Shaman Pharmaceuticals Inc., which has discovered 10 tropicalplant-derived compounds that show preclinical activity as treatmentsfor Type II diabetes, signed a five-year $19.5 million drugdevelopment agreement with a French subsidiary of Germany-basedMerck KGaA.

The collaboration with Lipha S.A., of Lyon, France, is the secondnegotiated by Shaman, of South San Francisco, for its diabetescompounds. The first, with Ono Pharmaceuticals Inc., of Osaka, wassigned in May 1995 and covers development rights for Japan, Taiwanand South Korea.

Lipha, a subsidiary of Darmstadt, Germany-based Merck, will haverights to develop the compounds elsewhere in the world.

The two collaborators have agreed to pay Shaman $25 million andassume development costs. Shaman also will get royalties onmarketed products and in the U.S. will share equally in profits withLipha.

Of the $19.5 million committed by Lipha, about $5 million was paidup front. Lipha, which focuses on diabetes research, will pay theother $14.5 million over the course of the five-year collaboration inthe form of research funding and a $9.75 million equity investment.The stock will be purchased at an undisclosed premium to the marketprice, Shaman officials said.

Lisa Conte, Shaman's president and CEO, said her company alsocould realize another $10 million in milestone payments percompound selected for development.

The overall Lipha deal is dependent on initiation of clinical trialswith at least one compound within two years. Shaman researchersalready have selected a drug candidate for submission of the firstinvestigational new drug application with the FDA.

The 10 compounds, which are derived from a variety of tropicalplants, have demonstrated they can reduce blood glucose in animalmodels, Conte said. Type II, or non-insulin dependent, diabetes isbelieved to affect more than 100 million people worldwide.

Lipha and Shaman, she added, expect to bring three of thecompounds into clinical development during the collaboration. Butall 10, if they achieve successful results in preclinical studies, wouldbe candidates for clinical development.

"Diabetes is a very complicated disease," Conte said. "Differentdrugs work better in different patients and you want to approachmanagement of diabetes with drugs that have different mechanisms ofaction."

Shaman uses an ethnobotanical approach to drug discovery,screening extracts from tropical plants traditionally used formedicinal purposes.

In addition to its diabetes program, Shaman has two drugs derivedfrom the croton plant in clinical development. Virend is a topicalantiviral compound for treatment of herpes and Provir is a oral formof the drug in development for secretory diarrhea.

The croton plant, found in Latin America, is a traditional medicinalherb used for treatment of respiratory diseases and gastrointestinaldisorders.

Shaman's stock (NASDAQ:SHMN) closed Wednesday up $0.375 to$6.625. n

-- Charles Craig

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