Schwarz Pharma AG looked at hundreds of development-stagecompanies before it chose Cytel Corp. as its first partner in thebiotechnology arena.

Schwarz, of Monheim, Germany, said Thursday it is paying $4million up-front in a collaboration to develop and marketcarbohydrate selectin blockers, including Cytel's lead cell-adhesionproduct, Cylexin. Schwarz also is making milestone payments andwill fund 75 percent of further clinical development of Cylexin.

Cytel, of San Diego, which retained worldwide manufacturing rights,will share equally in North American profits, and will receiveroyalties on sales in Europe (Sumitomo Pharmaceuticals Co. Ltd., ofOsaka, has rights in the Far East).

The deal, including clinical developments costs, is worth about $70million to Cytel assuming Cylexin is brought to the new drugapplication stage in the initial indication of acute myocardialinfarction, said Deborah Goode, the company's director of businessdevelopment.

Schwarz, which focuses more on marketing than research, is involvedprimarily in the area of cardiovascular disease. It had 1994 sales ofabout $630 million.

Thomas Richter, Schwarz's director of business development, toldBioWorld his company expects more biotechnology collaborations togo forward, "although finding partners is rather difficult. It was ourapproach to say, `if we really wanted to be in the forefront, it is hightime to find a partner in the biotech world.' We do not see manyinteresting compounds in the cardiovascular field coming fromtraditional approaches."

That's where Cytel's carbohydrate-based small molecule, Cylexin,comes in. The compound, in two Phase II studies involvingreperfusion injuries, binds to both E- and P-selectin receptors. Eachof the receptors is believed to be involved in neutrophil migration.

Richter said once Schwarz decided to seek a biotechnology partner,the company search started with the entire industry universe.European companies were discounted, because of the lack of a fit andbecause many are affiliated with larger companies.

"It was about a year ago we started to make a screening of theAmerican biotechnology landscape," Richter said. "We set out to finda company that had three prerequisites: they had to have a compoundfor cardiovascular disease, it had to be at least in Phase II, and thecompany had to be willing to enter into more than just a simplelicensing deal with us.

"To our surprise there were not many companies we could identify aspotential partners. Finally, it came down to just Cytel."

Schwarz's $4 million up-front payment was split equally betweencash and equity, the latter part of which was made at $8.28 per share,or a 100 percent premium to a recent average trading price of Cytel,Richter said. Schwarz's stake in Cytel is less than 1.5 percent. Cytel'sstock (NASDAQ:CYTL) closed Thursday at $4.63 per share, up 38cents.

Goode said Schwarz will fund 75 percent of the development costsfor any other indications Cylexin is taken into.

Cylexin is designed to prevent reperfusion injury upon return ofblood flow to tissue that has been ischemic, such as in heart attacks,trauma and certain surgeries. Injury occurs when excessiveneutrophils migrate from the blood stream to surrounding tissue andrelease toxins that damage healthy tissue in the process.

Cylexin is being tested for its ability to reduce cardiac reperfusioninjury associated with treatment of myocardial infarction in thoseundergoing primary angioplasty. The second trial is testing Cylexinin lung reperfusion injury.

"We can add a lot," Richter said. "We have huge experience in thedevelopment of cardiovascular drugs. To say that we're not research-based does not mean that we're not development-based. We have fullknowledge of the European regulatory process. We are not so hugethat in the U.S. that we would completely suppress Cytel. I think thatmakes us an especially good partner."

Goode said it was important that Cytel maintained a substantialinterest in its carbohydrate-blockade program, an area of strategicfocus. Last month Cytel entered into a deal with The Upjohn Co., ofKalamazoo, Mich., involving a monoclonal antibody, CY 1748, thatinhibits the activity of P-selectin.

The deals significantly strengthen Cytel's balance sheet. On March31, it had about $32 million in cash and equivalents, and had a netloss of about $17 million in 1994. The company expects to end 1995with a net loss of $10 million and a cash balance of $33 million,Goode said. n

-- Jim Shrine

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