West Coast Editor

Bayer Healthcare is paying Regeneron Pharmaceuticals Inc. up to $320 million - including $75 million up front - in a deal centered on VEFG Trap for diseases of the eye, and expects to start a Phase III trial in the first half of next year comparing the drug to Lucentis against age-related macular degeneration.

Regeneron's stock (NASDAQ:REGN) closed Thursday at $18.78, up 90 cents.

Len Schleifer, president and CEO of Tarrytown, N.Y.-based Regeneron, said his firm's product "binds [VEGF] fast and binds it tight," adding "this affinity, if you will, may be 50 to 100 times better than Lucentis," the AMD therapy from Genentech Inc., which reaped $153 million, far more than expected, during its first full quarter on the market. (See BioWorld Today, Oct. 12, 2006.)

Leverkusen, Germany-based Bayer and Regeneron will jointly commercialize VEGF Trap-Eye (now in Phase I and Phase II trials) outside the U.S and split profits from ex-U.S. sales, but Regeneron will keep all rights and profits in the U.S. Bayer, which merged in July with Schering AG in a $21.3 billion deal, and Regeneron will share more than $250 million in global development costs according to a formula based on total expenses in 2007 and 2008.

"In 2007, the first $50 million of costs are shared equally, then there's a little bubble where it's our responsibility, and above that it is shared equally," Schleifer told BioWorld Today. The arrangement in 2008 is similar, except that the first $70 million is shared equally. Schleifer characterized the "bubble" as "in the range of $40 million in 2007 and $30 million in 2008." In 2009 and beyond, companies will split costs equally.

If a VEGF Trap-Eye product wins approval outside the U.S., then Regeneron, from its 50 percent share of profits outside the U.S., will reimburse Bayer for 50 percent of the overseas firm's costs.

Regeneron can earn up to $110 million in total development and regulatory milestones related to the development of the VEGF Trap-Eye for major eye disorders including wet AMD and diabetic macular edema (DME) - $40 million of this is due when Phase III trials start in AMD and DME - and for approvals in major markets outside the U.S.

"We're in the midst of finishing up a small pilot study [in DME]," Schleifer said.

Up to $135 million in sales milestone payments could land in Regeneron's hands when total annual sales of VEGF Trap-Eye outside the U.S. achieve certain specified levels, starting at $200 million.

Regeneron also has a deal with Paris-based Sanofi Aventis Group for VEGF Trap in cancer indications. That deal started in fall 2003, but the arrangement since has been broadened. "We're going to invest, over several years, $650 million to develop these two opportunities [in cancer and eye disease]," Schleifer said.

Sanofi will provide $400 million for cancer, and about $200 million for eye diseases will come from Bayer, in the form of up-front payments, early milestone payments or research contributions - which leaves only $50 million for Regeneron to supply.

The company finished the second quarter with more than $273 million in cash, cash equivalents and marketable securities.

"That summary is something the analysts didn't get so well," Schleifer said. "It's unheard of, I think."

Regeneron also has Phase III data due this quarter from its fast-track, orphan drug Interleukin-1 Trap program for chronic inflammation in patients with CIAS1-associated periodic syndromes.

Basel, Switzerland-based Novartis AG paid $27 million in cash and made a $48 million equity investment as part of the IL-1 Trap deal in spring 2003, with the potential for $275 million in milestone payments related to marketing approvals and product revenue targets. IL-1 Trap blocks interleukin-1, which regulates immune and inflammatory responses by attaching to cell-surface receptors. (See BioWorld Today, March 21, 2003.)

"We also have two antibodies per year from VelocImmune going into the clinic, starting next year," Schleifer said.

The VelocImmune platform is based on the company's Velocigene technology, which manipulates DNA to make the most number of knockout mice that can be achieved in an automated way. (See BioWorld Today, Aug. 4, 2006.)

Schleifer attributed the success in making deals for Trap technology to the approach itself, rather than bargaining skill.

"People don't do the deals," he said. "Molecules do the deals."

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