By Randall Osborne

Hoping to exploit a new class of anti-inflammatory drugs, boost the company's royalty flow and gain a foothold in Japan, Biogen Inc. has signed a research, development and licensing deal valued at up to $145 million with Merck & Co.

Under the terms of the deal, Cambridge, Mass.-based Biogen will receive an up-front payment of $15 million from Merck & Co., of Whitehouse, N.J., followed by milestone payments that could total $130 million.

"It scratches a number of strategic itches for us," said James Tobin, president and chief operating officer of Biogen.

The two companies will collaborate on developing an anti-VLA4 small molecule drug to treat asthma. Anti-VLA4 small molecules bind to a receptor molecule known as VLA4, found on most types of white blood cells but not on those known as neutrophils, which make up the body's first line of defense against infections. A specific VLA4 antagonist works more efficiently than other anti-inflammatory drugs that suppress the whole immune system.

Anti-VLA4 small molecules are among a new class of agents designed to block cells from adhering to blood vessel walls, and thereby stop the subsequent migration of some white blood cells into tissue at the sites of inflammation.

Merck is expected to begin next spring a Phase I trial of the aerosolized anti-VLA4 molecule against asthma, developed by Biogen's scientists.

"We had a monoclonal antibody approach, but the realization was made that this was a classic small-molecule target opportunity," Tobin said. "We came up with an antagonist for the pathway that is a very short half-life molecule and is excellent for aerosol. We were ready to file [with the FDA to begin clinical trials]. We basically waited until the deal was done."

The companies also will develop an oral VLA4 inhibitor, and Merck should be especially helpful with that, Tobin said.

"Merck had been looking at VLA4 pathway for some time," he said. "We know the biology in more depth, and we have the short half-life molecule for aerosol, but we haven't come up with the oral version."

The deal gives Merck worldwide marketing rights for anti-VLA4 indications, including asthma, while Biogen gets the worldwide marketing rights for other indications, including multiple sclerosis (MS). Biogen's already-marketed drug against relapsing MS, called Avonex, sold $169.5 million worth in the first nine months of 1997, raising the company's net income 120 percent over the same period during the previous year. (See BioWorld Today, Oct. 10, 1997, p. 1.)

An anti-VLA4 drug could prove to be another worthy attacker of MS — and another money maker for Biogen.

"Part of the damage done by MS is done by inflammation," Tobin said. "The conventional wisdom is that it's done by antibodies banging away at the myelin sheath. That's true, but it may not be the complete story. There may be a more classic inflammation component, and an anti-VLA4 drug may be a good way to approach that."

Giving up the asthma rights to Merck was not painful, Tobin said. "Biogen is not going toe-to-toe with Glaxo [Wellcome plc, of London] in the asthma market anytime soon, but Merck can."

The deal calls for the companies to share a double-digit royalty schedule.

"If Merck is successful, it will fix our Achilles heel of our royalty stream starting to decline in the year 2000," Tobin said.

Also, Merck's Japanese affiliate, Banyu Pharmaceutical Co., Ltd., of Tsukuba, will manage clinical development and approvals in Japan of one of Biogen's proprietary compounds, yet to be decided. Biogen will retain marketing rights to the compound in Japan.

"It's a way for little old Biogen to get started in Japan without having fixed assets, fixed people and a burn rate," Tobin said. "We could have spent $100 million to put ourselves in business in Japan."

The agreement calls for Biogen to pay Merck up to $21 million if milestones are met in indications outside of asthma. "We get a reduced rate on the milestones because our indications would be smaller," Tobin said. Those include MS, inflammatory bowel disease, renal indications and most others in which the U.S. patient population is less than 200,000.

Full payments would be made by each company to the other "if all of us are successful," Tobin said, "which never happens."

Eileen Undercoffler, spokesperson for Merck, said the reciprocal nature of the pact makes it particularly attractive. "We have some experience with asthma, and the way we have structured the agreement is based on that hope," she said. "But 'at some point' should be underlined, and 'if.' It's a risk, but we think it's very promising. Biogen did some terrific basic research."

Biogen's stock (NASDAQ:BGEN) closed Wednesday at $37, up $0.938. Merck's shares (NYSE:MRK) closed at $98, up $3.375. *

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