By Mary Welch

Analysts called Millennium Pharmaceuticals Inc.'s $465 million deal with Bayer AG a "wake-up call" to other pharmaceutical companies, affirming the value of genomics — and of Millennium's way to make money without a drug.

Under terms of the deal, Cambridge, Mass.-based Millennium will provide Bayer, of Leverkusen, Germany, with 225 drug targets relevant to cardiovascular disease, cancer, osteoporosis, pain, liver fibrosis, hematology and viral infections.

Bayer will pay Millennium up to $465 million, with up to $368.4 million in guaranteed funding and performance fees for drug targets identified by Millennium, and a license fee for the use of Millennium's genomics technologies.

The remaining $96.6 million will be paid as an equity investment of about 14 percent. With that investment and the license fee, Millennium gets a total of $130 million up front.

Richard van den Broek, an analyst with Hambrecht & Quist LLC, in New York, said one lesson of the collaboration is that "if a company has not gotten an investment or a deal that incorporates genomics as an integral part of the company, then that company will become a dinosaur and functionally extinct."

Public Work Doesn't Hurt Private Efforts, Says Analyst

Carl Gordon, with Orbimed Advisors, in New York, said the deal also proves "the increasing availability of public-domain data does not undermine the genomic sector, as many had believed," noting that "Bayer is using Millennium as its drug-discovery pipeline."

If that's true, then Millennium is using Bayer, too. Part of the deal, which is driven by annual research fees rather than milestones, is that Millennium can develop targets not chosen by Bayer from the 225. What's more, the Bayer targets will be moved along according to agreed-upon timetables.

Steven Holtzman, chief business officer for Millennium, said the company has "succeeded in defying the conventional wisdom. You don't have to focus on a drug." (See BioWorld Today, Special News Bulletin, Sept. 23, 1998.)

The deal is believed to be the largest drug development collaboration in biotechnology's history.

"When you consider that the average genomics deal is $39 million, you get an idea of the size of this," said Matthew Murray, a senior analyst with Lehman Brothers, in New York.

Peter Freudenthal, an analyst with the Bank of Boston/ Robertson Stephens & Co., in New York, said Millennium has a "solid, unique business model. A lot of companies would be smart to re-think their own and look at Millennium."

Van den Broek said Millennium is now well positioned.

"Ideally, you want to have a platform rich enough to sell parts off and retain value for yourself," he said. "Biotech has had a nice run the last few weeks and this definitely doesn't hurt the cause," he added.

Freudenthal saw hope that the investment community would turn even more strongly back to biotechnology, and genomics in particular. "Analysts have backed away from this area over concern of the number of lawsuits and patent infringement suits," he said. "They been reluctant and have sat on the sidelines."

Under the terms of the deal, Millennium will identify and validate targets, and will share responsibility with Bayer for configuring assays for screening. Bayer will be responsible for high-throughput screening, and the two companies will share the tasks of qualifying and developing lead compounds.

Bayer will pay royalties to Millennium and will have worldwide responsibility for marketing the small-molecule drugs it chooses to develop from targets delivered by Millennium, which uses large-scale genetics, genomics, high-throughput screening and informatics in an integrated platform.

Millennium's stock (NASDAQ: MLNM) closed Tuesday at $18.687, up $1.437. *