By Matthew Willett

Bayer AG and CuraGen Corp. announced CuraGen's biggest collaboration to date, a two-pronged partnership focused on small-molecule target identification and development and pharmacogenomic screening and evaluation.

The discovery alliance focused on obesity and adult-onset diabetes calls for joint research funding for up to 15 years and $1.34 billion. That research aims to bring to the clinic 12 small-molecule drug candidates selected from 80 targets provided by CuraGen, of New Haven, Conn., over the next five years.

The research costs will be split 56-44 between Bayer, of Leverkusen, Germany, and CuraGen, respectively. Commercialized product profits will be split according to each company's contributions.

The secondary deal for pipeline evaluation calls for pharmacogenomic and toxicogenomic evaluation of the Bayer pipeline and the development of a marketable database of gene-based markers and toxicity information.

Bayer will make an $85 million equity investment in CuraGen and provide CuraGen with $39 million in funding for that five-year project.

The deal is one both companies hailed as a true partnership and the hallmark of a new era in drug discovery.

"We selected CuraGen because we believe that CuraGen is a leading technology company with broad expertise in the field of genomics, especially in metabolic disorders, and a broad portfolio of gene targets for obesity and diabetes," said Bayer's head of global research Wolfgang Hartwig. "This collaboration is a unique and interesting new structure between a pharmaceutical company and a biotech company based on broad risk and reward sharing, from research to commercialization, of new therapeutic products."

CuraGen's CEO, Jonathan Rothberg, said the deal will be his company's main focus.

"CuraGen's business strategy is to ensure we have a leading technology, to ensure we have revenues from collaborations and to ensure long-term sustainability from a product pipeline," Rothberg said. "The Bayer collaboration clearly fits in with our strategic goals, and it allows us to continue to develop leading technology. It allows us to have a sustainable business. We're picking the low-hanging fruit from genomics, and we have a sustainable business because we have ownership, along with Bayer, of the product, and that's the goal of CuraGen, to have that ownership, participation and synergy."

The second part of the deal - the alliance for target evaluation with pharmacogenomic and toxicogenomic tools - will save Bayer in research and development costs, Hartwig said.

"In general, we have a 10 percent success rate in clinical development," he said. "Most drugs fail due to lacking efficacy or insufficient tolerability. Seventy percent of all drugs fail due to these reasons, so we want, in the early stages, to predict which are the winners."

Bear Stearns Analyst Akhtar Samad said the deal with Bayer doesn't guarantee success for CuraGen, but it bodes pretty well.

"We think it's a very exciting and validating deal for CuraGen and it is particularly attractive given the size and length of the deal," Samad told BioWorld Today. "The financials are very attractive and that it's focused on one area and only one particular area means other disease areas are open for CuraGen for partnering in the future."

Samad said the deal is attractive in almost all its elements.

"There's no guarantee, but what you can hope for is that the deal covers a large number of targets, and this deal does in 80 targets, and that the deal is long enough for all the appropriate trial and error in the development and discovery process," Samad said. "In this case it's 15 years, and that's appropriately broad and attractively broad and attractively long, so it's a collaboration which, together with a high-quality pharmaceutical partner and having a strong presence in genomics, gives CuraGen as high a probability as it can have for success in a given area."

He added that the collaboration with Bayer could end up having an impact on CuraGen's other deals, especially its antibody discovery deal with Abgenix Inc. (See BioWorld Today, Dec. 10, 1999.)

"CuraGen is also free to pursue non-small-molecule-type therapeutics in the same areas, obesity and metabolism disorders, and that includes proteins or antibody collaborations, like the one with Abgenix, which continues uninterrupted."

CuraGen's stock (NASDAQ:CRGN) jumped on the news of the collaboration, rising 35 percent Tuesday, or $9.312, to close at $35.875.