By Frances Bishopp

Onyx Pharmaceuticals Inc. has entered into its second collaboration with Warner-Lambert Co. in the form of a three-year research and development agreement aimed at discovering new therapeutics to regulate inflammation and autoimmunity.

Onyx, of Richmond, Calif., did not disclose financial specifics of the deal except to say total payment to Onyx, prior to commercialization, could total nearly $30 million, less than one-third in up-front and committed funding and two-thirds in milestones.

Terms of the agreement provide for Onyx to receive an up-front licensing fee payable in three stages, as well as milestone payments and royalties on eventual product sales. Parke-Davis, the pharmaceutical research division of Warner-Lambert, will receive exclusive worldwide marketing rights to products emerging from the collaboration.

The goal of the collaboration is to identify specific enzymes and other intracellular proteins that play a role in the development of inflammatory and autoimmune diseases, and then to develop small molecule therapeutics that interact with these proteins and inhibit their ability to cause disease.

Onyx's 1995 agreement with Warner-Lambert, of Morris Plains, N.J., worth up to $25 million, focused on development of small molecule compounds to affect cell cycle genes, which, when mutated, do not function as a check on abnormal cell growth.

Onyx's first technology platform focuses on creating a series of genetically engineered viruses that complement the defect in the cancer cells, therefore only growing in the cancer cell, said Hollings Renton, president and CEO of Onyx.

This platform has produced the company's lead product, Onyx-015, a genetically engineered adenovirus modified to kill only cancer cells that contain mutations of the tumor suppressor gene, p53. The p53 mutations, which allow cells to grow unchecked, are found in 50 percent of cancers.

Onyx-015 currently is in Phase II clinical trials for head and neck cancer and three Phase I studies for pancreatic cancer, liver metastasis from colorectal tumors and ovarian cancers.

Onyx's second platform involves using this information base to generate novel targets for small molecule drug discovery. In that area, Renton said, the company partners these programs early to align with pharmaceutical partners who have substantial capabilities in chemistry.

Onyx's research in inflammation focuses on the identification of new enzymes within the cell that regulate the activation of neutrophils and other phagocytes, and on designing assays that detect inhibitors of these enzymes. While phagocytes are beneficial in fighting infection, under certain conditions they can cause extensive tissue damage.

Toxic substances, which the phagocyte uses to kill the infectious agents, are released into the surrounding tissue from phagocytic granules during inflammatory conditions. The selective inhibition of phagocytes may decrease tissue damage while still allowing the immune system to respond to infection.

Onyx has other collaborations with Bayer A.G., of Leverkusen, Germany, and Eli Lilly and Co., of Indianapolis.

The agreement with Bayer, signed in May 1994 and worth up to $75 million to Onyx, is aimed at developing small molecule compounds that target cancer cells with mutated Ras genes, which are found in pancreatic, colon and lung cancers.

Onyx and Lilly began their collaboration in May 1995. The feasibility study was designed to determine how mutations of the BRCA1 gene cause breast cancer. The alliance was extended in June 1996, substantially increasing the resource commitment to the project from both companies.

Renton said both the Warner-Lambert and Bayer collaborations have optimized lead compounds.

Analyst Tim Wilson, of UBS Securities Equity Research, of New York, said the new Warner-Lambert collaboration reconfirms Onyx's scientific prowess and, in his opinion, Onyx will receive product royalties in the high single-digit range.

Wilson said all four of Onyx's deals constitute potential funding around $150 million, $70 million of which is committed money. "We believe that Onyx's stock is undervalued, as evidenced by the fact that its technology value, approximately $58 million, is $12 million less than the total mount of committed funding from collaborative partners," Wilson said.

Founded in April 1992, Onyx was formed as a spin-off from Chiron Corp., of Emeryville, Calif., which remains the largest shareholder, with a 15 percent ownership interest.

Onyx, as of June 30, 1997, had approximately $37 million in cash. Onyx's stock (NASDAQ:ONXX) closed Wednesday at $10.125, unchanged. *