By Mary Welch

In a deal worth more than $30 million, Palatin Technologies Inc. licensed the worldwide marketing rights of LeuTech, its antibody-based infection imaging agent, to Mallinckrodt Inc.

¿We¿ve invested about $30 million in Palatin since we put it together in 1996, and about $23 million to $24 million of that went into developing LeuTech,¿ said Edward Quilty, chairman and CEO.

The deal, expected to be disclosed today, involves an initial up-front ¿equity¿ payment of $13 million, Quilty said.

¿We¿re calling it an equity¿ investment, but it only converts into 700,000 shares, which comes out to a price of just under $19, which is way above our stock price,¿ he said. ¿And there are a lot of restrictions, like it can¿t be converted for five years. So, there is not a lot of dilution in our stock.¿ Palatin, of Princeton, N.J., has 7 million shares of common stock outstanding, and 12 million fully diluted shares outstanding.

St. Louis-based Mallinckrodt also will fund half of the remaining research for LeuTech, which is expected to cut Palatin¿s burn rate by $3.5 million. Palatin also receives $5 million upon approval of the biologics license application (BLA) and after the first $20 million in sales. Revenues will be split 50-50.

Mallinckrodt¿s imaging business ¿has been flat year over year, and a product like LeuTech will definitely help fill [its] pipeline.¿

Brad Fercho, president in charge of imaging for Mallinckrodt, said the company had been searching for ¿ways to significantly grow our top-line products. This is the jolt we¿ve been looking for.¿

LeuTech, a monoclonal antibody labeled with technetium, is injected intravenously and accumulates quickly at the site of an infection, giving a bright, clear image on a gamma camera. Recently disclosed Phase III results showed that LeuTech detected appendicitis in 91 percent of positive subjects and correctly predicted the absence of appendicitis in 96 percent of negative scans. Palatin intends to file the BLA in July. If it¿s approved, LeuTech could be on the market by summer 2000. (See BioWorld Today, April 27, 1999, p. 1.)

LeuTech is also in Phase II studies for the detection of osteomyelitis (bone infection), which Quilty judges to be at least a $40 million base market. Other possible indications include fever of unknown origin, postsurgical infections and inflammatory bowel disease.

Fercho believes LeuTech will quickly grab a large share of the market. ¿If you talk to a marketing guy, every product is a potential $100 million product,¿ he said. ¿I¿m trying to be a little more conservative. But what caught our attention is that the technology is excellent, as is the clinical data. This product can come to the market almost immediately for the appendicitis application. We also think there is great potential in the infection-imaging market. This could be a big, big product.¿

The two companies will form a joint development team, initially headed by Palatin ¿ which will accelerate its other projects, including PT14, a peptide for sexual dysfunction that the company recently in-licensed from the University of New Mexico and hopes to partner within the next nine to 12 months. It also has a cancer-imaging product in the works, as well as an anti-obesity drug.

Palatin¿s stock (NASDAQ:PLTN) closed Friday at $6.625, down $0.156. n