Genelabs Technologies Inc. signed a collaboration agreement withDupont Merck Pharmaceutical Co. Wednesday to develop smallmolecule gene-regulating drugs. The collaboration could generate asmuch as $20 million per drug that gets to market for the RedwoodCity, Calif. biotech company.

The collaboration will rely on Genelabs' small molecule screeningexpertise to screen a shared data base of compounds provided byDupont Merck. The privately-held Dupont Merck will then steer thecompounds through the preclinical and clinical stages ofdevelopment.

"We are very excited about this agreement," said Debra CatzBannister, vice president of corporate communication and investorrelations for Genelabs. "Dupont Merck is an excellent firstcollaboration and a strong vote of confidence for our technology."

Genelabs' technology _ including its MERLIN assay _ focuses ondiscovering compounds that bind DNA and either turn a specificgene on or off. The company can then determine which molecules arelikely to have an effect in a specific diseases like arthritis or cancer.

In January and February, a program committee comprising membersfrom both companies will set their initial priorities and determinewhich disease-associated genes the collaboration will focus on .

While the details of the agreement are not being released, Bannistersaid that it provides for an up-front payment, significant researchfunding, milestone payments and royalty payments should any of thesmall molecules ultimately make it to market. The collaborationcould be quite lucrative as it doesn't stipulate a limit to the number ofcompounds that the companies jointly develop.

"This is a long awaited development for Genelabs," said FranklinBerger, analyst with Josephthal Lyon and Ross Inc., in New York."This is an ingenious method for rapid screening of DNA bindingmolecules."

Berger also said that the collaboration between the two companiescreated a very good synergy between Genelabs technology andDupont Merck's chemical expertise. In addition, the collaboration"throws Genelabs into a whole different paradigm because thecompany retains a residual interest in any drugs that are developed."

With this agreement, Genelabs could be morphing itself into a serviceas well as a proprietary business similar to the Gaithersburg, Md.-based Human Genome Sciences Inc., said Berger. "You can bet thatGenelabs is seeking agreements with other major pharmaceuticalcompanies," he said.

Bannister confirmed that the company was seeking furtheragreements but could not comment about the specific companies.

"This may just be a little bit of a renaissance for the company andcould get them back on track," said Berger, who noted that thecompany's stock fell a few years ago when expected results failed tomaterialize. "It's an emerging story that should excite stockholders."

In addition to this collaboration, Genelabs currently has its leadproduct, GL701 _ a therapy for systemic lupus erythematosus _ inPhase III clinical trials.

Genelabs Technologies' stock (NASDAQ:GNLB) closed Wednesdayat $6.25, up $2.125. n

-- Lisa Seachrist Washington Editor

(c) 1997 American Health Consultants. All rights reserved.

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