On the strength of what the company calls a way of "squeezing more juice from the orange," natural interferon maker Viragen Inc. completed an option agreement that includes a $20 million license fee from Southern Health SDN.BHD, a group of investors in Malaysia and Australia.

Southern, in exchange for $200,000, gets an exclusive private-label manufacturing and distribution option covering Australia, New Zealand and several Asian countries. If the option, which expires Sept. 30, is exercised, Southern will pay Plantation, Fla.-based Viragen $20 million, plus 12 percent in continuing royalties. The deal excludes China and Japan.

"It's a big slug of money for us," said Robert Rech, senior vice president of privately held Viragen, adding that the company's burn rate is about $6 million per year.

Within the first two years of the agreement, Southern also would be required to begin construction of at least one manufacturing facility in the covered territory.

"[Southern] is interested in interferon because hepatitis is an even bigger problem in Southeast Asia than here," Rech said.

In the collaboration with Southern, Viragen expects to invest about $50 million of its own money.

Viragen uses a chicken protein placed with white blood cells ex vivo to generate natural interferon.

"You trick the white cell into generating interferon outside the body," Rech said.

Interferon Sciences Inc., of New Brunswick, N.J., creates natural interferon by a similar process, but the drug ends up costing more, Rech added.

"Their product is FDA approved, but it sells for three times the cost of recombinant [interferon]," Rech said. Viragen intends to make its natural interferon as affordable as the recombinant version.

"We think we can do it," Rech said.

Last month, Viragen scaled up the manufacturing process for Omniferon, its natural interferon drug, at its production facility in Edinburgh, Scotland — proving the company can make the drug in commercial quantities, said Rech.

Process Makes White Cells 'Happy'

He declined to explain Viragen's manufacturing methods, other than to say they involve the handling of white cells, "making them happy," and the purification of the interferon after it is made.

"The product we've developed allows you to squeeze a lot more juice from the orange," Rech said. "We're putting our patents together now."

In the U.K., Viragen expects to file for regulatory approval during the third quarter of this year to begin Phase I or Phase I/II trials of natural interferon in multiple sclerosis or hepatitis. The company will submit an investigational new drug application with the FDA in the following quarter, in the indication not covered by the U.K. approval.

Interferon Sciences was advised by the FDA last week that its Alferon N Injection, which is on the market for genital warts, was not approvable for HIV based on a single Phase III trial. The agency said the results were insufficient and an additional study would be required. (See BioWorld Today, April 13, 1998, p. 1.)

"That kind of muddied the waters for us, with regard to AIDS," Rech said, and confirmed Viragen's decision to focus on the other indications.

Also last month, the company entered into a long-term agreement that gives Viragen preferential access to all of the human white blood cells collected by several major German Red Cross blood banks for production of Omniferon.

Viragen's stock (NASDAQ:VRGN) closed Monday at $2.156, down $0.312. *

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