By Debbie Strickland

Less than two years after its Mapping Array system of "information-rich" compound sets became fully operational, ArQule Inc. has amassed 23 corporate collaboration agreements, which have produced 57 current lead optimization programs. Some compounds are expected to enter clinical trials in 1998.

Sankyo Co. Ltd., of Tokyo, is the latest firm — and the first from Japan — to sign on Medford, Mass.-based ArQule's dotted line. Sankyo agreed to a three-year deal providing access to the Mapping Array and Directed Array programs.

The deal is likely worth between $30 million and $35 million, including milestones, according to analysts. ArQule also will receive royalties on any products that result. The companies did not disclose financial specifics.

Other Japanese pharmaceutical companies had expressed interest in licensing ArQule's technology, said Eric Gordon, president and CEO, but the company stood firm on its subscription-based collaboration model consisting of the lead-identifying Mapping Array and the lead-optimizing Directed Array.

Mapping Array is a multiyear subscription to compound sets designed around core structures or themes. Through this program, the company annually provides 15 to 20 Mapping Array compound sets, each containing between 3,000 and 10,000 individual compounds for a minimum aggregate of 100,000 compounds. Subscribers license compounds of interest and at that point receivesstructural information.

The spatially arrayed formats, said Gordon, "are very information rich . . . and quite predictive," geared toward "providing the right chemistries for the right targets."

Under the related Directed Array program, ArQule uses its modular building block technology to create analogues of a lead compound identified by the collaborator. Typically, ArQule provides through Directed Array 3,000 to 7,000 analogues of a lead compound, along with structural information for each compound in an array. Successive Directed Array sets enable collaborators to identify the analogue or analogues having the greatest biological activity.

"It's an iterative, very information-rich, knowledge-gaining process, and that's what's very different in what we do," said Gordon of the programs. "We're directed at lead-optimization. We don't resort to traditional medicinal chemistry."

Industry observers like both this "intelligent" drug discovery process and the company's business plan, which generates short-term revenues via subscription fees, while holding on to the potential for milestones and royalties over the longer term.

"This is one of our top picks," said Matt Geller, of Oppenheimer & Co. Inc., in New York. "We think this is the leading company in biotech drug discovery."

"ArQule is more than just a 'combinatorial chemistry' company, and is better described as an integrated drug discovery company with the ability to discover and optimize lead compounds directly to the preclinical stage," wrote Mike King, an analyst with Vector Securities International Inc., of Deerfield, Ill.

Both Geller and King are projecting the company will turn the corner on profitability this year. King's model projects earnings of $0.02 per share in 1997, rising to $0.46 per share in 1998.

The speedy route to profits parallels ArQule's compression of the pre-preclinical drug discovery process.

"The typical drug discovery timeline is four to six years from concept to putting a compound into the clinic," said Gordon. "In a year and a half [since Mapping Array's launch], we're talking about 57 lead optimization programs, and a good percentage of those are being evaluated for the clinic, so that's well-ahead of the four to six years. Many of our lead optimization programs are completed in six to nine months."

In addition to collaborations with multinational pharmaceutical and agrichemical companies, ArQule's business plan calls for collaborations with biotechnology firms. The model for biotech collaborations is joint ownership of lead compounds that exhibit activity.

To date, ArQule has 16 biotech collaborations, including five at the lead optimization stage.

Other components of the company's business plan include potential formation of joint ventures with biotech firms, and extension of its technology — perhaps through a spin-off company — into other areas, such as specialty chemicals.

As of June 30, ArQule had $53.1 million in cash, following a first-half net loss of $700,000. The company's shares (NASDAQ:ARQL) closed Monday at $22.125, up $0.438. *

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