By Karen Pihl-Carey

In an alliance that could mean up to $450 million in payments to Millennium Pharmaceuticals Inc., the company joined ranks with Aventis Pharma to develop and commercialize inflammatory disease drugs and to enhance drug discovery technologies.

The agreement also involves Millennium's transfer of certain technologies to Aventis Pharma, the pharmaceutical company of Frankfurt, Germany-based Aventis SA, which will purchase an equity stake in Cambridge, Mass.-based Millennium.

"This deal enables Millennium to pursue the downstream development and co-marketing of small-molecule drugs and is a major milestone in the company's evolution to a pharmaceutical company," said Matthew Geller, senior biotech analyst at New York-based CIBC World Markets Corp., in a research note.

It helps the company reach its goal of becoming a gene-to-patient biopharmaceutical company, said analysts Michael King and Edward Tenthoff of San Francisco-based Robertson Stephens, in a research note. "This alliance takes advantage of Millennium's ability to enhance the productivity of drug discovery and development, while helping Millennium develop its internal clinical and commercialization capabilities at no increase in net burn," they said.

Mark Levin, Millennium's CEO, said in a conference call that talks with Aventis began a year ago. Millennium has had a business plan to move downstream from focusing solely on research and discovery to also focusing on development and marketing in order to build a pharmaceutical company of the future. "We've been looking for a company that could bring the critical mass," he said. "It became clear that they [Aventis] had a common vision along with ours. We were looking for a true partnership, not just something where we were handing things off."

At the same time, Aventis was looking for a company to fill its gaps in the genomics and bioinformatics areas, said Thomas Hofstaetter, executive vice president and head of corporate development at Aventis. "We have identified Millennium as a partner to fill these gaps," he said. "We are excited about building together with Millennium the leading inflammation franchise in the world."

Aventis plans to invest $250 million in Millennium's common stock, with an initial $150 million stock purchase made at closing and two $50 million purchases made in 2001. The stock price for the initial purchase will be about $120 per share, based on a 30-day trading average, and involves about 1.25 million Millennium shares. The closing date could be as early as July 5.

Following the initial stock purchase by Aventis, Millennium will have 93.25 million shares outstanding. Its stock (NASDAQ:MLNM) closed Friday at $119.56, down $4.94.

In addition to the equity investment, Millennium will receive up to $200 million in payments over a five-year period for providing Aventis with rights to its drug discovery technologies. Those technologies include sequencing, informatics, transcriptional profiling, molecular pathology and proteomic technologies, among others. Millennium also plans to transfer vaccine targets and related data for Aventis' use in developing cancer vaccines. The majority of the transfer will be made within two years, and Aventis Pharma will use the technology on a non-exclusive basis.

Of the $200 million, Aventis will pay Millennium $25 million per year, with potentially an additional $15 million per year for reaching certain performance and delivery milestones.

The $450 million alliance brings Millennium closer to its goal of reaching $2 billion in committed funding by the end of the year. With the alliance, it now has $1.8 billion in committed funding, Levin said.

As of March 31, the company had $654.8 million in cash, cash equivalents and marketable securities.

A third and major part of the alliance involves the joint development and commercialization of inflammatory disease drugs. Each company will equally share the costs and decisions in discovering, developing and commercializing products to treat rheumatoid arthritis, asthma and chronic obstructive pulmonary disease, multiple sclerosis and inflammatory bowel disease. They also will equally share profits in North America, but Aventis will develop and market the products outside of North America, paying a royalty to Millennium.

Each company may choose to develop a product candidate on its own, paying a royalty to the other company, if the other company is not interested in the candidate. While the alliance will focus on the discovery of small-molecule drugs, Millennium retains the rights to develop antibody drugs and predictive medicine products from discoveries made in the alliance, and Aventis retains the rights to develop gene therapy and vaccine products.

Both Millennium and Aventis will provide inflammation discovery pipeline assets to the alliance, but will continue independent work on compounds already in clinical development.

"What both Millennium and Aventis brought to the alliance are the compounds we have in the preclinical phase," said Frank Douglas, executive vice president and head of drug innovation and approval at Aventis. "We have not put into this alliance any of the compounds that are already marketed or are in late-stage development."

Douglas added that pre-existing inflammation alliances will not be affected by the agreement. In Millennium's case, the company is in a collaborative agreement with Genentech Inc., of South San Francisco, through its December merger with LeukoSite Inc., of Cambridge, Mass. The agreement, established in 1997, focuses on the development and commercialization of LDP-02 to treat inflammatory bowel disease.

Also through its merger with LeukoSite, Millennium has inflammatory drug discovery collaborations with Kyowa Hakko Kogyo Co. Ltd., of Tokyo, and with Warner-Lambert Co., of Morris Plains, N.J.

Millennium's partnership with Taisho Pharmaceutical Co. Ltd., of Tokyo, for LDP-977 to treat chronic asthma, also will not be affected by the agreement with Aventis.

Douglas would not comment on the scale of the inflammatory collaboration between Millennium and Aventis. "Suffice it to say that this is probably going to be one of the largest inflammation efforts," he said.

All inflammatory drug research will be conducted at Aventis Pharma's Bridgewater, N.J., site and at Millennium's Cambridge facility.

Similar to the inflammatory drug discovery component of the alliance, the two companies will share the costs and responsibilities in developing new drug discovery technologies. This, the fourth aspect of the alliance, will focus on enhancements to predictive ADMET (absorption, distribution, metabolism, excretion and toxicity), which encompasses key characteristics of a drug that affect its safety and efficacy.

Alan Crane, Millennium's vice president and head of business development, said predictive ADMET looks into such factors as a drug's bioavailability and whether it is distributed to the right tissue. "In many cases, these characteristics cannot be accurately assessed until late-stage clinical trials, after the investment of many years and millions of dollars," he said.

The goal of the agreement will be to enhance drug development productivity by reducing the time for discovery and delivering products to the clinic with a higher success rate. The agreement gives Aventis exclusive rights for one year to any technology developed. After one year, Millennium is free to work with other partners.

"We believe this is going to be an important part of our productivity platform for many years to come," Levin said.