Genomics partnering appears alive and well.

DeCode Genetics Inc. signed a seven-year alliance to conduct clinical trials of developmental compounds belonging to Merck & Co. Inc., which paid a premium for equity in the Reykjavik, Iceland-based genomics firm as part of the deal. Aside from Merck's new ownership stake in DeCode, the companies are familiar for another reason - they are involved in a collaboration related to developing obesity compounds.

"I think it is extraordinarily important for those of us who base ourselves in human genetics to convince big pharma that genetics is a powerful tool to design clinical trials," DeCode CEO Kari Stefansson told BioWorld Today. "The opportunity to use genetics, to connect between the target and the design of the clinical trial, is very exciting."

Merck took a $10 million stake in DeCode, purchasing about 690,000 common shares at $14.50 apiece, and also received a warrant to purchase up to $50 million of additional shares at $29 each over the next five years. The Whitehouse Station, N.J.-based pharmaceutical giant previously owned no part of DeCode.

In the latest agreement, DeCode will use its population genetics capabilities and pharmacogenomic analysis to complement Merck's ongoing clinical development of compounds related to metabolic, cardiovascular and Alzheimer's diseases. Investors took to the deal, as DeCode's stock jumped 24.5 percent Thursday. Its shares (NASDAQ:DCGN) gained $2.60 to close at $13.20.

"We are a discovery company that has credibility in gene discovery that is as good as anybody, and we have a drug we are moving into Phase II trials in a week or two," Stefansson said. "But we have never taken a drug all the way to the market [and we] have yet to prove ourselves in drug development. So for us, it is incredibly important that we get a validation of our drug development approach by a big pharma that comes to us and asks us for help on drug development."

At any given point, DeCode will be conducting concurrent trials on as many as five Merck compounds. On the basis of trial results for particular compounds, the companies might also pursue the development of pharmacogenomic tests to identify patients for whom a given drug may be particularly effective.

"We are joining them in the drug development process, which most definitely will involve not only the design and execution of clinical trials," Stefansson said, "but also the development of pharmacogenomic tests that are important" in the development of drugs and in marketing.

He said DeCode would test Merck's compounds, which have moved through preclinical testing and into Phase I, and look for genetic markers that predict response and resistance against drugs. In the clinical trials, patient selection and data interpretation will be driven by factors such as genetic predisposition to a disease or drug response.

The work will take place at DeCode's Reykjavik facility devoted to the use of genetics in clinical development. The company, which has developed its population genetics based on the stable genetic heritage of Icelanders, also maintains a pharmaceutical unit in Chicago and a biostructure facility in Seattle.

For its work, DeCode will receive a one-time technology access fee, and will share research funding for the clinical development of compounds and pharmacogenomic analysis. Down the road, DeCode is entitled to milestone payments as compounds or pharmacogenomic tests reach the market, and will receive royalties on sales of resulting drugs and diagnostics. The companies did not disclose more specific financial terms.

"The most important aspect of the business side of the deal is that we will get royalties on sales of the drugs that come through," Stefansson said. "They are bringing their best compounds through our clinical trials, so I think that this has an unusually large potential upside for our company. This is probably an unusually rich deal for a biotech company because of the potential we get from royalties."

As part of their prior deal, worth potentially $90 million to DeCode if Merck were to develop and market more than one resulting product, DeCode receives research funding, technology access and license fees and milestone payments, as well as possible royalties. (See BioWorld Today, Sept. 30, 2002.)

In the past year and a half, Stefansson said DeCode has isolated three obesity genes that Merck has moved into its drug discovery programs.

Apart from its collaborative work, DeCode is developing internal compounds as well. Its near-term Phase II product, DG031, will be studied for myocardial infarction. Stefansson said the company obtained a license to the compound from Bayer, which previously studied it in more than 1,000 patients for asthma.

Down the road, DeCode plans to file an investigational new drug application by the end of this year to move an unnamed compound into Phase I for peripheral arterial occlusive disease.

"We are rapidly building up a pipeline," Stefansson said.