By Lisa Seachrist

Washington Editor

WASHINGTON - With an eye to developing small-molecule drugs to combat inflammation, Axys Pharmaceuticals Inc. has entered a collaboration with Rhone-Poulenc Rorer (RPR) worth up to $80 million.

The agreement calls for Collegeville, Pa.-based RPR, a subsidiary of Paris-based Rhone-Poulenc SA, to fund the research and development of small molecules that inhibit cathepsin S, an enzyme implicated in rheumatoid arthritis, asthma, atherosclerosis and certain autoimmune diseases.

"We are very happy to get this deal," said David Gennarelli, manager of investor relations at South San Francisco-based Axys. "We are especially happy to get it out the door before the year ends."

Under the terms of the agreement, RPR will not only fund research into the molecules but has paid up-front licensing fees, and will make certain milestone payments. Exact financial details were not disclosed, but the deal could total $80 million for Axys, plus royalties.

Cathepsin S is a member of a large class of cysteine proteases - enzymes that are responsible for the cleavage and breakdown of other proteins as a normal part of cell function. Cathepsin S has been associated with the processing and activation of the antigen receptor called MHC-II. Antigens bind to MHC-II, which is on the surface of antigen-presenting cells. Cathepsin S cleaves the MHC-II antigen complex, allowing the antigen to be processed and causing T cells to react to that particular antigen.

In autoimmune conditions, the immune system is mistaking parts of the body as a foreign invader. As Michael Venuti, senior vice-president of research and preclinical development at Axys, described it, cathepsin S is responsible for the activation of the MHC-II antigen complex. As a result, an antigen-presenting cell overproducing cathepsin S would result in that particular antigen "getting unfair attention from T cells."

When that antigen is aimed at the organism itself, Venuti noted, a number of different disease states can arise.

"A number of compounds that we have made are going to be examined immediately by RPR, to see if they are suitable for inhaled therapies for asthma," Venuti said. "We are well along in identifying potent and specific inhibitors of cathepsin S."

Venuti noted that RPR will be testing the various inhibitors to establish how they play a role in pivotal animal models of disease.

"It's an aggressive program, and something that a lot of large pharmaceutical companies were interested in," Venuti said. "RPR acted the quickest."

Axys is also in a collaboration with Merck & Co., of Whitehouse Station, N.J., to develop cathepsin K as a treatment for osteoporosis, and has an in-house program studying cathepsin B as a cancer therapy.

Axys' stock (NASDAQ:AXPH) closed Friday at $5.75, up $0.62. n

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