By Mary Welch

Vertex Pharmaceuticals signed a deal potentially worth $206 million in precommercial payments, including a $20 million up-front license fee, that expands a collaboration with Hoechst Marion Roussel (HMR) to continue developing orally active drugs for rheumatoid arthritis, osteoarthritis and other inflammatory diseases.

The deal calls for Frankfurt-based HMR to pay $62 million in milestones per indication for the successful development of HMR 3480/VX-740, an orally active inhibitor of interleukin-1 beta converting enzyme (ICE). Three indications are being studied initially.

The compound is scheduled to start Phase II trials in patients with rheumatoid arthritis this quarter. A second undisclosed indication is slated to begin Phase II tests next year.

HMR receives an exclusive worldwide license to develop, manufacture and market the compound as well as an exclusive option for all other compounds discovered under an earlier collaboration that ended in 1997.

"If we successfully develop the three indications, we will receive $206 million in milestone payments and license fees," said Richard Aldrich, Vertex's senior vice president and chief business officer. "We had a 1993 deal with Roussel Uclaf to develop ICE inhibitors and in that agreement, Vertex had U.S. rights and Roussel had European rights and both shared co-exclusive rights in Japan. This deal supercedes the earlier deal. We pretty much have all the money from the original deal."

The earlier agreement called for Paris-based Roussel Uclaf to pay up to $30 million for research support and development milestones as well as commit significant scientific resources to the program. The companies said the goal was to design and develop compounds that target the IL-1 beta converting enzyme.

The program's target was to develop an enzyme for diseases such as rheumatoid arthritis, psoriasis and inflammatory bowel disease. Roussel had exclusive rights to develop and commercialize any drugs that came from the partnership. Vertex had exclusive development and marketing rights in the U.S. and the rest of North and South America. Roussel later merged and became the pharmaceutical company of Frankfurt, Germany-based Hoechst AG.

"HMR was interested in getting a larger global role, particularly in the U.S.," Aldrich said. "This deal enables them to have a larger role. We just shifted the rights in the U.S. They will take the lead in promotion and marketing in the U.S. as well as the drug's development. They will pay all development costs instead of the 50-50 split it was under the previous arrangement."

Vertex now would co-promote the product in the U.S. and Europe and receive royalties on global sales as well as a co-promotion royalty and reimbursement of its co-promotion costs.

ICE blocks the synthesis of interleukin-1, a hormone active in the inflammatory process, through the inhibition of the interleukin-1 beta converting enzyme, Vertex said. Excess levels of interleukin-1 beta are implicated in a wide range of inflammatory conditions and diseases.

Aldrich emphasized that Vertex is continuing development of its ongoing second-generation ICE inhibitor drug discovery program. "That program is independent of this deal and we retain the exclusive right to develop new clinical candidates from that program."

The deal was disclosed Wednesday afternoon before the market closed. Vertex's stock (NASDAQ:VRTX) closed at $28.75, up $1 per share.