By Debbie Strickland

Longtime partner Merck & Co. Inc. has inked a new $23-million-plus-royalties agreement with Vical Inc. for worldwide rights to use Vical's naked DNA technology to develop and market therapeutic vaccines against HIV and the hepatitis B virus.

Vical's shares (NASDAQ:VICL) closed Wednesday at $15.75, up $0.938.

Delivered intramuscularly, naked DNA vaccines can make muscle cells produce pathogen-specific proteins that stimulate the immune system.

Any protein — surface or core — can be used, and therefore scientists try to select one that is common across various strains of the pathogen, said Alan Engbring, director of investor relations for Vical. That way, the vaccine doesn't have to be reformulated when new strains emerge.

"And the beauty of going into muscle cells is that they will continue to express the protein for a long time, providing a constant tickler for the immune system," he said.

Under Merck and Vical's new agreement — the companies' third covering human vaccines and therapeutics — Merck will make a $5 million investment in Vical common stock at a premium to the market value.

The equity component of the new deal came at Vical's request, Engbring said. "This was an unusual thing for Merck to do, but we wanted to do something that involves a higher level of commitment from Merck."

If products are successfully developed, Merck, of Whitehouse Station, N.J., will pay up to $18 million in milestones, plus royalties. Each milestone will be paid either upon achievement of the specified goal or on a set date, whichever comes first.

San Diego-based Vical has copromotion rights in the U.S. upon establishing a sales force.

"By the time a product gets to market, we hope to have a sales force selling cancer products, and it would be useful to have something else for them to sell," said Engbring. "We'll be trying to amortize the sales force, and this is certainly a great opportunity to work with a marketing leader in this field."

Vical scientists have done some research on therapeutic vaccines for hepatitis B and herpes — "enough to know it's quite a feasible concept," Engbring said.

New Pact Grew From Prior Collaboration

Merck's interest stemmed from its own internal research efforts using Vical's technology.

"They've done enough work in their labs to know they wanted to license this," said Engbring. Merck has provided no details about that research, he said.

Merck will handle all stages of development of the HIV and hepatitis B therapeutic vaccines. The companies already were collaborating on preventative vaccines for the two viruses, along with five other infectious diseases, as part of their 1991 preventative vaccine agreement.

That collaboration's most advanced product, an influenza vaccine, is now in a Phase I trial.

Therapeutic vaccines represent a different product line and, hence, a separate licensing or collaboration opportunity for Vical. It is possible that different proteins and encoding genes would be selected for preventative and therapeutic vaccines for the same disease.

Last month Merck and Vical signed a third, $35-million-plus-royalties agreement covering naked DNA delivery of a "small number" of undisclosed growth factors. Unlike the vaccine agreements, that collaboration is not indication-specific, but protein-specific, allowing the big pharma company to use a given protein in any application in which it may play a therapeutic role. (See BioWorld Today, Sept. 16, 1997.)

Vical plans to "continue to slice up [the technology] into small marketable pieces," said Engbring, with some pieces entering collaborations and others remaining independent.

"We don't want to be just a license holder," he said. "We're an active developer."

Phase II Cancer Data Nearing Release

Vical has two unpartnered clinical-stage cancer products: Allovectin-7, in Phase II trials for melanoma and for advanced or recurrent head and neck cancer; and Leuvectin, in a Phase I/II trial for melanoma, renal cell carcinoma, sarcoma and prostate cancer. The company expects to release news about these trials by the end of the year, Engbring said, and to initiate clinical trials of a preventative vaccine for chlamydia in 1998.

Vical also plans to initiate follow-on trials of Allovectin-7 and Leuvectin in early 1998, and the company is "hopeful that the Allovectin-7 trial would be registration supportive," said Engbring.

Vical released third quarter financial results Wednesday that showed a net loss of $225,000 on revenues of $3.5 million — a near-reversal of the comparable period in 1996, when the company lost $2.2 million on revenues of $541,000. Most of the revenue boost came from a $2 million license and option payment from Merck related to the growth factor deal, and a $1 million milestone payment from Pasteur Merieux Connaught, of Lyon, France, for initiating a Phase I trial with a DNA vaccine for malaria.

Over the first nine months of 1997, Vical's net loss totaled $4.5 million, up 21.6 percent from a net loss of $3.7 million over the same period in 1996.

As of Sept. 30, the company had cash and cash equivalents of $42.3 million. *

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