GlaxoSmithKline plc has discovered a new way of feeding its pipeline through external partnerships; it formed the Center of Excellence for External Drug Discovery (CEEDD) and called on Pharmacopeia Drug Discovery Inc. as its first collaborator.

Pharmacopeia, of Princeton, N.J., stands to receive up to $98 million in payments, if GSK elects to further develop one compound once it reaches clinical proof of concept.

Michio Soga, Pharmacopeia’s executive vice president and chief financial officer, said his firm was "honored" to be chosen as the first alliance for CEEDD. "We feel that this is a real vote of confidence for our capabilities," he said.

Investors agreed. Pharmacopeia’s stock (NASDAQ:PCOP) climbed 18.9 percent Thursday, or 91 cents, to close at $5.73.

Unlike GSK’s CEDDS (Centers of Excellence for Drug Discovery), the London-based pharmaceutical company is tapping into research outside of its organization with the CEEDD. CEDDS focus on developing internal GSK compounds that have reached clinical proof of concept, whereas the CEEDD leverages external research by retaining an option to develop compounds brought through clinical proof of concept by the partner. It is a way for GSK to keep the drug discovery engine moving as it restocks its pipeline.

"The important thing is the deal is structured so that we own the rights to the program until it’s licensed by GSK," Soga told BioWorld Today.

Pharmacopeia will look to discover active molecules and bring them to clinical proof of concept for a range of therapeutic areas. GSK holds exclusive options to conduct Phase III trials and to commercialize the compounds worldwide. For any agents it chooses not to develop, Pharmacopeia may develop them on its own.

The deal entails $15 million in cash payments from GSK, including $5 million paid upon signing of the agreement, and $10 million "in conjunction with certain performance metrics, which is well within our control," Soga said.

Preclinical and clinical milestone payments of up to $83 million will be paid to Pharmacopeia by GSK for each drug development program pursued, meaning if there’s more than one, the payments could be significantly greater.

"We’re keeping our fingers crossed," Soga said. "You never know, but that’s the aim of it."

Pharmacopeia also would receive double-digit royalties. As part of the alliance, GSK will receive warrants to buy Pharmacopeia stock at a 25 percent premium to the trailing 30-day closing price average at the start of the collaboration. The companies did not disclose how much stock could be purchased.

A joint steering committee will determine the targets in which the collaboration will focus, and Pharmacopeia will use its discovery capabilities to find the leads. Currently, they are not focused on any particular therapeutic area. Pharmacopeia has "the largest compound library in the industry with almost 8 million compounds," Soga said.

Aside from this GSK deal, Pharmacopeia has six partnered preclinical programs, and three partnered Phase I compounds designed to treat rheumatoid arthritis, asthma and allergies, and inflammatory diseases. The clinical programs are partnered with New York-based Bristol-Myers Squibb Co.; Osaka, Japan-based Daiichi Pharmaceutical Co. Ltd.; and Schering-Plough Corp., of Kenilworth, N.J., respectively.

While Pharmacopeia has more than 40 discovery and development partnerships, its alliance with GSK is unlike any of those. It enables the company to build a portfolio of programs for which it is retaining significant rights, Soga said.

"It allows us to build and improve our discovery capabilities toward becoming more of a clinical development stage company," he said.