PARIS - Cerep S.A. terminated its research collaboration with ExonHit Therapeutics S.A. under which they were to develop diagnostic tools for the early prediction of toxicity in new drugs, identify two genes associated with neurodegenerative diseases, and embark on a joint drug discovery program sharing costs and revenues.

The two-year agreement between the Paris-based companies was concluded in December 1998 and provided for Cerep to pay ExonHit a total of FFr13 million (US$2.3 million) in research and development funding during the period of the agreement, as well as acquire FFr3 million of ExonHit shares upon attainment of certain milestones. ExonHit was to use its qualitative gene profiling technology DATAS (Differential Analysis of Transcripts Alternatively Spliced) to develop toxicity prediction assays and identify two genes or coding sequences involved in certain neurodegenerative diseases, to which Cerep was to have exclusive rights.

For Cerep, which provides pharmacological evaluation services to some of the world's biggest pharmaceutical companies using highly sophisticated drug discovery technology, the deal also meant an expansion in its in-house drug discovery activities, since it called for the company to use its proprietary technology platform to identify active chemical compounds from targets selected by ExonHit.

However, Cerep now has decided to concentrate its research and development spending on programs that will bring quicker returns on investment, and said it will enter into new research collaborations only if the partner provides all the R&D funding, or the research is financed by government or other subsidies.

According to Cerep's CEO, Thierry Jean, this does not represent a fundamental change of strategy, since the company is still engaged in drug discovery through a collaboration with the Belgian firm Tibotec NV, of Mechelen, which is aimed at identifying candidate drugs to treat HIV. As in its deal with ExonHit, Cerep's agreement with Tibotec, signed in May, provides for costs and revenues to be shared equally between the two companies.

Jean told BioWorld International that Cerep was still committed to drug discovery, but stressed that it was not a drug development company. "We want to discover new drugs, but will only take them as far as Phase I." Cerep is also engaged in research collaborations with Sanofi-Synthilabo, Pfizer, Bristol-Myers Squibb and Rhtne-Poulenc Agro, as well as in an international combinatorial chemistry consortium.

Cerep is continuing to increase R&D spending, which explains why its results for the first half of this year show a sharp jump in its net loss to FFr12.9 million from FFr1.9 million in the corresponding period of 1998. Total operating costs were up 48 percent to FFr50 million, with R&D spending amounting to FFr16.4 million, which compares with total R&D outlays of FFr21.8 million in the 12 months of 1998. Jean insisted that comparisons between the first halves of 1998 and 1999 were not meaningful since the company had begun to step up R&D spending sharply in the second half of 1998 and through 1999. The development of its BioPrint database, the basis of the lucrative, five-year agreement it concluded with Bristol-Myers Squibb in July, had required a particularly heavy R&D effort, he said.

There was also a slight drop in the company's revenues in the first half of 1999. They dipped to FFr30 million from FFr31.5 million the year before, with fee-for-service activities accounting for 70 percent of the total (FFr20.9 million). As at June 30, Cerep had cash and cash equivalents of FFr47 million.