By Lisa Seachrist

Washington Editor

ArQule Inc. entered a three-year collaboration worth $30 million with Bayer AG to design and create a custom library of compounds for screening against Bayer's therapeutic and agrochemical targets.

Medford, Mass.-based ArQule will provide Bayer with several hundred thousand exclusive chemical compounds over three years and will receive cash payments as compound delivery goals are met. Bayer, of Leverkusen, Germany, will play an active role in guiding the design of the compounds.

"This is the first time we've done a deal based purely on the exclusive screening library of compounds," ArQule President and CEO Stephen Hill said. "This is a deal where we take the value up front. We're trying to get a balance between deals that give us royalties and milestones and those with increased up-front value."

Most of ArQule's deals in the past have included smaller up-front payments with the promise of a bigger payout in the form of downstream milestone payments and royalties as potential products wend their way through the development and approval process toward eventual market revenues. The Bayer deal is contingent only upon ArQule's ability to produces hundreds of thousands of compounds through its combinatorial chemistry platform, so at the end of three years ArQule will have received the entire $30 million if it meets the delivery goal.

"The number of compounds in this deal is well within our track record of proven performance," Hill said.

The Bayer deal is ArQule's first comprised solely of an exclusive library of screening compounds. However, in July, the company entered into a deal with Pfizer Inc., of New York, to provide not only an exclusive library of compounds but also to license ArQule's technology platform to Pfizer for in-house use. That deal was worth up to $117 million and also was heavily weighted toward up-front cash payments. (See BioWorld Today, July 22, 1999, p. 1.)

"[The Bayer deal] is great news for us again," Hill said. "Some people felt the Pfizer deal was a great deal but just putting off the fateful end for combinatorial chemistry companies. We are going to continue making deals consistent with the long-term growth of the company."

ArQule intends to use the funds generated from the two deals to enhance its core chemistry skills, invest in complementary technologies and invest in discovery programs with partners.

The company's businesses include non-exclusive subscriptions to compounds produced from the Mapping Array program, exclusive Custom Array screening libraries and Directed Array program, which provides lead optimization.

The Bayer deal was expected to be disclosed today. ArQule's stock (NASDAQ:ARQL) closed Thursday at $6.187, up 6.2 cents.

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