By Kim Coghill

Washington Editor

Merck & Co. Inc. will pay Isis Pharmaceuticals Inc. up to $50 million in licensing and milestone fees for Isis¿ preclinical Type II diabetes antisense drug candidate, ISIS 113715.

Stanley Crooke, chairman and CEO of Carlsbad, Calif.-based Isis, said Isis expects to receive about $10 million in revenues this year from the deal. The deal also includes up-front and preclinical reimbursement fees. He would not discuss details about royalties.

¿I would say that terms of the transaction are as attractive for this stage in development as I¿ve seen,¿ Crooke said. ¿Obviously, the data for the compound are exciting and the market is big and the interest has been extremely high.¿

ISIS 113715 is an antisense inhibitor of the gene encoding PTP-1B, a negative regulator of insulin receptor signaling. Preclinical data demonstrated activity of the drug in animal models of Type II diabetes and obesity.

Merck will undertake all future development and commercialization of the compound. Isis had planned to file an investigational new drug application on the product by the end of the year.

But Crooke said Isis chose to license ISIS 113715. ¿Given the data and the interest, we felt that the transaction was highly attractive financially, and it is extraordinarily expensive to develop a chronic disease product.

¿Merck is the ideal company for this drug because it knows diabetes and chronic disease drug development and is committed to the drug,¿ Crooke said. ¿Merck has been clearly very conservative about antisense until this year and now, based on the data, they are prepared to license the compound in a very large market and plan to invest hundreds of millions of dollars to develop this drug and we think that speaks very well to the progress we are making in explaining antisense to the pharmaceutical industry.¿

In published preclinical studies, ISIS 113715 demonstrated effectiveness in multiple diabetic animal models by normalizing blood glucose and insulin levels, a statement released by Isis said. In certain studies in rodent models of Type II diabetes and obesity, ISIS 113715 produced a dose-dependent reduction in blood glucose levels that resulted in normalization of glucose. The decrease in blood glucose levels occurred with a once-weekly dosing regimen and was accompanied by reduced levels of circulating insulin, indicating that the antisense inhibitor was acting as an insulin sensitizer, the company said.

Isis has commercialized its first product, Vitravene (fomivirsen), to treat CMV-induced retinitis in AIDS patients. The company has 11 products in its development pipeline with two in late-stage development and four in Phase II human clinical trials. ISIS 3521, an inhibitor of PKC-alpha, is in Phase III trials for non-small-cell lung cancer, and the company is preparing ISIS 2302 (Alicaforsen), an ICAM-1 inhibitor in Crohn¿s disease, for a Phase III program.

Isis¿ stock (NASDAQ:ISIP) closed Monday at $12.09, up 19 cents.