By Karen Young

Applied Molecular Evolution Inc. entered a collaboration with Eli Lilly and Co. to optimize two of Lilly¿s protein therapeutics in return for an up-front signing fee, milestone payments and royalties on sales.

AME will use its AMEsystem directed molecular evolution technology to create optimized versions of an antibody, as well as a nonantibody protein therapeutic.

¿Lilly is a recognized leader in protein therapeutics,¿ said Keith Manchester, director of business development for AME. ¿This is an important validation of our technology.¿

Manchester said it is the largest deal the company has done since going public in July 2000. (See BioWorld Today, July 28, 2000.)

While AME could not disclose specifics of its deal with Lilly, Manchester said the company¿s standard deal with a pharmaceutical company involves ¿mid-single-digit royalties.¿ Milestone payments to AME will be triggered by advancement of drug candidates into the clinic. Eli Lilly retains the right to develop and commercialize products.

Manchester said that typically, when a partner comes to AME with a molecule, it would have certain specifications that it wants the molecule to have in the end.

Analyst Bill Tanner, of SG Cowen Securities Corp., said in a research note that the deal with Eli Lilly ¿provides big pharma validation of the technology and adds another marquee partner to AMEV¿s credibility in addition to Bristol-Myers and MedImmune.¿

¿We view this collaboration as further proof of AMEV¿s emergence as an important MAb engineering platform among the ranks¿ of Protein Design Labs Inc., Abgenix Inc. and Medarex Inc., he wrote.

The AME system selectively replaces single amino acids in target proteins, evaluates the resulting protein for improvements and combines positive changes until an optimized protein is produced.

¿By introducing myriad amino acid changes in a protein¿s sequence, characteristics such as affinity and potency can be enhanced,¿ Tanner wrote. ¿The technology overcomes limitations imposed by biased mutagenesis. Systems designed for high yield of mutants and proprietary screening methodologies provide an integrated platform of technologies.¿

AME has an ongoing collaboration with Gaithersburg, Md.-based MedImmune Inc. Begun in 1999, the collaboration included work on Vitaxin, an antiangiogenic monoclonal antibody designed for tumor treatment. Using the AMEsystem, AME increased the affinity of this antibody for its target by 90-fold. AME said the result was a greater than 300 percent improvement in manufacturing yield. AME said it also increased the potency by 10-fold of Synagis, MedImmune¿s marketed humanized monoclonal antibody against respiratory syncytial virus.

Currently, AME is in the process of optimizing an antibody against interleukin-9 for MedImmune for asthma, as part of the original agreement to optimize four monoclonal antibodies.

AME entered into collaborations with Bristol-Myers Squibb Co., of New York, from 1992 to 1998 involving BR96, a monoclonal antibody that targets solid tumors, and anti-CD40, a monoclonal antibody to treat graft-vs.-host disease caused by organ transplant rejection. AME increased the affinity of anti-CD40 for its target by 500-fold.

In addition to collaborations, AME has its own products, but would discuss only one of those, which breaks down cocaine in the body.

¿The excitement about this is it eliminates cocaine from the system, which has relevance in an overdose situation,¿ AME CEO William Huse said. ¿Then, it has an application for treating addiction, which is to have it on board prophylactically.

¿The idea is that it would break down the cocaine before it had positive effects on the brain, and therefore breaks the cycle of addiction,¿ Huse said.

In September, AME said it was awarded a grant from the National Institutes of Health under Phase II of the Small Business Innovation Research program for about $1 million to support this program. The grant was to support the preclinical development of butyrylcholinesterase optimized by the AMEsystem.

Applied Molecular's stock (NASDAQ:AMEV) gained $1.16 Wednesday, or 11.7 percent, to close at $11.11.