By Brady Huggett

Hybridon Inc. and Isis Pharmaceuticals Inc., two competitors in the antisense business, signed an agreement for each other¿s intellectual property that will net Hybridon about $28.5 million. The deal pushes Hybridon¿s effort to stable financial ground and helps Isis move toward its goal of antisense domination.

Isis is paying a total of 34.5 million ¿ $15 million up front and $19.5 million in Isis stock over two years ¿ to Hybridon for an exclusive license to all of Hybridon¿s antisense chemistry and delivery patents and technology. Stanley Crooke, Isis¿ CEO, founder and chairman, said the license gives Isis what it has wanted for some time: every important antisense patent.

¿Hybridon has the last meaningful patent estate in antisense that we don¿t own,¿ Crooke said. ¿Part of our strategy from inception was to dominate antisense totally in every way, including patents.¿

Isis, of Carlsbad, Calif., has filed about 2,000 patent applications and has more than 700 issued and allowed patents. Isis gets about 60 patents from Hybridon through the licensing, Crooke said, but it isn¿t the amount that is important. It¿s cornering the market.

¿This doesn¿t add meaningfully to the number, but from a patent-landscape position, it finishes what we set out to do, which is to own everything that is important in antisense. This is the last of this kind of deal that we will be doing.¿

On the flip side, Hybridon, of Cambridge, Mass., gets access to Isis¿ RNase H suite of patents and will pay Isis $6 million in Hybridon stock over three years. Hybridon cannot sublicense the RNase H patents, except in connection with Hybridon antisense drugs, and Hybridon cannot use those licenses to practice commercial functional genomics and target validation services for third parties.

While it has licensed out its patent stockpile, Hybridon retains the right to practice its licensed antisense patent technologies and to sublicense it to true collaborators. The Isis licensing could provide further revenue downstream as well, said Robert Andersen, vice president of operations and planning and chief financial officer at Hybridon.

¿As [Isis] licenses out the technology to the extent that it uses Hybridon¿s technology, we get 35 percent of the revenue, if our [intellectual property] is involved,¿ Andersen said. ¿And our position is that our IP will most likely be involved.¿

The two companies, while competitors in the antisense field, have never seen their work degenerate into legal battles. But that seemed imminent, Crooke said.

¿There are defensive reasons for the deal ¿ it removes the need to litigate with Hybridon,¿ Crooke said. ¿For sure, there was probable litigation. Instead of spending money fighting, we can spend money supporting our combined patent estate.

¿From our perspective, the sooner we got it cleaned up the less we would spend fighting,¿ he added. ¿It just made a lot of sense. We didn¿t want this patent estate in any hands but ours.¿

Andersen said Hybridon received a patent issuance last year that ¿clarified things¿ in the antisense field, and may have helped bring about the deal.

¿We had a significant patent issued in the fall, and what [Isis] has decided to do, rather than reinvent the wheel, is cross-license so they have the benefit of all of our development in the antisense chemistry,¿ Andersen said.

For Hybridon, a company that at the end of 1997 had $2.2 million in available cash, the agreement pushes it closer to the financial surface. The $15 million up front it will receive follows a string of debt reduction moves and cash inflow. Hybridon had $8.6 million in convertible notes outstanding, but through a Series B preferred offering reduced that by $7.6 million. It sold a manufacturing plant meant for the production of GEM 91 ¿ an antisense oligonucleotide for advanced HIV infection that was discarded based on Phase II data ¿ to Manchester, UK-based chemical company Avecia for $15 million. It sold its 22 percent interest in spin-out MethylGene Inc., of Montreal, for $7.1 million. There has been a major turnaround at Hybridon, Andersen said.

¿We¿ve reduced our debt to $5 million,¿ he said. ¿In 1997, at the end of it, we had $80 million in liabilities, and of that, over $60 million was debt. So that¿s a nice change.¿

Hybridon had $6.3 million in cash and cash equivalents as of March 31.

Andersen would not discuss Hybridon¿s pipeline, instead referring to a Wednesday webcast that will cover the topic.

Isis has ISIS 3521, for non-small-cell lung cancer, in Phase III and ISIS 2302, for Crohn¿s disease, just beginning Phase III. The ISIS 3521 trial is about one-third enrolled, Crooke said, and the enrollment of all 600 patients should be completed late this year or early next year. By early 2003, Isis hopes to be able to understand the data and evaluate filing. Crooke said Isis hopes to file new drug applications ¿almost simultaneously¿ for the drugs, if all goes well. Even with the expense of trials, the money involved in the patent deal isn¿t a problem, he said.

¿The $15 million in cash is easily affordable by us,¿ Crooke said. ¿We are very comfortable in our prediction with our revenue and cash position for the end of the year.¿

As of March 31, Isis had about $108 million in cash.

Perhaps what the deal does best, besides move Isis toward antisense domination and Hybridon toward the black, is keep the companies out of each other¿s path.

¿It opens the way for us to go out and license this technology and collaborate and not be encumbered with concerns for the other¿s intellectual property,¿ Andersen said. ¿I think this will be enormous for this whole area as far as spurring new relationships.¿

Hybridon¿s stock (OTCBB:HYBN) moved up 12.2 cents Friday, or about 12 percent, to close at $1.47. Isis¿ stock (NASDAQ:ISIP) closed unchanged at $12.20.

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