Athena Neurosciences Inc. said Tuesday it established a strategicalliance with Elan Corp. plc covering the application of Elan's drugdelivery to neurobiological products.

Athena, of South San Francisco, will pay Elan an option fee of $3million for access to the technology and for rights to certain productsElan may have available, said John Groom, Athena's president andCEO.

In a separate deal, Elan, of Athlone, Ireland, loaned Athena $12million in cash under a convertible subordinated promissory note.The note has a five-year term and is convertible, at Elan's option,into Athena common stock at $10 per share. The conversion priceincreases over time. Elan also has received warrants to purchase400,000 Athena shares at $10 apiece. They can be exercised startingin June 1996.

Under the collaboration, Athena will have marketing rights in theU.S., Canada and Mexico, and will share rights with Elan in the U.K.Elan will have rights in the rest of the world.

Under the alliance, Elan will provide pharmaceutical development,manufacturing and supply resources. Athena is responsible forclinical development, regulatory submissions, marketing anddistribution in its territories.

The companies aren't disclosing individual products involved, butsaid a development agreement has been executed for their firstproduct, in the area of Parkinson's disease.

Groom told BioWorld the collaborators will look at creating newformulations of existing drugs, and also may include earlier-stageproducts in the alliance.

"There's a variety of products we've identified as being of interest inthe marketplace," Groom said. "The majority of them already exist inthe marketplace where we believe an improved formulation would beof value to the patient."

Groom said the $12 million from Elan will help satisfy certainobligations Athena has, such as a $9 million payment due in thesecond quarter to Eli Lilly and Co., related to Athena's acquisition ofPermax, a dopamine agonist for Parkinson's disease.

Athena reported cash and equivalents of about $34 million at the endof 1994, and expected to burn $5 million or $6 million in the firstquarter.

Last month the FDA rejected Athena's new drug application ofZanaflex for spasticity associated with spinal cord injuries andmultiple sclerosis.

Groom said Athena is putting together a briefing package that itexpects to submit to the FDA. He said it's not clear if another trialwill be necessary, but said there is new data available that wasn'treviewed by the agency. "Until we meet with them it's hard tospeculate," he said.

Athena's stock (NASDAQ:ATHN) closed down 13 cents Tuesday at$6.63 per share. n

-- Jim Shrine

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

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