EPIX Medical Inc. is returning to a familiar partner, Schering AG, to develop contrast agents for use in MRI in a deal that could garner up to $28 million in near-term money for EPIX.

The agreement includes two areas of focus - advancing EP-2104R, EPIX's thrombus detection product, and developing new compounds to be used in magnetic resonance imaging. Schering gained an option for the late-stage development and worldwide marketing rights to EP-2104R, and for all development candidates emerging from the MRI research collaboration.

"We started collaborating in June of 2000 in a 50-50 partnership for our lead product, MS-325, which is specifically designed for vascular imaging in the body to detect blockages in the arterial system using an MRI scanner," EPIX CEO Michael Webb told BioWorld Today. "These collaborations really grew out of the close work we had done with Schering over the last three years."

Cambridge, Mass.-based EPIX will conduct early clinical feasibility activities for EP-2104R, with Schering contributing up to $9 million. At the end of the projected two-year program, Schering may exercise an option to develop EP-2104R through an exclusive, worldwide license. At that point the Berlin-based company would assume responsibility for all further development, manufacturing, marketing and sales.

"EP-2104R is the first molecularly targeted, disease-specific MRI compound to be slated for clinical development," Webb said. "It is targeted to fibrin, the scaffold of clots."

A two-part molecule, he said EP-2104R includes a small peptide and a small cluster of gadolinium molecules, which generate signals for the magnetic resonance scanner. An intravenous injection of the product allows for immediate imaging as it lights up clots throughout the body.

EPIX could gain up to $15 million in milestone payments based on development and commercial events, as well as royalties on sales. Such royalties would depend both on annual revenues and EPIX's optional participation in clinical development funding.

"EPIX has the ability, even as an early stage discovery partner in the project, to participate in co-development," Webb said. "We can decide for ourselves whether to participate in co-development on a particular molecule, in which we can co-fund the development and then significantly raise our royalty rates to the level of a Phase III deal."

In the exclusive MRI research partnership, Schering committed about $4 million in research and development funding for the next two years. Schering also agreed to provide a loan facility of up to $15 million, from which Webb said EPIX would draw half immediately and the other half in 13 months. The loan's principal repayment schedule begins in 2007.

"We're truly going to merge both companies' research groups in the field of MRI," Webb said, adding that each would contribute about 20 employees to the effort, though he did not disclose specific areas of development. "We're going to put the programs together, prioritize them and delegate responsibilities within the collaboration to the company with the best set of skills to serve that need."

Both companies agreed to contribute equally to the research effort, and will emerge with joint ownership of all intellectual property generated during the three-year duration of the agreement, with an option to extend it for two more years. Schering will fund a portion of EPIX's related personnel costs and third-party research costs.

Down the road, a joint team will nominate product candidates for clinical development, with two scenarios on tap for such development going forward.

Schering retains the first option for exclusive, worldwide rights, becoming responsible for all future development, manufacturing, marketing and sales. EPIX would receive a base royalty on sales with the option to increase the royalty by participating in development funding. If Schering does not exercise the option, EPIX could license the product and Schering would receive a base royalty.

The partners' work on MS-325 (gadofosveset) seems to be proceeding according to plan. EPIX said it recently completed enrollment in a four-trial Phase III program, with positive results already emerging from two of the studies. The completed trials, which were focused on the aortoileac region, hit their primary endpoints - the improvement in accuracy of MS-325-enhanced imaging vs. noncontrast (p<0.001).

"Over the next couple of months, we will present results from the final Phase III trials, one of which is in the renal arteries and the other in the pedal arteries of the foot," Webb said. "These three arterial areas were selected with the FDA to represent the vascular system throughout the body except the heart."

He said EPIX plans to file for a comprehensive indication for magnetic resonance angiography throughout the body, outside the heart, to detect blockages and other vascular abnormalities. Schering is EPIX's exclusive worldwide sales and marketing partner for the blood pool contrast agent.

"We see this first indication covering all diagnostic angiography done outside the heart," Webb said. "We look forward to MS-325 making X-ray angiography obsolete over the next few years."

For the company's efforts going forward, he said the latest deal-associated funding would provide two years of cushion to pursue all programs, in and out of the agreement. Webb said EPIX has begun pilot, exploratory work beyond MRI.

EPIX's stock (NASDAQ:EPIX) gained $1.97 Tuesday, or 20.7 percent, to close at $11.50.