By Karen Pihl-Carey

In a deal that could mean $800 million in pre-market money for Vertex Pharmaceuticals Inc., the company formed an alliance with Novartis Pharma AG to discover eight small-molecule drugs, or kinase inhibitors, using its chemogenomics approach.

Novartis then will develop and market the drugs, giving Vertex a substantial royalty on sales.

"The scope of the deal is so large for what is nearly a pure drug discovery collaboration," said Joshua Boger, chairman, president and CEO of Cambridge, Mass.-based Vertex. "You may see numbers like this attached to drugs in development. But I think this is unprecedentedly large for a research program."

It's definitely Vertex's largest deal to date, Boger said. And it's significant because it introduces a new model for drug discovery, one that Basel, Switzerland-based Novartis is validating, he added.

But investors didn't respond to the deal quite so favorably, surprising some analysts. The company's stock (NASDAQ:VRTX) closed Tuesday at $63.437, down $1.625.

"It's a great deal. It's all cash, no equity. It looks real great. It's half their market cap," said Albert Rauch, senior vice president and biotech analyst at Chicago-based First Union Securities Inc. "And their stock's down. It makes no sense."

Chemogenomics unites medicinal chemistry and molecular biology. It aims to describe all possible drugs for all possible targets, and to increase the speed and productivity of drug discovery. It uses the structural similarity of targets in the same family, such as kinases, for the parallel and simultaneous design of drugs.

"This is really the wave of the future," Boger told BioWorld Today.

Under terms of the deal, Vertex will receive a $15 million up-front payment, as well as $200 million in research support for the discovery of the drugs over six years. The company also is entitled to $15 million in patent reimbursement costs. As compounds move from the discovery phase and into the early development phase, Vertex can draw upon a no-interest loan from Novartis of up to $25 million per compound. As Novartis accepts a compound, the loan will be forgiven, and Novartis will pay Vertex a license fee totaling $190 million for all eight compounds. Finally, Vertex has the potential to receive up to $180 million in development milestones. It also will receive royalties on sales.

"It's a significant double-digit royalty scheme," Boger said. "It would be a very good, favorable deal for us as a single-compound deal. We didn't offer any discount for buying in bulk. If we produce more than eight compounds, they can select more, but the economics get even more favorable for us."

While the collaboration gives Vertex six years to discover the eight compounds, the $800 million in payments would be made over eight years. The collaboration allows for an additional two years of early development work for drugs discovered late in those initial six years.

Boger said Vertex could deliver to Novartis the first compound within the next year or two. Vertex is responsible for the discovery of the kinase inhibitor drugs, as well as all preclinical studies, the initial drug manufacturing and formulation, and the early clinical development costs through proof of concept. The company also may co-promote the drugs in the U.S. and in Europe, depending on the exact diseases and how each drug will be marketed.

Novartis will provide the research funding, and will be responsible for selecting drug candidates, funding and implementing full development worldwide, and marketing and selling the drugs worldwide.

Kinases are enzymes that play a role in transmitting signals between and within cells. More than 500 human kinases have been described in scientific literature. They are implicated in several diseases, including cancer, cardiovascular disease, inflammatory disease and neurological disease.

Boger said the collaboration does not focus on particular therapeutic areas, as kinases are involved in "literally every human disease." But JNK3, a kinase implicated in neurological disease, potentially falls within the scope of the collaboration, the company said. Other specific kinase targets that will be the focus of the collaboration were not disclosed.

Vertex's next largest deal occurred last year with Aventis SA, formerly Hoechst Marion Roussel AG, of Frankfurt, Germany. The deal, which has a pre-commercial value of more than $200 million for Vertex, was formed to develop HMR 3480/VX-740 for three indications, including rheumatoid arthritis (RA). (See BioWorld Today, Sept. 2, 1999, p. 1.)

Aside from VX-740, which is in Phase II for RA, Vertex also has VX-745 in Phase II for RA. VX-745 is an inhibitor of the p38MAP kinase, which is excluded from Vertex's collaboration with Novartis

Vertex has six other drug candidates in clinical development to treat viral diseases, inflammation, cancer, autoimmune diseases and neurological disorders. It has one product on the market - Agenerase, which was approved as an HIV protease inhibitor in April 1999.