Maxygen Inc. signed a deal with F. Hoffmann-La Roche Ltd. focused on Maxygen's interferon alpha and beta variants portfolio. At this point, Roche has rights to candidates for hepatitis B and C, but if it takes its option on other indications, the deal's value could blossom to more than $230 million.

Simba Gill, Maxygen's president, said the deal came to life through a combination of factors, which is "how the best deals always work."

Redwood City, Calif.-based Maxygen realized "it should be possible to improve alpha interferon products for hepatitis and possibly other areas," Gill said, noting that the company has "been working on it for several years."

Combine that with the fact that "recently, Roche internally came to the decision that alpha interferon is a franchise for them" and it "decided it should look for an improved version of alpha interferon," Gill said, and you have the recipe for the Maxygen-Roche agreement.

"Presumably, [Roche] did a thorough search around the world and that led to our deal," he said.

Roche, of Basel, Switzerland, licensed worldwide rights to specific interferon products for hepatitis B and C, for which Maxygen will receive an up-front payment and two years of research and development funding, as well as option fees. Maxygen also will work toward milestone payments.

"Roche will take forward those preclinical leads and, to the degree they continue to be positive, will fund them all the way through the clinic to commercialization," Gill told BioWorld Today.

Maxygen has an option to co-develop and co-fund hepatitis B and C products, but must decide before the initiation of Phase III trials.

Outside the hepatitis arena, Maxygen has retained all rights. However, Roche has an option "to take a license to any product we make," Gill said, a move that would then put the ball back in Maxygen's court and give it an option to co-fund and co-develop the products.

The $230 million value of the deal does not include royalties, and rates were not disclosed, but Gill said that companies with good preclinical products generally get royalty rates in the low double digits to mid-teen range. Noting that, Gill said Maxygen "negotiates the best deal we can."

That undisclosed royalty rate would rise to "a more equivalent royalty" seen "in co-funding arrangements," Gill said, if Maxygen opts to co-fund and develop.

As of March 31, Maxygen had $225.5 million in cash, cash equivalents and marketable securities. It posted a net loss applicable to shareholders of about $4.3 million for the first quarter. The financial aspects of the Roche deal put Maxygen "in a good position to reach our financial guidance for 2003, which was $35 million to $40 million in revenue," Gill said. The company is estimating a cash burn of $30 million for the therapeutics side of Maxygen in 2003.

Maxygen was founded in 1997 on its MolecularBreeding technologies. It now has proprietary assays, high-throughput screening, protein modification, protein purification and mammalian cell expression scale-up. It works both on novel proteins and also looks to improve the time of action of therapeutics and make them less toxic. It uses glycosylation technology, as well as PEGylation technology it acquired access to through a September 2000 deal with Shearwater Corp., which is now a subsidiary of Inhale Therapeutics Inc., of San Carlos, Calif.

The company has two vaccine candidates in preclinical work and others at earlier stages. It has a range of products at the research level. Its collaborators include Aventis Pasteur SA, of Lyon, France, and InterMune Inc., of Brisbane, Calif. The deal with InterMune was worth up to $60 million. (See BioWorld Today, Sept. 6, 2001, and Nov. 6, 2001.)

Maxygen now can add Roche to that list. Roche markets Pegasys (PEG-interferon alpha-2a), a well-known product for hepatitis C. The deal with Maxygen is beneficial to Maxygen in several ways, Gill said.

"This [area] is an existing franchise with them," Gill said. "They decide to partner with Maxygen, so it's a huge validation for us. It also means we have a high chance of quickly moving the product through development to the market. And if it gets to the market, it's partnered with the right player."

Also, Roche has a focus on proteins, similar to Maxygen, Gill said, and "the third point is that the alliance makes a significant statement and is a historic milestone for us by showing us as moving toward a company that can produce products."

"All in all, it's a great deal and we're very enthusiastic," he said.

Maxygen's stock (NASDAQ:MAXY) rose $1.55 Thursday, or 19.1 percent, to close at $9.66.