at Excaliard, and is being developed for the treatment of skin fibrosis or skin scarring, particularly excess scarring after surgery or injury. Excaliard developed EXC-001 in collaboration with Isis. 

The treatment works by targeting connective tissue growth factor, a growth factor that is over-expressed in damaged skin or tissue following a traumatic event. 

In early 2011, Excaliard reported positive data from three Phase II trials demonstrating that EXC-001 significantly reduced scar severity in both hypertrophic and fine line scarring.

The company measured three separate assessments of scar severit -- a physician assessment, a subject assessment and an expert panel visual analog scale -- at 12 and 24 weeks post‐surgery.

On all three scales, EXC-001 showed a rapid onset to scar improvement and a sustained reduction in scar severity.

At 24 weeks, the EXC-001 treated scars showed highly significant improvement compared to a placebo on all three scales with a high degree of statistical significance.

In addition to being safe and well tolerated, the drug development candidate significantly reduced scar severity in both hypertrophic and fine line scarring. EXC-001 is currently in a Phase IIb study in patients following breast scar revision surgery.

With no products approved by the Food and Drug Administration for the reduction of scar severity, the drug development candidate could address a significant market opportunity. Pfizer’s vote of confidence certainly increases the odds of success for EXC-001.

We continue to believe that Isis is undervalued and that experts such as the decision-makers at Pfizer are better judges of the value being created by the company than Wall Street. As such, we continue to rate Isis as a buy.

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