As Kosan Biosciences Inc. focuses on its cancer therapeutics, it licensed out its motilin agonist program to Pfizer Inc. in a worldwide deal worth up to $250 million in up-front and milestone payments.

Kosan's stock (NASDAQ:KOSN) climbed 52 cents, or 10.7 percent Wednesday, to close at $5.40.

"It's a good-sized little deal for what it is," said analyst Eric Schmidt, of SG Cowen & Co. in New York. Schmidt said the program was "under the radar screen" of most investors, who were mainly interested in the company's Hsp90 inhibitors and epothilones.

"I, for one, was pleasantly surprised this morning," Schmidt told BioWorld Today, "because for a third wheel, I think they were able to drive quite good economic terms."

Terms call for Hayward, Calif.-based Kosan and New York-based Pfizer to collaborate on filing a clinical trial application to European regulatory authorities for KOS-2187. Pfizer would cover all development, regulatory and commercial activities for the product and any other candidates that come out of the program. The deal gives Kosan an up-front payment of $12.5 million, and entitles the company to milestone payments, including $72.5 million that are development-based. The total deal is valued at up to $250 million.

"I'd almost look at this as found money," Schmidt said.

KOS-2187 could enter Phase I trials in Europe early in 2007. The product appears to improve gastric emptying and may have a benefit in gastrointestinal diseases, such as gastro-esophageal reflux disease (GERD) or diabetic gastroparesis - delayed gastric emptying.

"We had made the statement during the year that we were going to focus on oncology going forward," said Robert Johnson, president and CEO. The deal with Pfizer helps the company to "monetize a non-oncology asset at a very good premium and with a brand name partner," he added.

The milestones are tied to the success of KOS-2187 for one indication. If it is successfully developed for additional indications, it would mean more money for Kosan, as would the development of additional motilin agonist products.

Kosan also would receive royalties on worldwide sales.

"For a pre-IND deal, it exceeds usual royalty rates in that regard," Johnson said.

The motilin agonist program is based on the hormone motilin that is secreted by the small intestine and stimulates gastrointestinal motility. It is the most promising polyketide-based, non-oncology asset that has emerged from Kosan's discovery platform.

An agonist of the motilin receptor, erythromycin, enhances esophageal motility in GERD patients and accelerates gastric emptying in those with diabetic gastroparesis. Kosan's products are non-antibiotic derivatives of erythromycin. Studies of KOS-2187 have shown that it is chemically stable, orally bioavailable and lacks antibiotic activity. Preclinical data show an improved safety profile of KOS-2187 over erythromycin, as well as accelerated gastric emptying.

"We're excited about having a new mechanism and one that has shown significantly positive results in our preclinical evaluation," Johnson said.

GERD and diabetic gastroparesis are two important therapeutic areas in which patients are "not effectively treated" with currently available drugs. Johnson estimates the gastroparesis market could be worth up to $1 billion, and the GERD market is "sufficiently north of that."

The company has had a corporate goal to partner its gastrointestinal program, while it continues to focus on advancing two new classes of anticancer agents: Hsp90 (heat-shock protein 90) inhibitors and epothilones. The Hsp90 inhibitors work by targeting pathways involved in cancer cell growth and survival. KOS-953 (tanespimycin) is in Phase I and Phase II trials for multiple myeloma in combination with Velcade (bortezomib; Millennium Pharmaceuticals Inc.) and for HER2-positive metastatic breast cancer in combination with Herceptin (trastuzumab, Genentech Inc.).

Phase I trials also are evaluating intravenous and oral formulations of a second-generation Hsp90 inhibitor, KOS-1022 (alvespimycin).

Kosan's epothilones include KOS-862, which is in a Phase II single-agent trial in patients with HER2-positive metastatic breast cancer, and in a Phase II combination trial with Herceptin.

A second candidate, KOS-1584, is in Phase I trials in patients with solid tumors. The epothilone program is partnered with F. Hoffmann-La Roche Ltd., of Basel, Switzerland. Epothilones work similar to taxanes in inhibiting cell division.