By Mary Welch

In one of the biggest deals this year, Celgene Corp. granted an exclusive worldwide license to Novartis Pharma AG for the development and marketing of Attenade (d-methylphenidate), its chirally pure version of Ritalin for use in the treatment of attention deficit/hyperactivity disorder (ADHD).

Celgene will receive substantial up-front fees and milestone payments and royalties on all formulations of the now-enhanced Ritalin family of drugs. Celgene also granted rights to all its related intellectual properties and patents, including new formulations of the currently marketed Ritalin, which is sold by Novartis. The deal excludes Canada because Celgene already has an agreement with Biovail Corp. International, of Toronto, for those rights.

"We were expecting a deal soon, but what surprised us were the terms," said Peter Ginsberg, an analyst with U.S. Bancorp Piper Jaffray in Minneapolis. "We didn't expect that Celgene will also receive royalties on sale of all present and future Ritalin-family drugs by Novartis once Attenade is approved. In addition, we had thought the milestone payments would be about $20 million to $30 million. We now project that Novartis will make milestone payments that may be as high as $100 million. A large part of these payments will relate to Celgene's next ADHD drug, a pulsed form of Attenade, but we estimate that at least 25 percent of these milestone payments will be paid in 2000-01. This is absolutely one of the biggest deals of the year. It's incredible."

Ginsberg estimated that Celgene will receive net royalties at a slightly higher rate than in its deal with Biovail, which is about 30 percent of Canadian royalties. "I expect it's around 35 percent with Novartis," he said.

Ginsberg wasn't able to estimate the full financial windfall that Celgene will receive from this deal. "You figure milestones of $100 million, royalties of $35 million and Novartis is funding development costs, which could be substantial. It's a very big, outstanding deal."

Novartis will fund all remaining development and marketing expenses required for the regulatory approval process and commercialization. Under a joint committee, the two companies now will conduct previously reported marketing trials designed to amplify the safety and efficacy profile of the new drug.

Robert Hugin, Celgene's senior vice president and chief financial officer, would not confirm the financial details. "Obviously, we're very excited about the deal and Novartis will be a great partner with an established marketing interest in this area. Novartis is an ideal worldwide partner and I believe the terms are favorable for both companies. The key words to the deal, however, are that we will receive up-front fees and milestone payments and royalties on 'all formulations of the enhanced Ritalin family of drugs.'"

The market for ADHD is $600 million now and is expected to reach $800 million to $1 billion within the next few years.

What that means, Ginsberg said, is that "Celgene will receive royalties not only on Attenade sales, but also on Ritalin, Novartis' pulsed long-acting Ritalin product, and other as-yet-undeveloped compounds related to Ritalin. We expect the pulsed long-acting Ritalin product to be approved by the FDA in 2003."

In fact, the addition of the royalties on the Ritalin family of products caused the brokerage house to increase its earnings per share forecasts to 14 cents, up from 9 cents for this year, and the price target to $54 from $42.

"Another benefit of this deal is that it contributes a significant diversification to our revenue stream," Hugin said. "We will realize significant near-term revenue that is not related to our core areas of development."

As part of the agreement, Celgene granted its intellectual property rights relating to a long-acting formulation of the current Ritalin, which already is being developed by Basel, Switzerland-based Novartis. This formulation will eliminate the midday dose.

Celgene, based in Warren, N.J., reported positive clinical results last fall in its two pivotal efficacy trials for Attenade. In these trials, it demonstrated its effectiveness in controlling the symptoms of ADD/ADHD in 200 school-aged children, to a "very high degree of statistical significance." It also showed a longer duration of action.

Celgene plans to file a new drug application in the third quarter, Hugin said.

Although the ADD/ADHD market is a crowded one, a product's success will be driven by marketing strength, Ginsberg said. "We believe Novartis' prowess in this arena will have a positive impact on Attenade's sales potential. It has a strong neurology platform, as well as longtime experience with Ritalin. Its sales force of 3,000 will definitely have an impact on sales."

Ginsberg estimates that Attenade will generate sales of $16 million in 2001, $111 million in 2002, and $189 million in 2003.

Celgene, however, did not sign away all of the rights to d-methylphenidate. It kept the rights to the new form and formulations of Ritalin for use in the oncology market.

"A lot of doctors have started prescribing Ritalin to help the cognitive dysfunctions of people undergoing chemotherapy," Hugin said. "We are making plans to start trials next year to see if it makes sense to pursue this indication. If it does, we will pursue it aggressively.

Celgene's stock (NASDAQ:CELG) closed Wednesday at $41.375, up $3.875.