Sequus Pharmaceuticals Inc. on Wednesday granted Schering-PloughCorp. exclusive rights to market its liposomal oncology drug outsidethe U.S. and Japan in an agreement including provisions for shareddevelopment of the product for solid tumors.

The product, Caelyx (Doxil in the U.S.), became the first liposome-formulated drug approved in the U.S. when it was cleared inNovember 1995 for treating refractory AIDS-related Kaposi'ssarcoma. In June Sequus received European Union marketingclearance of the drug as a first- and second-line Kaposi's sarcomatherapy.

Sequus, of Menlo Park, Calif., received $5.3 million up front and canreceive another $27 million if certain events and targets are achieved.Those milestones are tied to two areas: sales figures in Schering-Plough's territories, and development in the solid tumor area as itrelates to regulatory milestones and publication of data in scientificjournals.

Schering-Plough, of Madison, N.J., can begin marketing Caelyx insome European countries, such as the U.K. and Germany, and willapply for pricing approvals in the countries where required. Schering-Plough already has a strong oncology presence in Europe with rightsto products such as Intron A (alpha interferon), Eulexin (flutamide),Leucomax (molgramostim) and Ethyol (amifostine).

Sequus will continue manufacturing the drug and will receivepayments for product sales, said Scott Minick, president and chiefoperating officer at Sequus.

Mary Anne Gray, an analyst at New York-based Dillon, Read & Co.Inc., issued a report on the deal Wednesday that said Sequus likelywill earn some milestone payments this year and additional paymentsover the next two to three years.

"Although other recent corporate deals have been larger, we feel thatthe signing of this deal with Schering-Plough finally removes thisissue from discussion and should allow the company and investors tofocus on product development," Gray said. "Schering has acommitment to the oncology market and should be a strong partner indeveloping Doxil for the worldwide market. The financialarrangements and access to Schering resources should assure theproper development of this exciting product."

The product contains doxorubicin encapsulated in microscopic lipidspheres. Polyethylene glycol attached to the liposomes helps giveCaelyx a circulating half-life of 50 hours compared to the 10 minutesfor free doxorubicin, Sequus said.

Sequus stock (NASDAQ:SEQU) fell $1.13 Wednesday to close at$16 per share. The stock, however, had gained that amount in thepast week.

Minick said Doxil is in a number of trials in solid tumor indications,including some Phase II studies.

Sales of the drug in the first half of the year were $9.4 million, a largemajority of which came in the U.S. Sequus has all rights in the U.S.The company also has a liposomal form of amphotericin B, calledAmphotec, that is approved in 16 countries. A new drug applicationfor Amphotec is under review in the U.S.

Gray said, "Over the next few months we should see continuedimprovements in the sales of both Amphotec and Doxil, thepossibility of a U.S. approval for Amphotec, publication of clinicaltrial results, and filing of an investigational new drug application forSPI-77. We continue to rate Sequus a buy and would take advantageof the weakness in the shares."

Minick said having Schering-Plough as a partner will help Sequusbuild its U.S. infrastructure for Doxil. He said the pharmaceuticalcompany will help not only in current indications but also inaccelerating development for solid tumors.

The companies said they will jointly develop a worldwide clinicalplan for solid tumors. Each will do trials in specific indications, andSchering-Plough will apply for approvals in its territories as well asfund a portion of the Caelyx development program. n

-- Jim Shrine

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