National Editor

About seven months after completing its $25 million buyout of Cyclis Pharmaceuticals Inc., ArQule Inc. has leveraged the acquired Activated Checkpoint Therapy technology to nail down a deal with Roche that could be worth up to $276 million, plus royalties.

ArQule's stock (NASDAQ:ARQL) closed Friday at $6.90, up $1.06, or 18.2 percent, after rising as high as $7.40.

Specifically, the deal is focused on cancer drug candidates targeting the E2F pathway, which regulates cell death. Woburn, Mass.-based ArQule has a compound in Phase I trials, putting the firm "pretty much ahead of anybody else in this [cancer checkpoint] area," said Stephen Hill, president and CEO.

Under the terms, Basel, Switzerland-based Roche Holding Ltd. is paying $15 million up front, as well as research and development support described as "significant," but unspecified. Roche gained an option to acquire rights to the program.

"We haven't shared the timing of the option, and it's really linked primarily to achievements within the program rather than a specific time frame," Hill said during a conference call. If certain milestones are reached, "that would precipitate the obligation of Roche to make a decision as to whether they want to opt in or not," he said, adding that Roche then would face "a time limit on how long that option would be open for."

Hill told BioWorld Today later that the start of the clock for Roche's decision making partly will "be triggered by us generating Phase II data in one compound and having at least one Phase I compound in the clinic." But Roche will make ongoing research and development payments in undisclosed amounts, starting in 2005.

If Roche, the oncology division of which has four research sites and four "headquarter development" sites around the world, takes the option to license worldwide rights to further develop and commercialize E2F drugs, it pays an opt-in fee.

Hill would not provide the amount of the fee, but noted that ArQule "had a choice whether to do a deal or not, and we looked very carefully to whether we should do a deal now" or wait until a drug was further along in the clinic. Terms in the Roche deal "compared very favorably with [those likely to be gained by] waiting," he said.

As the supply of late-stage programs dwindles in the industry, pharmaceutical firms are having to in-license compounds further back in the development stages, Hill said.

"If you risk-adjust them appropriately, I am of the view that for good programs you can do just as good a deal at Phase I as you can do at Phase II," he said.

If a drug from the E2F program reaches the market, ArQule could be in line for up to $276 million in payments, as well as royalties. Meanwhile, ArQule is keeping rights to Cancer Survival Proteins, known to block checkpoint-mediated apoptosis. Its lead compound has shown activity against human cancer, Hill said. ArQule also retains rights to an intracellular protein named PUMA, which stands for "p53-Upregulated Modulator of Apoptosis." Produced in response to p53, PUMA has shown in in vitro assays to be a highly potent stimulator of apoptosis in cancer cells.

A drug that hits the E2F pathway as well as traveling another route would be "a little bit of a gray area," Hill acknowledged. "The intent, I think it's fair to say, behind this [deal] is if E2F elevation is the primary basis by which the drug works, then that would be included in the program. If that's an incidental effect and not the primary mechanism, then I think that's open to ArQule retaining rights."

Hill said the CSP program does "not involve the E2F pathway in a material fashion," and noted that ArQule keeps control over all Activated Checkpoint Therapy programs apart from E2F.

Yeast biologist Leland Hartwell, at the University of Washington in Seattle, discovered the phenomenon of the DNA damage checkpoint in 1988 and got the Nobel Prize for it in 2001. Papers on the subject have been published in the journals Nature and the Proceedings of the National Academy of Sciences. (See BioWorld Today, April 2, 1999, and May 15, 2002.)

Work in cancer checkpoints has steadily gained steam, and was the subject of presentations at the American Association for Cancer Research meeting in Orlando, Fla., last week.

Hill said interest is growing, though he is "not aware of anybody else who is already in the clinic with programs working by activated checkpoints. It may not be a bandwagon yet, but I suspect if and when clinical activity is demonstrated, a lot more people will be looking into this area."

As a result of the Roche deal, ArQule upped its guidance regarding 2004 financial results, putting revenues between $50 million and $52 million. The previous range had been $46 million to $48 million. Cost of revenue is unchanged, but research and development expenses rose to a range of $24 million to $25 million, rising $2 million over the previous estimate. ArQule expects its net loss per share to range between 52 cents and 56 cents for the year, down from the previous guidance of a range between 66 cents and 70 cents.

The company in September put the finishing touches on its buyout of privately held, Norwood, Mass.-based Cyclis, combining the former's chemistry expertise with its biology, which included Cyclis' lead candidate for cancer, CO-501 (now known as ARQ-501), as well as the Activated Checkpoint Therapy methodology used to develop it. (See BioWorld Today, July 18, 2003.)