By Brady Huggett

In the beginning of 2000, Isis Pharmaceuticals Inc. suffered a Phase III setback with its antisense compound for Crohn¿s disease, ISIS 2302, failing to see significant results. Looking to stay afloat, Isis set about the uncomfortable task of jettisoning employees ¿ cutting its work force by nearly 40 percent. Antisense technology, an area that Isis lords over, was being questioned by some in the industry.

On Wednesday Isis, of Carlsbad, Calif., and Indianapolis-based Eli Lilly and Co. entered an alliance forged around Isis¿ antisense technology, a deal that may net Isis more than $400 million. The agreement galvanizes what Isis CEO Stanley Crooke has been saying since day one: antisense technology works.

¿This is a seminal event in the completion of what we set out to do,¿ Crooke told BioWorld Today. ¿Eli Lilly is a participant in the demonstration that the pharma industry is recognizing the potential of antisense. So, it¿s a very broad statement made by people who know about drug discovery and what they think about antisense in 2001.¿

In the center of the deal is Isis¿ antisense cancer compound, ISIS 3521, a selective inhibitor of protein kinase C-alpha expression. The product is in the early stages of a Phase III trial for the treatment of non-small-cell lung cancer. But the intricate financials of the deal ¿ with milestones, loans, up-front fees, research funding, an equity investment and royalties all intertwined ¿ require some diligence.

Lilly will contribute more than $200 million to Isis over a four-year period. The deal includes a $75 million equity investment in Isis at $18 per share ¿ about 9 percent of Isis¿ outstanding stock. Isis also is entitled to $25 million up front for the license of ISIS 3521, and Lilly will pick up the tab for remaining Phase III development and registration costs. Lilly will reimburse $9 million in 2001 to Isis for development expenses for ISIS 3521, as well as undisclosed amounts in 2002 and 2003. And Lilly is lending Isis $100 million to fund the research part of the collaboration, money Isis can repay in cash or stock at $40 per share at the end of the four-year term.

Isis¿ stock (NASDAQ:ISIP) roared to a close of $14.89 Wednesday, up $4.81, or almost 48 percent.

Now for the fringe benefits. Isis may receive about $50 million in milestone payments for ISIS 3521, as well as royalties. There also are milestones and royalties for other indications and for successes related to gene functionalization and antisense drug discovery programs. When the deal is boiled down, Crooke said, what remains in the bottom of the pot is this: Isis is getting more than $200 million in committed cash and will strive for more than $200 million more in potential milestones.

The operative words there might be ¿more than.¿

¿We view the deal being worth $500 million, not including any royalties,¿ said Andrew Gitkin, senior biotech analyst for New York-based UBS Warburg LLC. ¿My guess is $300 million in milestones, but it could be a little more.¿

Crooke called the current times ¿the coming of age¿ of antisense. Gitkin echoed those sentiments.

¿Besides all the capital it provides the company, it goes a long way to validating antisense in general and Isis specifically,¿ Gitkin told BioWorld Today. ¿This solidifies [Isis] as the industry leader in antisense. I don¿t think you¿d find anyone who would disagree with that.¿

Along with ISIS 3521, the companies will collaborate to discover antisense drugs for metabolic and inflammatory disease. They also will use Isis¿ GeneTrove antisense technology as a tool to determine the functional role in disease of up to 1,000 human genes. More than 300 of those genes will be validated as potential drug targets for the antisense drug discovery collaboration; the other 700 will be added to the GeneTrove database, Gitkin said in a research note. Any of the 300 genes that are pushed into development may trigger milestones to Isis.

ISIS 3521 is in a Phase III trial that is enrolling patients ¿ but Isis has learned from its past and thus wanted to partner the drug.

¿We just couldn¿t invest enough in it,¿ Crooke said. ¿We were looking at a single study for a [new drug application], and that is risky. Lilly will start a second study as soon as possible; that makes it broader.

¿We¿ve always said the Phase III would cost between $30 million and $35 million, plus a lot of additional costs going forward to support an NDA filing,¿ he added. ¿It¿s a risky bet, but it was a risk that we had to accept because we couldn¿t afford another Phase III.¿

Now that¿s Lilly¿s responsibility. Depending on whether data from the second study are needed or not, ISIS 3521 may get to the FDA in as early as two years.

¿The single study we¿ve done may be enough to file in 2003,¿ Crooke said. ¿If another study needs to be done we would push it back about a year. We still believe 2003, but we are protected on the downside if two studies are required.¿

Gitkin said he didn¿t have a problem with a 2003 launch.

¿We see Isis getting their first dollar in the fourth quarter of 2003, although that may be a little aggressive,¿ he said. ¿The royalties we are projecting for them are upwards of $70 million in the next decade. We have that drug doing around $220 million to $250 million a year in non-small-cell lung cancer patients by 2007.¿

Gitkin also said he believed the FDA would require data from the second trial, but cautioned that it was too early to safely judge.

In the spring, Isis agreed with Merck & Co. Inc., of Whitehouse Station, N.J., to license out its preclinical Type II diabetes antisense drug candidate, ISIS 113715, for up to $50 million. Those in the know realized the potential of antisense, Crooke said. (See BioWorld Today, May 24, 2001.)

¿And well ahead of Wall Street,¿ he said. ¿Merck and Lilly have been watching antisense from afar. If you think about the Merck license as a license of preclinical compounds, it was quite a statement.¿

When ISIS 2303 failed, Isis had reached ¿a definite low point,¿ Crooke said. ¿I had to lay off a bunch of friends. There was a terrible fear that we may not be able to finish what we wanted to do.¿

Things have changed. ISIS 2302 is set to begin two Phase III trials for Crohn¿s disease in a couple of months ¿ one in the United States and Canada, the other in Europe. The collaboration with Lilly means Isis will be adding staff. When the time comes for the FDA to evaluate ISIS 3521, the Lilly-supported trial will be there if needed. Isis and its antisense platform have scored a reversal.

¿I think this is a landmark for the company, and I think it will be looked back on as a watershed for the industry,¿ Gitkin said.

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