By Brady Huggett

Avalon Pharmaceuticals Inc. and Compugen Ltd. formed a collaboration giving Avalon the computational skills it needs for the companies to begin work in cancer.

The agreement to identify and develop drug targets and diagnostic markers between the companies entails Avalon licensing Compugen's Gencarta annotated genome, transcriptome and proteome database and query tools. Compugen will receive cash payments of an undisclosed amount and an equity stake in Avalon. Also, Avalon gets complete rights to develop resulting therapeutic and diagnostic products.

The payments and equity to Compugen, said Avalon CEO Ken Carter, is meant to keep both companies focused.

"It's a small but significant stake and it's enough so that it is a strong statement by both companies," he said. "We wanted to have a deal where [Compugen is] motivated and they see it as an exciting opportunity. It makes us both feel like it is a real partnership and they are helping us achieve our goals."

Compugen said the companies together could build a more powerful product.

"We think that by combining Gencarta with the expression information that they have, we think we will form a very strong platform," said Eli Mintz, president of the company's U.S. arm, Compugen Inc., and founder of Compugen Ltd., of Tel Aviv, Israel.

The deal initially is set for two years, Mintz said, with an extension option, and the direction of the research has been determined by Gaithersburg, Md.-based Avalon.

"We are very much focused on colorectal and prostate cancers," Carter said. "Our four main focuses are colorectal, prostate, breast and lung cancer. Some of the things we are doing certainly do have some applicabilities to other areas, but we will start with cancer."

Compugen develops and markets platforms and tools for post-genomics research. Besides Gencarta, its products are DNA Chip design, Z3, LEADS, LabOnWeb.com and Bioccelerators. The Gencarta database, based on Compugen's LEADS algorithm-driven platform, was introduced commercially last month. Avalon is customer No. 1.

"We think Avalon will be the first of quite a few companies that will license this technology," Mintz said. "We think that as people understand that it is not the number of genes but the number of proteins that is important, the value of Gencarta will become evident to more and more people in this field."

The first step in the collaboration will be to integrate the Gencarta database with Avalon's internal database and create value-added information, Mintz said. The next step will be building something to look at genomic and expression information together.

For Avalon, while not having "crystal clear goals" for the work ahead, Carter said, it does have a mapped route for the collaboration.

"In a general sense we have a lot of raw information about genomic stages in cancer at both the DNA and RNA levels," he said. "We expect their tools to give us the level of individual genes to drill down on very precise information about the sequencing and splicing information for a very large number of genes that we have identified through other methods."

While Mintz said the deal validated Compugen's technology, Carter said it gave Avalon more completed capabilities.

"We are relatively young and it gives us a jump-start on our sophistication in dealing with our raw genomic data," he said. "We now have comparable expertise in the computational side."

Compugen's stock (NASDAQ:CGEN) closed at $3.312 Tuesday, up 3 cents. n

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