By Lisa Seachrist

Washington Editor

ImClone Systems Inc. has signed a comarketing agreement for BEC2 with Merck KGaA, expanding their 1990 deal to develop the monoclonal antibody as a cancer vaccine in malignant melanoma and small cell lung cancer.

In return for the rights to comarket and copromote BEC2 in the U.S., Merck will purchase $40 million of ImClone convertible preferred stock, finance the development costs of BEC2 worldwide and pay the New York-based company up to $15 million in milestone payments.

"It is really unusual for a biotech company to get so much money from a collaboration up front," said Samuel Waksal, ImClone's president and chief executive officer. "The sale of preferred stock offers shareholders minimal dilution of our stock value because conversion will take place over the next five years. In addition, we will be able to participate directly in the North American sales of BEC2."

Under the terms of the agreement, the transfer of stock will take place in four tranches. Up to one-quarter of the total preferred stock may be converted into ImClone stock at a price of $12.50 per share. Merck, of Darmstadt, Germany, will then have the option to convert additional preferred shares at varying prices related to the market price of ImClone common stock.

This deal modifies the 1990 research and license agreement between ImClone and Merck to develop therapeutic cancer vaccines, including BEC2, for use in small cell lung cancer and malignant melanoma. This is the second time the deal has been modified. In May 1996, Merck extended the collaboration to include additional licensing fees and milestone payments in return for marketing rights worldwide, with the exception of North America. At that time, Merck also had agreed to pay 60 percent of development costs in the U.S. and Europe and all development costs elsewhere.

In return for copromotion and comarketing rights in the U. S., Merck has agreed to pick up the costs of development in addition to the purchase of preferred stock and milestone payments.

BEC2 is an anti-idiotypic monoclonal antibody that mimics the GD3 glycolipid expressed on certain tumors. ImClone has been studying it to enhance immune responses in patients with small cell lung cancer and malignant melanoma. The product is designed to prevent tumors from growing in patients who have undergone reductive chemotherapy and/or radiation treatments by encouraging the immune system to recognize the tumors.

A pilot study of 15 patients with small cell lung cancer showed that the compound significantly increases survival.

The company is set to begin a Phase III study of the drug in Australia, New Zealand, Europe, Canada and the United States early next year, and hopes to be marketing BEC2 by 2002.

"This is a late-stage product that we expect to be on the market in the next three to four years," Waksal said. "We are very excited about it. Small cell lung cancer strikes 40,000 patients ever year. These patients typically relapse once treated and live for less than a year and a half. There is a huge need for new therapies for this disease."

In addition to BEC2, ImClone also is developing C225, an epidermal growth factor receptor antagonist, as a treatment for head and neck cancer and renal cell carcinoma.

ImClone's stock (NASDAQ:IMCL) closed Thursday at $7.562, down $0.438. *

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