By Randall Osborne

Eli Lilly and Co. invested a total of up to $35 million in a deal with Protein Design Labs Inc. (PDL) to develop new antibiotics and another pact with Inhale Therapeutic Systems for pulmonary delivery of an unspecified protein product.

The collaboration with PDL, of Mountain View, Calif., includes an up-front payment of $3 million by Indianapolis-based Lilly and research funding of $2.4 million annually for up to five years.

Laurence Korn, PDL's chairman and CEO, said the deal validates the company's program in microbial pathogenesis, which began last year and supplements its work on human and humanized antibodies.

"The new research directions at PDL are already paying off," Korn said. High-throughput screening and small-molecule identification will be used with PDL's combinatorial chemistry.

Focused on developing antibiotics for bacterial infections — including those that have developed resistance to available treatments — the Lilly agreement "is restricted to seven genera of bacteria," Korn said. "PDL retains all rights to [compounds related to] species of bacteria outside of those specifically listed, as well as viral and fungal infections."

PDL would get royalties on sales of any products taken to market, and will negotiate copromotion rights with Lilly in the U.S. and Canada. If Lilly declines to pursue some compounds identified in the collaboration, then PDL could develop them on its own, Korn said.

The deal contains other potential benefits, said Jon Saxe, president of PDL.

"The Lilly arrangement does not involve vaccines or animal health, and those are additional areas where the technology could be applied," Saxe said.

Cary Queen, senior vice president and vice president of research for PDL, said new technology will be used to isolate bacterial genes not previously exploited as targets for antibiotics.

"We're isolating genes that are specifically turned on when bacteria infect a host, such as a human," Queen said. "Because these target genes will not be required for [bacteria] to survive, but to infect a host, they are less likely to develop resistance."

PDL's infectious-disease program is based on technology developed at Stanford University School of Medicine, of Stanford, Calif., which has applied for patents on the technology that PDL has licensed exclusively. The technology uses fluorescence to isolate bacterial genes expressed in host cells.

In March, PDL raised $73 million in a public offering, selling 275,000 more shares than expected. The funds were used partly to launch the microbial pathogenesis program. (See BioWorld Today, Feb. 4, 1997, p. 1, and BioWorld Today, March 20, 1997, p. 1.)

PDL's stock (NASDAQ: PDLI) closed Tuesday at $40.875, down $0.75.

Lilly's collaboration with San Carlos, Calif.-based Inhale Therapeutic Systems, which focuses on aerosol delivery of drugs in dry powder form, targets pulmonary delivery for a Lilly protein.

Under the terms of the deal, Lilly will pay Inhale up to $20 million in research and development funding, along with milestone payments.

Lilly, Inhale Pact Expands Prior Deal

The collaboration is the second between the two companies. In January, Inhale and Lilly agreed to develop delivery of an undisclosed osteoporosis drug. Under the terms of that deal, Inhale could receive up to $20 million. (See BioWorld Today, Jan. 22, 1997, p. 1.)

Joyce Strand, director of communications for Inhale, said the osteoporosis drug is in Phase I trials. Inhale has 14 drugs under development, nine of which are partnered and six of which are in clinical trials.

Inhale's technology focuses on drugs that normally must be injected, proteins and peptides in particular. The drugs are inhaled through the mouth deep into the lungs, and from there enterthe bloodstream — thus eliminating the need for enhancers, used in other alternatives such as patches, Strand said.

"The [collaboration] that is the farthest advanced is inhaled insulin, with Pfizer," Strand said. "It's in late Phase II, and Pfizer has said it will go into Phase III in the summer of 1998."

Inhale's deal with Pfizer Inc., of New York, was begun in January 1995 and included an equity investment plus undisclosed other payments. (See BioWorld Today, Jan. 20, 1995, p. 1.)

Another collaboration, with Baxter International Inc., of Deerfield, Ill., was worth up to $80 million, and was designed to adapt four undisclosed Baxter compounds for Inhale's delivery system. (See BioWorld Today, March 6, 1996, p. 1.)

A report by analyst Peter Ginsberg, of Piper Jaffray Inc., of Minneapolis, said the unnamed large-molecule drug to be developed in the Lilly deal is one of four molecules for which Inhale has been seeking a partner: the anticoagulant, heparin; alpha interferon for hepatitis and cancer; beta interferon for multiple sclerosis; or follicle stimulating hormone, which is used in treating infertility.

Each of the four drugs would target markets of $500 million to $1 billion, the report said. The unspecified drug is expected to enter clinical trials next year, and from any product developed Inhale would receive 8 percent to 15 percent of sales through royalties and a manufacturing markup.

Piper Jaffray rated Inhale stock (NASDAQ:INHL) a "strong buy." The company's shares closed Tuesday at $31.375, up $3.50. *