Washington Editor

Emisphere Technologies Inc. could get up to $40 million after agreeing to again collaborate with a longtime partner Novartis Pharma AG in an oral parathyroid hormone (PTH) deal.

Terms of the agreement call for Tarrytown, N.Y.-based Emisphere to license its eligen delivery technology for the development and commercialization of an oral PTH product by Novartis. The new agreement marks the third between Emisphere and Novartis, which in 2000 entered a license agreement for the development of oral salmon calcitonin for the treatment of osteoporosis, and earlier this year entered an agreement for the development of oral human growth hormone.

"This really says we have a fan in a company that's not too shabby," said Lewis Bender, Emisphere's senior vice president of business development. "They're pretty well managed, pretty large, pretty sophisticated in the pharmaceutical development game, and clearly they think there's something here. It's very helpful to have a company come back time and again, and again, to do a license and make a bigger investment each time."

But their latest arrangement remains contingent upon Emisphere being in a position to grant such a license without infringing a third party's rights; the company remains in litigation with Eli Lilly and Co. concerning the termination of an existing oral PTH collaboration. That program had advanced to Phase I.

Bender said the suit is scheduled to go to court next year. The litigation dates back a year, when Emisphere was served with a complaint brought by Lilly in a federal district court, seeking a declaratory judgment declaring that Lilly is not in breach of its agreements with Emisphere concerning oral formulations of recombinant parathyroid hormone, PTH 1-34, as well as an order preliminarily and permanently enjoining Emisphere from terminating those agreements.

In January, Emisphere answered the action by asserting affirmative defenses and counterclaims for patent infringement, unfair competition and breach of contract. It alleged that Lilly filed certain patent applications relating to the use of Emisphere's technology in combination with another drug in violation of the companies' agreements. It also alleged that Lilly breached the agreements by failing to make a milestone payment, as required upon the completion of Phase I.

Should the suit conclude in Emisphere's favor, Novartis could exercise its option to license the technology, putting Emisphere in a position to receive milestone payments worth up to $30 million, followed eventually by royalties on sales.

Regardless of whether the deal with Novartis consummates, Emisphere has received $10 million from its Basel, Switzerland-based partner in exchange for a convertible note. Its repayment is not contingent on the outcome of the litigation with Lilly, of Indianapolis. Repayment is at Emisphere's option in cash or stock, and the stock price is set at the time of conversion.

"The $10 million is in the bank now," Bender said, adding that the funding would supplement the company's cash reserves. As of Sept. 30, Emisphere had $24.3 million in its coffers. It recorded a $9.5 million net loss in the preceding three months.

Bender declined to specify the note's duration, but said it is not due in the next several months. He also declined to specify the interest amount due Novartis over the life of the note. Bender said none of Emisphere's prior deals with Novartis resulted in shares being issued to the pharmaceutical firm.

Their most recent deal, centered on oral rhGH, came out of the dissolution of a prior arrangement with Lilly, as well. In spite of proof-of-concept success in that program, Lilly exited the partnership more than a year ago as it pared down products in its pipeline. That breakup ended a six-year arrangement on rhGH. (See BioWorld Today, Feb. 28, 1997, and Aug. 13, 2003.)

Emisphere's oral rhGH partnership with Novartis could be worth up to $34 million, but clinical studies are not yet under way. The calcitonin product has completed Phase IIa studies, findings from which were recently published in the Journal of Bone and Mineral Research. Results of the 277-patient trial showed effective absorption of the drug, marked inhibition of bone resorption with minimal alteration of formation, and reproducibility of responses over three months. Novartis is planning Phase III studies in osteoporosis and osteoarthritis under its management. (See BioWorld Today, Feb. 18, 2000, and Sept. 24, 2004.)

On Thursday, Emisphere's shares (NASDAQ:EMIS) dropped 19 cents to close at $3.30. When the deal first was reported on Wednesday, the stock gained 15.1 percent, or 46 cents, to close at $3.49.

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