By Kim Coghill

Washington Editor

Deltagen Inc. signed a deal to use its technology to evaluate and potentially develop and commercialize therapeutic secreted proteins for Eli Lilly & Co.

Eli Lilly, of Indianapolis, will provide targets so that Deltagen can evaluate their therapeutic potential in mammalian models. Among the targets found to have value, each company will have the chance to make selections for commercial development, with each company receiving royalties based on sales.

The deal gives Eli Lilly certain acquisition, co-promotion, co-marketing and profit-sharing options. Deltagen, of Menlo Park, Calif., also will receive co-promotion, co-development and profit-sharing rights.

William Matthews, president and CEO of Deltagen, said Deltagen will use its mouse knockout models to generate mammalian gene function data. He would not disclose financial terms of the deal.

¿What our system is wonderful at is that it doesn¿t make predictions about what the function of a gene is going to be. It actually goes in and looks at the real fundamental role of the gene, so you don¿t have to predict what you are looking for as long as you systematically go through the model we create and find out what the key role of the gene is,¿ Matthews told BioWorld Today. ¿The beauty of our system is that you don¿t go in with a bias. Our system tells you what the target is going to be good for in a real biological sense.¿

Matthews said the companies didn¿t set a limited timeline on the work, rather, ¿We could be collaborating for many, many years.¿

The Eli Lilly announcement follows several months of positive news for Deltagen, a four-year-old company with 270 employees.

Thursday the company released its financial results for the second quarter, and similar to first-quarter results, Deltagen¿s revenues increased substantially.

For the second quarter, ended June 30, revenues increased 921 percent to $2.74 million, compared to $268,000 for the same quarter last year. The net loss was $11.9 million, or 41 cents per share, vs. a loss of $8.9 million in the prior year second quarter. And for the first quarter, revenue was up 757 percent to $2.45 million.

Much of the company¿s recent success is directly attributed to its technology, DeltaBase.

DeltaBase accelerates the drug discovery process by enabling researchers to move directly from gene identification to target validation. Deltagen has populated DeltaBase with identified phenotypes and potential drug targets in areas including cancer, diabetes, inflammation, immune system disorders, anxiety, depression, pain, schizophrenia, fertility and vision, according to the company.

Deltagen has several subscribers to the database, including GlaxoSmithKline plc, of London. Also, in December, Pfizer Inc., of New York, signed a three-year deal worth up to $25 million for use of DeltaBase. (See BioWorld Today, May 4, 2001, and Dec. 28, 2000.)

¿We invented a proprietary platform, and that platform is good for immediate revenue generation for us and for the long-term ability to discover new drugs,¿ Matthews said. ¿We use DeltaBase to define the role of small-molecule targets and that obviously is the sweet spot of big companies like GlaxoSmithKline, Pfizer and Vertex [Pharmaceuticals Inc., of Cambridge, Mass.]. They all subscribe to DeltaBase and that gives them key small-molecule targets and that¿s our immediate revenue generator.

¿That¿s great, it gives the company a foundation,¿ he said. ¿We also want to be able to have an ultimate upside, and that to us is bringing drugs to the marketplace. And that is why we are absolutely thrilled to have Eli Lilly as a partner; to be able to use their clinical expertise as well is fantastic.¿

Last month, Deltagen purchased Salt Lake City-based Arcaris Inc. in a deal valued at $12.5 million. Arcaris, now named Deltagen Proteomics Inc., provides Deltagen with technology to advance the discovery of new disease targets by defining the role of nontraditional targets within intracellular pathways with particular relevance to oncology, viral and infectious diseases. (See BioWorld Today, July 21, 2001.)

Deltagen also has an early stage product development program including preclinical work with CD123, a potential treatment for acute myelogenous leukemia.

Deltagen¿s stock (NASDAQ:DGEN) closed Thursday at $8.85, down 65 cents.

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