By Jim Shrine

TerraGen Discovery Inc. turned its recent $6.4 million acquisition of Xenova Discovery Ltd. into a new collaboration with Schering-Plough Corp. to identify anti-infective compounds, adding to a deal the companies established in December.

TerraGen, of Vancouver, British Columbia, will get research funding for 18 months, milestone payments starting with identification of a lead compound, and royalties on sales of any resulting products. TerraGen will use its NatChem library of 30,000 rare and diverse microorganisms in its search for small-molecule leads for Schering-Plough Research Institute, the research and development arm of Madison, N.J.-based Schering-Plough Corp.

The terms and targets are very similar to the initial deal with Schering-Plough. But the first deal entailed identification of novel small molecules from TerraGen's library of recombinant extracts generated from its combinatorial biosynthesis platform.

Schering-Plough already was in discussions with Xenova Discovery about a collaboration when TerraGen acquired Xenova Discovery, a subsidiary of Slough, U.K.-based Xenova Group plc, said Mario Thomas, president and CEO of TerraGen.

"This deal utilizes the same anti-infective targets from Schering-Plough," Thomas said. "It will maximize the probability of Schering-Plough identifying quality lead compounds against its targets.

"The collection of microorganisms we obtained from Xenova is a very valuable collection that has not been exploited in any vast way, so there is a lot of potential to discover new drugs from that rich collection," Thomas said. "There is a lot of interest for natural products drug discovery. We have been talking to basically all the pharmaceutical companies. We have been seeing that combinatorial chemistry has not been the Holy Grail of drug discovery it was hoped to be. Pharmaceutical companies are turning back to natural products as a source of novel drugs.

"The degree of diversity that can be generated from billions of years of the evolution of nature is far more broad than what combinatorial chemistry can do. What we are offering to the pharmaceutical industry is a modern way of doing natural products."

Thomas has taken that message on the road in an attempt to raise $17 million, which would be enough to fund the privately held company for two years.

"What we are seeing from the reactions of potential investors is that our story is pretty much unique," Thomas said. "It stands out in the crowd of biotech companies in that we are the only company that can go from the DNA of microbes to lead compounds. It's a significant platform and has enormous potential for the pharmaceutical industry. Only 1 percent of microbial diversity has been exploited by the pharmaceutical industry, yet is has resulted in almost half of its best-selling drugs. We are a gateway to the other 99 percent of the microbial diversity that has not been exploited."

TerraGen was founded in 1996. The Schering-Plough deal in December was its first collaboration. In March it purchased the combinatorial biosynthesis company ChromaXome Corp. - a subsidiary of San Diego-based Trega BioSciences Inc. - for $6.5 million in cash and stock. (See BioWorld Today, March 16, 1999, p. 1.)

The purchase of Xenova Discovery for $6.4 million in stock and cash also brought with it two additional collaborations - with Bristol-Myers Squibb Co., of New York, in which a lead oncology compound has been identified; and with Warner-Lambert Co., of Morris Plains, N.J., in a broad deal involving about 20 targets.

The partnerships will have paid for the acquisition in about two years, Thomas said.

Terms of the new deal with Schering-Plough were not disclosed. But Thomas said research funding is ensured for 18 months and milestones will be reached when a lead compound is designated, upon the start of preclinical development and when a product moves into Phase I trials.

Under their initial two-year deal, TerraGen is developing a library of 50,000 recombinant organisms for Schering-Plough. Once 25,000 are developed they will be sent to TerraGen's U.K. facilities for screening.