British Biotech plc and MethylGene Inc. entered a potential $16.5 million collaboration giving British Biotech rights in Europe to develop and commercialize MethylGene’s anticancer drug, MG98.

MG98, a second-generation antisense compound, is designed to upset the production of DNA methyltransferase (DNA MT) by inhibiting its expression. The product is in two Phase II trials in North America one in head and neck cancer and the other in renal cell carcinoma and one Phase I trial in advanced myelodysplasia and relapsed/refractory acute myeloid leukemia. MethylGene, of Montreal, and MGI Pharma Inc., of Minneapolis, are conducting the trials. MethylGene licensed North American rights to MGI in August 2000.

British Biotech will make $1.7 million in research and development payments to MethylGene and MethylGene will have a shot at $12.8 million in milestone payments based on European regulatory achievements and approval. Under a separate stock purchase agreement, British Biotech will make an equity investment of $2 million in MethylGene. MethylGene also will receive undisclosed royalties on product sales.

British Biotech, of Oxford, UK, will expand the MG98 Phase II program by funding studies in DNA MT-implicated cancers. The companies expect to share Phase III development costs.

Also, the companies formed an agreement to design and synthesize small-molecule inhibitors of DNA MT, aiming to produce drugs to inhibit the action of DNA MT, instead of inhibiting the production of the enzyme itself, as is the case for MG98. British Biotech secured a one-year option although renewable for a second year to the European rights for compounds arising from this research.

British Biotech’s stock (NASDAQ:BBIOY) closed at $2.20 Tuesday, down 10 cents. Brady Huggett