Inhale Therapeutic Systems agreed to collaborate with Pfizer Inc.Thursday on the development of a pulmonary delivery system forinsulin.

Inhale, of Palo Alto, Calif., will receive undisclosed up-front,research, milestone and royalty payments. Pfizer also will make aninitial $5 million equity investment in Inhale at a 25 percentpremium to the market price, and another $5 million on the sameterms upon meeting a certain milestone in the development process.Pfizer, of New York, gets worldwide commercialization rights.

Inhale (NASDAQ:INHL) investors reacted strongly to the deal as thecompany's stock closed up $1.25 per share, or 14.5 percent, at$10.50.

The company's system is suited for delivering macromolecules, inthis case fine, dry aerosol powders to the deep lung. Inhale isdeveloping the dry-powder insulin formulation, the powder-processing technology and the deep lung delivery device. Inhale andPfizer are collaborating on the technology to fill the powders for usein the device, according to Robert Chess, Inhale's president andCEO.

"They're funding basically all our research and development workrelated to the insulin project," Chess told BioWorld. While unable todisclose specific numbers, he said the "total amount of R & Dfunding and milestones could be several times what the equityinvestment is."

Inhale already has completed a Phase I study in 24 healthy, fastedvolunteers. The study compared subcutaneous injection of insulin toInhale's pulmonary delivery. The trial showed pulmonary insulinwas absorbed systemically and lowered blood glucose.

Specific trial results have not been made public, but apparently theywere positive. "Pfizer has seen everything we've done in greatdetail," Chess said. "Clearly we were very encouraged by theresults."

Inhale, which completed its initial public offering in May, has beendeveloping its system for delivery of proteins, peptides and othermacromolecules since its founding in 1990. "We have 13 differentprojects under way, 10 of which are with partners," Chess said. Forthe most part the deals involve applying Inhale's system to variousmacromolecules. With one exception, he said, the projects are beingfunded by the partner.

The formulations are different for each molecule, but the powderprocessing, packaging and device is similar from drug to drug. Thedevice disperses the powders into a cloud, which the patient inhales.Because of the small particle size and the way the cloud is formed,the formulation is delivered to the deep lung.

The deal with Pfizer is significant for a number of reasons, one ofthem being the size of the potential opportunity, Chess said. He saidthe insulin market was $1.7 billion in 1992, and a non-invasivedelivery method would expand the market. About 85 percent ofdiabetics are Type II, Chess said, and 30 percent of them should beon insulin therapy but aren't, principally because they don't want toinject themselves.

The arrangement is exclusive on both sides. Chess said the milestonethat would trigger the second $5 million equity investment could beexpected to be reached in 1996. While the clinical development planstill is being finalized, Chess said he expects trials in 1995 to includediabetics.

Inhale has about 8.6 million shares outstanding. The first equitypurchase, expected to be completed in a few weeks, would result inPfizer holding about 450,000 Inhale shares. Pfizer's stock(NYSE:PFE) was down 38 cents Thursday, closing at $79.13 pershare. n

-- Jim Shrine

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