Assistant Managing Editor

Though much-anticipated Phase III mipomersen data aren't expected until later this year, Isis Pharmaceuticals Inc. gave investors a nice surprise with news of a potential $1.5 billion RNA drug discovery alliance with GlaxoSmithKline plc.

Structured as an option deal, Carlsbad, Calif.-based Isis gets $35 million up front, which it will amortize over the five-year agreement, and could get up to another $155 million in pre-licensing milestones - averaging about $20 million for each of the five programs.

After each candidate has finished Phase II proof-of-concept trials, GSK has the option to license the drug for further development in exchange for "terms that are typical" of a Phase II-stage asset, Isis Chairman and CEO Stanley Crooke told investors on a conference call.

Shares of Isis (NASDAQ:ISIS) gained 63 cents, to close Wednesday at $10.93.

That deal is the first of its kind for antisense drug company Isis, but option-based agreements are becoming increasingly popular between biotechs and big pharma, as the latter has realized that small biotechs offer more efficient early drug discovery and development engines. In an option agreement, big pharma takes on some of the early risk but, if a program is successful, is guaranteed a licensing opportunity at predefined terms rather than having to jump into a high stakes bidding war for a Phase II- or later-stage asset.

So Isis might not score the same kind of cash as it did when Phase III-stage lipid-lowering drug mipomersen went through an auction process in 2007. The company ended up partnering mipomersen with Cambridge, Mass.-based Genzyme Corp. for a whopping $325 million up front in a deal worth up to $1.9 billion altogether. (See BioWorld Today, Jan. 9, 2008.)

On the other hand, "we don't need to start a new business development effort" when a program reaches the proof-of-concept phase and end up waiting "nine months or a year or longer before we find a partner," Crooke said.

GSK also "cedes a level of control to Isis" for early stage work, he added. "We can make decisions rapidly and avoid the delays inherent in shared decision-making with a large organization across multiple committees."

"And, of course, we get quite a bit of cash," Crooke said, with drug development expenses to Isis "so modest you won't notice."

With big pharma firms focusing the bulk of their near-term investments on late-stage and commercialized products to offset upcoming patent expirations, the option deals give them a chance to get in on some riskier, early stage opportunities without tying up much cash or resources.

Swiss pharma Novartis AG, for instance, staked a claim to Transgene SA's lung cancer vaccine TG4010 last month, paying $10 million for an option to license the product after Phase IIb data become available in the first quarter of 2012. If Novartis elects to take TG4010 forward, it will pay Strasbourg, France-based Transgene up to nearly $1 billion in milestones. (See BioWorld Today, March 11, 2010.)

Many option deals focus on discovery-stage programs. Galapagos NV, of Mechelen, Belgium, could get up to $580 million if Basel, Switzerland-based F. Hoffmann-La Roche Ltd. ends up licensing all programs emerging from their small-molecule and antibody drug collaboration in chronic obstructive pulmonary disease. (See BioWorld Today, Jan. 13, 2010.)

And London-based GSK is no stranger to the early stage option deals, having signed a potential $810 million partnership with Dynavax Technologies Corp., of Berkeley, Calif. to develop endosomal Toll-like receptor inhibitors against immune-inflammatory diseases and a potential $375 million collaboration with SuperGen Inc., of Dublin, Calif., to develop epigenetic targets for cancer drugs. (See BioWorld Today, Dec. 18, 2008, and Oct. 27, 2009.)

In its deal with Isis, GSK will contribute most of the previously undruggable targets, and Isis will apply its antisense technology. The companies have not disclosed the specific targets, but B. Lynne Parshall, Isis' chief operating officer and chief financial officer, said there are five total - with an option to increase that number to six - and most are focusing on the rare disease space.

"One takes advantage of the specificity of antisense to target diseases associated with point mutations," she said, adding that two target ocular diseases and one is aimed at infectious disease.

The potential $1.5 billion comes if all six targets are successfully commercialized. Isis also is eligible for double-digit royalties on any product sales.

If GSK chooses not to license the compounds, they will be retained by Isis, which can continue developing the drugs, subject to a "modest residual royalty," Parshall said.

Nevertheless, the deal should provide a steady stream of funding for the biotech, not that Isis is hard up for cash. The firm had $574.3 million on its balance sheet as of Dec. 31.

In the meantime, all eyes are on mipomersen. Isis and Genzyme are expected to report data around midyear for a Phase III trial of the statin add-on therapy in severe hypercholesterolemia. Later this year, data are anticipated from a separate study in patients at high risk for coronary artery disease.

To date, the drug has gotten mixed reviews on Wall Street. Mipomersen has hit its primary endpoints in two Phase III studies - one in heterozygous familial hypercholesterolemia and one in homozygous familial hypercholesterolemia. But reports of liver toxicity have left some wondering if the drug might be a niche product only rather than a potential blockbuster, though analyst Edward Tenthoff, of Piper Jaffray, called those concerns "overblown." (See BioWorld Today, May 21, 2009, and Feb. 11, 2010.)