By Jim Shrine

Vical Inc. added to its string of collaborations by partnering delivery of therapeutic proteins via naked DNA technology for animal applications with Pfizer Inc.

The deal potentially is worth $40 million to Vical, with $7 million up front and another $1.5 million covering research costs over three years. The up-front portion includes a $6 million equity investment by Pfizer at $18.87 per share, a 25 percent premium to the average closing price the past 15 trading days (and 32 percent to Monday's closing price).

Vical's stock (NASDAQ:VICL) gained $2 per share Tuesday, or 14 percent, to close at $16.25.

"This is a very significant deal for us, in terms of validation of the technology by another pharmaceutical company," said Alan Engbring, Vical's director of investor relations. "This is a very broad area that was as yet unlicensed. The entire idea of the delivery of proteins with a gene is one we're very excited about."

The deal with New York-based Pfizer is Vical's third collaboration in delivery of therapeutic proteins. Vical has a deal with Merck & Co. Inc., of Whitehouse Station, N.J., for delivering growth factors for cardiovascular applications, and with Rhone-Poulenc Rorer Inc., of Collegeville, Pa., in the area of neurodegenerative diseases.

Direct Administration Of Genes Offers Advantages

The technology entails direct administration of genes that direct cells to produce the desired protein. A potential advantage is sustained release of therapeutic protein levels from a single intramuscular injection, reducing the number of times the drug has to be administered and side effects. The technology has been demonstrated in mice through delivery of erythropoietin and interferon alpha.

Engbring said the Pfizer deal is "open ended at this time and covers any therapeutic protein delivery for any animal application. It's very broad."

The collaboration differs from Vical's alliance with Merial Animal Health, a joint venture of Rhone-Poulenc Group and Merck that is applying Vical's technology to vaccines. Merial, which has not chosen targets yet, extended its option last year, giving it rights until April.

Pfizer spokeswoman Betsy Raymond said the Vical collaboration "could go in any direction. We're just beginning to look at the technology." The company already has a large presence in animal health, including the recently released Anipryl for cognitive disorders in dogs, as well as Rimadyl for arthritis in dogs. It also has products for livestock.

The agreement gives Pfizer the option to license Vical's technology in animal health applications. Exercise of that option would trigger additional license fees and potential milestone payments. Vical also could get royalties on sales, and might manufacture resulting products for Pfizer.

Separately, Vical has ongoing collaborations with Boston Scientific Corp.,. of Boston, in vascular gene therapy; Pasteur Merieux Connaught, of Lyon, France, in malaria DNA vaccines; and Centocor Inc., of Malvern, Pa., for cancer vaccines.

On its own Vical has four products in clinical development, including Allovectin-7, which is in two pivotal studies for metastatic melanoma. That product, which uses a lipid-DNA complex to help the immune system attack cancer cells, also is in a Phase II trial in head and neck cancers. Leuvectin is in a Phase II trial in kidney cancer and a Phase I/II study in prostate cancer. Vaxid, a naked DNA vaccine, is in Phase I/II to prevent relapse of B-cell lymphoma. The company also has a metastatic melanoma vaccine candidate in early studies. n