Arris Pharmaceutical Corp. signed a five-year agreement worth up to$70 million Monday with Bayer AG to develop drugs anddiagnostics from Arris' inflammation program, including inhibitorsof tryptase and chymase.

About 60 percent of the $70 million, or $42 million, will be inupfront and research payments to Arris, John Walker, the company'spresident and CEO, told BioWorld. The remaining $28 million is inpotential milestone payments on individual compounds, whichWalker said can be met at various stages from preclinicaldevelopment to marketing approval. Bayer, of Germany, got noequity in the deal.

Arris, of South San Francisco, already has one compound from itsinflammation program in the clinic. The potential asthmatherapeutic, AP 366, is in Phase I studies in the U.S. and UK. Thesmall molecule is designed to inhibit the mast cell protease tryptase.Arris will continue developing AP 366 through Phase II trials, atwhich time Bayer has an option to take over development.

While AP 366 is designed for inhalation, the focus of thecollaboration is on orally active compounds. Bayer gets worldwidemanufacturing and marketing rights to drugs coming from thecollaboration, with Arris getting royalties.

"We were fortunate enough to have a choice," Daniel Petree, vicepresident corporate development and chief financial officer for Arris,told BioWorld. "We had a number of large, importantpharmaceutical companies interested in this program. Bayer was avery strong partner for a number of reasons."

One of the reasons, Petree said, is Bayer's focus in the respiratoryarea. Another, he said, is that Bayer doesn't have many products onthe market, and "they're looking to us to be a main entrant into therespiratory field." That gives Arris more prominence in therelationship than they may have had with other partners.

Also, Petree said, Bayer already had worked in the tryptase field,adding synergy to the collaboration. Finally, the partnership ismutually exclusive, meaning that Arris gets its cut even if Bayerdevelops an inhibitor independently.

The Bayer collaboration involves one of the company's programs.Arris has collaborations in another area _ cytokine mimetics _with Amgen Inc., of Thousand Oaks, Calif., and Kabi Pharmacia ABof Sweden. The Amgen agreement focuses on orally activecompounds that mimic the actions of cytokines, particularlyerythropoietin. The Pharmacia collaboration deals with syntheticsmall molecules that mimic the action of certain human growthfactors.

Arris (NASDAQ: ARRS) reported a net loss of about $2.1 millionfor the quarter than ended Sept. 30. It reported about $18.5 million incash and investment and 8.6 million shares outstanding.

"This [deal with Bayer] more than halves our burn rate," Walkersaid. "It gives the company in excess of four years of cash, based oncurrent projected expenditures."

Bayer will take over development of all the molecules in Arris'tryptase and chymase programs. AP 366 is Arris' only molecule inthe clinic, but Walker said others are on the way. "We already have anumber of potent inhibitors of tryptase that have demonstrated oralefficacy in the sheep model."

Arris' development efforts benefit with its access to Bayer's libraryof 200,000 to 300,000 compounds, Petree said, as well as theGermany company's pharmacokinetic and formulation abilities.

Horst Meyer, chairman of the Bayer Pharmaceutical Business Group,said in a news release: "Arris' research and development to date has,we believe, demonstrated the broad potential application of tryptaseto inflammatory diseases. Our collaboration will focus ondevelopment of novel inhibitors of tryptase and chymase asalternatives to traditional steroidal inflammatory disease treatments."n

-- Jim Shrine

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

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