By Jim Shrine

Cell Genesys Inc. completed a deal for its GVAX cancer vaccine technology that will bring in $45 million to the company within two years, and is worth up to $153 million over the course of development for two therapeutic targets.

The deal, with Tokyo-based Japan Tobacco Inc., covers rights to GVAX in prostate cancer and one undisclosed target. Cell Genesys, of Foster City, Calif., retains marketing rights in North America, and the parties will share equally in development costs and future profits. No equity component is involved.

"This is a very good deal for the GVAX program and comes at a very important and formative time," Stephen Sherwin, Cell Genesys' chairman and CEO, told BioWorld Today. "We're in the process of expanding clinical trials. The financial payments to Cell Genesys will be put to good use at a critical time.

"That financial support," he noted, "doesn't come at the price of surrendering product rights worldwide. It would be much less important to shareholders if all we were to receive was royalty payments. Instead, we have a 50-50 profit-sharing agreement worldwide and control over marketing in our important territory, North America."

The GVAX product - currently in Phase I/II studies in prostate cancer - is designed to stimulate a patient's own immune system to kill cancer. It comprises tumor cells that have been irradiated and genetically modified to secrete granulocyte-macrophage colony stimulating factor, a hormone that helps stimulate immune responses to vaccines.

Cell Genesys gained the product through its May 1997 acquisition of Somatix Therapy Inc., of Alameda, Calif., which had developed an autologous therapy, customized to each patient. That therapy took two months to prepare for administration to a patient. Cell Genesys' second-generation product is either not specific to patients - so it can be commercialized as an "off the shelf" pharmaceutical - or, in its patient-specific version, can be made overnight at a hospital from patient tumor biopsies.

Deal Includes $80M In Milestones

Under the terms of the $152.7 million agreement, Cell Genesys received $12.7 million up front and gets $2.5 million in one year. Another $27.5 million will be paid by Japan Tobacco for half of the expected development costs over three years. About $80 million is targeted to milestone payments if the collaboration continues through approvals of the two products. The agreement provides for loans of up to $30 million to cover Cell Genesys' Phase III development costs.

Sherwin said he could not break down terms further, but payments of $45 million expected over two years include some portion of the research and development funding and milestones.

Apart from this deal, the companies agreed to support an ongoing trial of GVAX in Japan for kidney cancer, the first cancer gene-therapy trial in Japan. If development continues there, Cell Genesys would receive additional payments.

Preliminary results of an earlier study in prostate cancer showed disease stabilization and a decrease in the rise of prostate specific antigen (PSA) levels in 11 of 15 patients.

The companies chose not to disclose the second target area. But, in addition to the studies in prostate and kidney cancers, Phase I/II studies are ongoing in lung cancer and melanoma. Results of those studies are expected to be released next spring. "We're encouraged by what we've seen," Sherwin said.

While the GVAX platform could be applicable to multiple targets, the focus now will be on the targets covered by the deal, Sherwin said.

In November, Cell Genesys followed up on initial prostate cancer studies with the start of a Phase I/II trial involving 40 patients who have had prostatectomies as their only treatment, and have a rising PSA level. The trial will test various treatment regimens. A third Phase I/II study, expected to begin early in 1999, will include 40 prostate cancer patients who have failed hormone therapy.

Data will emerge from the first study no earlier than late 1999, Sherwin said. Results of the two studies will dictate where the products are taken from there, he said.

Cell Genesys in September implemented a restructuring plan designed to save money by focusing on later-stage programs. It had about $35 million in cash at the end of the third quarter.

"This is a time when everyone in the industry is giving serious thought and consideration to a business strategy that provides as much independence as possible from the capital markets," Sherwin said. "We believe we have a good answer to that very difficult question. We believe, with this transaction in place and the focus we have on advancing our clinical-stage programs, we greatly enhanced our ability to finance these programs through their clinical development."

The company's stock (NASDAQ:CEGE) closed Friday at $5.187, up $0.50. n