BORNHEIM, Germany ¿ MorphoSys AG signed a strategic collaboration with the pharmaceutical company Schering AG, of Berlin, for the development of antibody therapeutics and in vivo diagnostics.

As part of the agreement, Schering agreed to purchase approximately 10 percent of MorphoSys, or 357,800 shares. The price was fixed, MorphoSys CEO Simon Moroney said during a conference call, but the companies agreed not to disclose it.

According to German law, equity must be traded at least at fair market value, Moroney said. Taking MorphoSys¿ stock price at closing (EUR55.05) on the day of contract completion, Schering¿s equity stake might be estimated at about EUR20 million (US$18 million).

MorphoSys expects to receive committed license fees and R&D funding over the three-year collaboration. Additional milestone payments might be worth up to EUR 200 million plus royalties, MorphoSys said.

Cash from Schering¿s equity investment is expected to fuel MorphoSys¿ proprietary product development programs, Moroney said. ¿In short, we have been able to leverage our technology to source the cash we need to finance the transition of MorphoSys to a product company.¿

MorphoSys, of Martinsried, Germany, focuses on synthetic antibodies, which accelerate drug discovery and drug target characterization.

MorphoSys currently has collaborations that aim at products with Bayer AG, of Leverkusen, Germany; Centocor Inc., of Malvern, Pa.; Hoffmann-La Roche AG, of Basel, Switzerland; ImmunoGen Inc. and Millennium Pharmaceuticals Inc., both of Cambridge, Mass.; Prochon Biotech Ltd., of Rehovot, Israel; and GPC Biotech AG, of Martinsried. Antibodies in the collaboration with GPC are expected to be the first entering clinical trials, by the end of 2002, Moroney said.

At the heart of the new collaboration with Schering is MorphoSys¿ proprietary antibody library HuCal Gold. ¿It will be the source for all products, which Schering and MorphoSys will work together to develop,¿ Moroney said.

¿[The collaboration with MorphoSys] will provide a complement to our established processes in the area of lead compound discovery and thereby enable us to rapidly enter antibody-based therapies,¿ Schering¿s head of corporate research, Bjvrn Wallmark, said in a prepared statement. ¿The access to the proprietary technology of MorphoSys will provide us with an opportunity in promising new drug discovery.¿

The alliance has its main focus on oncology. ¿We will generate in vivo up to 20 therapeutic and diagnostic antibodies against targets supplied by Schering,¿ Moroney said. ¿We expect those programs will result in molecules ready to go into clinic, we would hope, within two years.¿

In the field of in vivo diagnostics MorphoSys will work exclusively with Schering for the duration of the collaboration term, MorphoSys said. Moroney said that Schering may purchase exclusivity around the therapeutic programs on a target-by-target basis.

Schering in the alliance is responsible for clinical development and marketing of therapeutic and diagnostic products.

In addition, the agreement includes the generation of antibodies for validation of targets from Schering¿s genomics program. MorphoSys also plans to provide antibodies for Schering¿s internal clinical drug discovery and clinical development programs, Moroney said.