By Charles Craig

Hoechst Marion Roussel is moving aggressively into functional genomics in an $85 million joint venture with Ariad Pharmaceuticals Inc. to identify new therapeutic proteins and other genetic disease targets for regulation with small molecule compounds.

Ariad and Hoechst Marion Roussel, of Frankfurt, Germany, agreed Thursday to commit $85 million over five years to fund research at the Hoechst-Ariad Genomics Center LLC, which will be headquartered at Ariad's Cambridge, Mass., offices.

Although the two firms will share expenses equally, Ariad's portion over the initial term of the joint venture will be offset by equity investments from Hoechst Marion Roussel totaling up to nearly $50 million. Hoechst Marion Roussel is the pharmaceutical division of Hoechst AG, of Frankfurt.

Hoechst will buy 2.5 million preferred Ariad shares, each convertible to one common share, for $24 million upon completion of the deal. The pharmaceutical company also agreed to purchase up to another $25 million worth of preferred shares at Ariad's request over the next five years.

Hoechst's initial equity investment will give it 12 percent ownership in Ariad. The $9.50 price per share was a 42 percent premium to Ariad's $6.75 closing price Wednesday. Ariad's stock (NASDAQ:ARIA) ended Thursday up $1.25 to $8.

The other $25 million earmarked for equity investments can be used to buy no more than 1.8 million shares at prices determined when the investments are made. The preferred stock purchased by Hoechst contains lock-up provisions for six years.

In addition to the funding, Hoechst and Ariad will contribute their genomics expertise to the joint venture. For Ariad that includes technologies for regulating gene expression and combinatorial chemistry. Hoechst brings genetic research from Germany's Human Genome Project and a genomics infrastructure built through deals with Incyte Pharmaceuticals Inc., of Palo Alto, Calif., and Lynx Therapeutics Inc., of Hayward, Calif.

The Hoechst-Ariad Genomics Center will be co-managed by Ariad's chairman and CEO, Harvey Berger, and Hoechst's head of global biotechnology and core research functions, Norbert Riedel. Ariad will control day-to-day operations, which eventually will include 75 staffers.

Riedel said the joint venture with Ariad will serve as the center of Hoechst's functional genomics research along with a smaller facility near Munich.

The decision to work with Ariad, he added, grew out of the two companies' drug discovery collaboration for osteoporosis, which began in 1995.

"The staff and senior management of Ariad and Hoechst Marion Roussel have clearly developed a common philosophy on functional genomics," Riedel said.

The Hoechst-Ariad effort will approach genomics from the user end, Berger explained. "We looked at what you need to get out of genes" to make drugs, he added, saying other functional genomics companies started out as gene sequencing and gene discovery shops.

Ariad and Hoechst will share ownership of drug candidates emerging from the alliance.

The Hoechst joint venture, Berger suggested, puts Ariad on a competitive level with other U.S. functional genomics companies, such as Cambridge neighbor, Millennium Pharmaceuticals Inc. Berger said the Hoechst alliance is expected to yield products for Ariad's own internal protein drug and gene therapy programs.

A major source of genetic information for the Hoechst-Ariad Genomics Center will be provided through subscriptions, by both Ariad and Hoechst, to Incyte's LifeSeq data base of human gene sequences.

Hoechst is extending its data base subscription making it the first of Incyte's 14 major pharmaceutical company customers to renew an original agreement.

Ariad will be a new subscriber and the first among biotechnology's smaller firms to get access to Incyte's genetic data bases, which Incyte has said contain sequences for about 100,000 of the 150,000 genes in the human genome.

Hoechst and Ariad will have access to Incyte's data bases for their joint venture and for work independent of the alliance.

Incyte's stock (NASDAQ:INCY) closed Thursday at $57.125, down $1.875.

The Hoechst-Ariad Genomics Center will focus initially on finding new protein therapeutics and genetic targets for small molecule drugs in the areas of bone, neurodegenerative, immune system and inflammatory disorders. Some results are expected within 18 months.

The 1995 Hoechst-Ariad collaboration on osteoporosis will remain separate from the joint venture. The earlier agreement is focused on inhibition of Src, an intracellular signaling protein believed to regulate osteoclasts, which are cells that dissolve bony tissue. (See BioWorld Today, Nov. 11, 1995, p. 1.) *