Shares of BioMS Medical Corp. jumped 38 percent Tuesday after the company unveiled plans to license its Phase III multiple sclerosis drug MBP8298 to Eli Lilly and Co. in a deal potentially worth more than $497 million.

"We believe this is one of the largest licensing deals for a single unmarketed product in Canadian biotech history," BioMS President and CEO Kevin Giese said during a conference call.

Shares of the Edmonton, Alberta-based company (TSX:MS) rose C$1.02 on Tuesday to close at C$3.72 (US$3.70).

Under the terms of the deal, BioMS will get $87 million up front and as much as $410 million in development and sales milestone payments. Giese said those payments are "heavily weighted" toward development and recognize both U.S. and European approval pathways. BioMS will manage and fund three ongoing clinical trials with MBP8298, while Lilly will fund all future trials, manufacturing and marketing. Lilly also gets exclusive worldwide commercialization rights to the drug in all forms of multiple sclerosis and will pay BioMS escalating royalties, which Giese said could reach double digits.

The market for multiple sclerosis drugs is dominated by disease-modifying blockbusters such as Avonex (interferon beta-1a, Biogen Idec Inc.), Copaxone (glatiramer acetate, Teva Pharmaceuticals Inc.), Betaseron (beta interferon 1b, Berlex Laboratories Inc.), Rebif (beta interferon 1a, Merck Serono) and Tysabri (natalizumab, Biogen Idec Inc. and Elan Corp. plc). However, those drugs are approved to treat only the relapsing forms of the disease.

Of the 2.5 million people worldwide with MS, the National Multiple Sclerosis Society estimates that approximately 85 percent are first diagnosed with relapsing-remitting multiple sclerosis (RRMS), while some have rarer forms such as primary-progressive multiple sclerosis (PPMS) or progressive-relapsing multiple sclerosis (PRMS). But most MS patients eventually progress to secondary-progressive multiple sclerosis (SPMS).

Giese noted that the approved drugs for RRMS have had "limited success" in treating SPMS, and that MBP8298 is the only new drug in Phase III trials specifically designed to address the SPMS patient population.

MBP8298 is a synthetic peptide version of a portion of human myelin basic protein. The drug is designed to restore immune tolerance, disrupting MS's hallmark autoimmune attack against the myelin sheaths surrounding nerve fibers. In particular, a subgroup of MS patients with codes for the HLA-DR2 or HLA-DR4 genes has shown the most benefit from MBP8298. BioMS estimates that 65 percent to 75 percent of MS patients have those genes.

In a Phase II trial, MBP8298 delayed median time to disease progression for five years compared to placebo in SPMS patients with the HLA-DR2 and/or HLA-DR4 genes. BioMS now is seeking to confirm that finding in a Canadian and European Phase II/III trial. Full data are expected in mid-2009, but the company said interim data in mid-2008, if positive, potentially could support regulatory filings.

BioMS also is in the process of enrolling a U.S. Phase III trial, which should produce interim data in 2009 and full data in 2010.

Behind the two pivotal programs in SPMS, BioMS has a European Phase II trial ongoing in RRMS, with data expected around the end of 2008.

Giese estimated that BioMS will spend $60 million over the next few years to finish its trials. But the company reported $49.2 million in cash and short-term investments at the end of the third quarter, and adding the up-front payment from Lilly means BioMS probably won't be "going back to the markets" to fund MBP8298, Giese said.

The deal with Lilly resulted from a competitive bidding process over MBP8298, and Giese said "well over a dozen companies" were involved. In the end, Giese said BioMS chose Lilly because of its proven ability to launch first-in-class drugs, particularly neurology products like Zyprexa (olanzapine) and Cymbalta (duloxetine).

The transaction is expected to become effective in the first quarter of 2008.