National Editor

Lexicon Genetics Inc. entered an agreement focused on neuroscience with Bristol-Myers Squibb Co. that provides an up-front payment of $36 million, with at least $30 million more in research funding during the next three years - and potentially another $50 million, if the deal is extended.

"We do what we say we're going to do," said Arthur Sands, president and CEO of The Woodlands, Texas-based Lexicon during a conference call, referring to his company's vow to sign a partner.

Lexicon's stock (NASDAQ:LEXG) climbed 48 cents Thursday to end the day at $5.65.

Lexicon is contributing to the deal 13 drug discovery programs from its neuroscience pipeline (which contains 14 programs) and giving BMS exclusive access to future neuroscience-related discoveries from its Genome5000 mouse-knockout technology, which is analyzing 5,000 genes while studying physiology and behavior of the mice to discover novel drug targets.

Julia Gregory, vice president of corporate development and chief financial officer, said Lexicon expects the deal to yield at least four marketed drugs.

"We have put in benchmarks for ourselves that will result in successful payments for being even more productive than our research plan," she said, noting that Lexicon is in line for up to $76 million for each of the two to four drugs if they are commercialized.

Regarding the total worth of the alliance, she said, "$300 million is an extremely conservative number." A range of $300 million to $450 million "would include milestones as well as some potential bonus payments, as well as the up-front cash and research funding," Gregory said.

"It's a world-class deal," she told BioWorld Today. Lexicon and BMS will have the opportunity to "see the genes that control the major switches before anyone else," she said.

So far, the company has analyzed 1,400 genes, or 28 percent of all pharmaceutically relevant genes, said Brian Zambrowicz, vice president of research, during the call.

"We are making dramatic discoveries," he said.

The companies will launch a joint medicinal chemistry and preclinical development effort, sharing costs equally, to discover small molecules for the targets and advance them into clinical development. As drugs approach Phase I trials, BMS will have the first option to assume full responsibility for development and commercialization.

If BMS extends the discovery part of the three-year deal another two years, Lexicon would reap $50 million on top of the up-front money and the research funding already promised.

Lexicon also gets cash payments for exceeding specified research productivity levels, plus clinical and regulatory milestone rewards for each novel drug target BMS develops under the deal, along with royalties.

Lexicon's relationship with BMS goes back several years, to a database access and license agreement aimed at high-throughput target validation entered in the fall of 2000. Few details were provided then, but the company said the deal could yield between $15 million and $25 million in access and delivery fees. The latest, more focused and more lucrative deal is "a very important value marker" for Lexicon's technology, Sands said. (See BioWorld Today, Sept. 28, 2000.)

The neuroscience market is ripe. Depression, as one indication, afflicts about 19 million people in the U.S. and accounts for more than $11 billion of annual pharmaceutical sales. Schizophrenia affects 1 percent of the world's population - 2 million people in the U.S., amounting to more than $3 billion in annual drug sales. Cases of Alzheimer's disease and other cognitive and neurodegenerative disorders are expected to rise as the population ages.

New York-based BMS already has a franchise in schizophrenia with its marketed Abilify (aripiprazole), approved in November 2002 for the condition. Revenue from Abilify exceeded $200 million for the first nine months of 2003, and some analysts predict it could be a $2 billion drug.

In the conference call, Gregory said the BMS deal would mean no sizable increase in the operating budget, since the Genome5000 work already is under way. Zambrowicz said the company expects to finish knockouts and phenotypic analysis of all G protein-coupled receptors of unknown function in 2004.

"Likewise, we are rapidly sweeping through the other critical gene families," he said.

Sands pointed out the company has five more therapeutic areas not yet partnered: cardiology, metabolism, immunology, oncology and ophthalmology.

"They can be further stratified by specific disease indications," he said, adding that he is "very enthusiastic about what has occurred in 2003 and how 2004 already looks for us," as talks continue with prospective collaborators.

Among the discoveries made with Genome5000 so far, Zambrowicz noted, is LG617 for cognitive disorders - the 14th program in the neuroscience lineup. Knockout mice increased performance in tests of learning and memory and maintained their gains with age, he said. Lexicon is studying inhibitors of LG617 for such disorders as Alzheimer's disease and is optimizing molecules to begin clinical research.

Gregory pointed out that LG617 is specifically excluded from the deal with BMS, which has an option to negotiate for it separately.

"Our business strategy has been to develop some ourselves and partner other programs," Gregory said. BMS "requested we come to them first if we choose to partner [LG617]," she added, and a provision to do that has been added to the contract.