ArQule Inc. entered a partnership on the lead program from its Cancer Survival Protein modulation program, a deal worth up to $123 million with Kyowa Hakko Kogyo Co. Ltd.

ArQule, of Woburn, Mass., gets $30 million up front in the deal. Kyowa, of Tokyo, gets exclusive rights to the cancer agent ARQ 197 in Japan, China, South Korea and Taiwan.

ARQ 197, a small-molecule, selective inhibitor of the c-Met receptor tyrosine kinase, has been tested in a Phase I trial and is being prepared to move into a Phase II program. ArQule is entitled to up to $93 million in development milestone payments from Kyowa, as well as undisclosed sales milestone payments and a double-digit, tiered royalty on any resulting sales.

"We believe this is a landmark deal in terms of size for a Phase I-stage product in Asia," William Boni, vice president, investor relations at ArQule, told BioWorld Today.

In addition to the near- and long-term benefits, the deal also gives ArQule "maximum flexibility" on partnering decisions going forward for the rest of the world, Peter Lawrence, ArQule's executive vice president, general counsel and chief business officer, said in a conference call Friday. The deal set a "high hurdle for those seeking to acquire rights outside Asia," he said.

Kyowa is responsible for funding and development in its territories. The companies will have a joint steering committee under which they will share data and discuss regulatory approaches, ArQule President and CEO Stephen Hill said on the conference call.

ArQule presented data from a Phase I trial of ARQ 197 in November, and plans to provide additional results at the American Society of Clinical Oncology meeting in June. Hill said that presentation should include full Phase I results, as well as data from a continuous-dosing regimen now being used in the study. Boni said ArQule intends to begin the ARQ 197 Phase II program around the middle of the year. He said the company will make details of the program available as it nears initiation. "We are looking at a number of indications," he said, adding that there are several c-Met-expressing tumors, including non-small-cell lung, pancreatic, prostate, renal, breast and gastric.

Separately, Hill said a biomarker study of ARQ 197 is under way.

Han Li, who follows ArQule for Stanford Equity Co. in Houston, said in a research note, "We view the deal as positive as it not only strengthens the balance sheet but also sets a benchmark for potential U.S. and Europe partnerships for ARQ 197.

"We believe ARQ 197 is the best-in-class small-molecule inhibitor of c-Met, which may be the 'next big thing' as a cancer target, following VEGF and EGFR," Li said. He said the Phase I study showed activity in several tumor types, with a combined response rate and stable disease of 53 percent. It also showed favorable safety and pharmacokinetic profiles, he said.

ArQule said ARQ 197 inhibits the activity of c-Met, a receptor tyrosine kinase that has roles in cancer cell growth, survival, angiogenesis, invasion and metastasis. It said c-Met is abnormally activated in most cancers and is believed to control multiple signal transduction pathways involved in tumor growth and metastasis.

Around the time that Phase II development begins for ARQ 197, ArQule is expected to be releasing Phase II data from a separate program, its Activated Checkpoint Therapy (ACT) platform. The most advanced compounds from that program are partnered with F. Hoffmann-La Roche Ltd., of Basel, Switzerland.

ArQule has completed enrollment in three Phase II trials of its lead ACT compound, ARQ 501: a 30-patient study in leiomysarcoma, a 53-patient study in head and neck cancer, and a 66-patient study with gemcitabine in pancreatic cancer. Data from all three are expected around the middle of the year, Boni said.

Roche got certain option rights to ARQ 501, and a second compound, ARQ 171, in an April 2004 deal that included a $15 million up-front payment to ArQule, as well as financial support for ongoing research and development. The deal was valued at up to $276 million, and carries an option period for Roche to decide whether to go forward. That will come after the Phase II data are in for 501, and after determination of a Phase II dose for 171, which began Phase I trials in December.

The deal with Roche is focused on ACT compounds that target the E2F pathway, which is believed to regulate cell death. (See BioWorld Today, April 5, 2004.)

ArQule has at least eight other anticancer programs, with various mechanisms of action, in the research stage. Boni said the lead program from that research may be a BRAF kinase inhibitor. He said one of the programs probably would enter the clinic in 2008.

ArQule ended 2006 with $95.8 million in cash and about 35.8 million shares outstanding. It previously provided guidance that it expected to have a loss for 2007 of $60 million to $65 million, a number expected to change now with the $30 million license payment from Kyowa. Hill said updated financial guidance will be provided during the company's first-quarter conference call Thursday.

ArQule's stock (NASDAQ:ARQL) gained 70 cents Friday, or 8 percent, to close at $9.45.

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