As a four-year drug discovery agreement between Isis Pharmaceuticals Inc. and Eli Lilly and Co. approached its end, the companies decided they weren't ready to stop collaborating just yet.

The partners agreed to extend their antisense drug alliance for two years and to add a third Isis compound, the second-generation antisense inhibitor ISIS 345794, to Lilly's pipeline. Isis would be entitled to milestone and royalty payments relating to the development of that drug, which is designed to target Signal Transducer and Activator of Transcription 3 (STAT-3), a protein that regulates cell division and growth and prevents cell death.

"It's been a very productive collaboration so far," said Lynne Parshall, executive vice president and chief financial officer of Carlsbad, Calif.-based Isis. "Lilly has taken two cancer drugs into clinical trials, and has picked up a third" through the extension.

The original agreement, signed in August 2001, had three parts, starting with a $100 million research effort aimed at validating targets for antisense drug discovery and identifying drugs for those targets. The second part of the deal involved an equity investment, while the third called for the licensing of Phase III Affinitak, a PKC-alpha inhibitor to treat non-small-cell lung cancer that was halted after disappointing results.

Under the extension, Isis and Lilly plan to keep advancing the antisense drugs identified during the previous collaboration, while working to discover new drugs using Isis' antisense technologies. Parshall said those efforts will extend the partnership for another 18 to 24 months.

As part of the transaction, Lilly also has licensed the use of Isis' intellectual property to discover internally a limited number of targets outside of the collaboration, Parshall told BioWorld Today, which "really solidifies [Lilly's] interest in antisense technology."

Detailed financial terms were not disclosed; however, the extension will allow Isis to reduce a major chunk of its long-term debt, namely a $100 million loan from Lilly that funded research during the original four-year collaboration. Isis will convert the interest-free loan into 2.5 million shares of Isis common stock, at $40 per share, and Lilly has agreed not to sell those shares until the fourth quarter of 2006.

In the meantime, Lilly has started Phase I development in the two antisense oncology drugs discovered during the original four-year deal: LY2181308, which is directed at survivin, and LY2275796, targeted to eIF-4E.

The third compound, ISIS 345794, is expected to be developed as a cancer treatment by targeting the STAT-3 protein, which is overexpressed in a number of different cancers and causes the cancer cells to keep growing faster than they should, Parshall said.

The agreement with Lilly is one of several ongoing collaborations for Isis. Earlier this year, Isis entered a multiyear drug discovery deal with New York-based Pfizer Inc. for up to $80 million to identify second-generation antisense drugs to treat ophthalmic disease. In addition, Isis could receive royalties. (See BioWorld Today, May 25, 2005.)

In its own pipeline, Isis has 11 products in development. The most advanced is alicaforsen, an enema formulation to treat ulcerative colitis that recently completed Phase II studies. Isis plans to meet with the FDA later this year to discuss those results and designs for a Phase III program.

Isis' goal is to partner alicaforsen with a company that has expertise in the gastrointestinal drug space, Parshall said.

The first product in its metabolic disease program, ISIS 113715, is in Phase II testing in diabetes, targeting PTP-1B, an enzyme that appears to reduce insulin's ability to regulate blood sugar levels. Isis intends to move that product forward as both a single agent and in combination studies. And the company's first cardiovascular drug, ISIS 301012, recently finished a Phase I study. ISIS 301012 targets ApoB-100, a protein that is involved in the production of low-density lipoprotein, also known as the "bad" cholesterol.

Isis posted its second-quarter earnings Monday. For the three months ending June 30, the company recorded a net loss of $19.7 million, or 34 cents per share. It had cash, cash equivalents and short-term investments totaling $59.6 million.

Shares of Isis (NASDAQ:ISIS) lost 24 cents Monday to close at $5.41.

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