Alliance Pharmaceutical Corp. has signed an agreement for as much as$90 million in return for giving Johnson & Johnson rights to developand market Oxygent, a temporary blood substitute, one of Alliance'slead products.Bob Hodgson, an analyst with Cowen & Co., of Boston, said the dealactually could be worth up to $125 million, because Johnson &Johnson will fund clinical trials. He said the collaboration ranks "at thehigh end" of the biggest deals made this year between large drugcompanies and biotechnology firms.Other recent big pharma - biotech agreements include a $35 milliondeal between Cadus Pharmaceutical Co. and Bristol-Myers Squibb Co.,both of New York, in July; two collaborations forged by Eli Lilly &Co., of Indianapolis, one for $60 million with Somatogen Inc., ofBoulder, Colo., in June, and the other with Seragen Inc., of Hopkinton,Mass., for $45 million in July; and a $70 million agreement betweenMillennium Pharmaceuticals Inc., of Cambridge, Mass., andSwitzerland-based Hoffmann-La Roche in March.Theodore Roth, Alliance's executive vice president and chief financialofficer, said Wednesday his company will receive $15 million up frontfrom Johnson & Johnson Development Corp., a subsidiary of NewJersey-based Johnson & Johnson, in exchange for Alliance convertiblepreferred stock.Roth said Alliance could realize another $65 million to $75 millionover the next four years based on milestone payments, license fees andresearch funds from Johnson & Johnson, which also will get warrantsto purchase 300,000 shares of common stock at $15 a share. Thewarrants will expire in three years.The Alliance agreement calls for the company to collaborate with twoJohnson & Johnson subsidiaries _ R.W. Johnson PharmaceuticalResearch Institute, located in Raritan, N.J., and San Diego, and OrthoBiotech Inc., of Raritan, N.J.Oxygent is as a perfluorochemical emulsion that carries oxygen and isused as a blood substitute during surgical procedures. Alliance hascompleted Phase II pilot trials of the drug, but Roth said the resultshave not been released. An expanded Phase II study would be the nextstep.Alliance will help develop the drug with Johnson PharmaceuticalResearch Institute, which will manage the clinical trials. Ortho Biotechwill market the product worldwide and Alliance will receive royalties.Alliance's stock (NASDAQ:ALLP) closed Wednesday at $10.50, up25 cents.Hodgson said lack of excitement about the agreement on Wall Streetmay be due, in part, to investors tracking blood substitute research havebeen focusing more on hemoglobin-based products instead of thosemade from perfluorochemicals.Oxygent, according to Roth, will complement Ortho Biotech'srecombinant human erythropoietin (EPO), which is licensed fromAmgen Inc., of Thousand Oaks, Calif. for use as a red blood cellsubstitute in non-dialysis indications."This is a very significant [agreement] to us," Roth added. "Johnson &Johnson spent a lot of time doing diligence on the product. It's a goodfit. They have the ability to get the product approved on aninternational basis. They've already been through the process with EPOand they know the product."Roth said Alliance will use the money from Johnson & Johnson tocontinue development of two other lead products, Imagent andLiquivent. The former is an ultrasound contrast imaging agent and thelatter is a perfluorocarbon liquid used in the lungs to improvepulmonary function in patients afflicted with respiratory distresssyndrome.Roth said the convertible stock will revert to Alliance common stockwhen the per share price reaches $20, unless that level is not reachedwithin four years, at which time the preferred stock will convert atmarket price.Alliance currently has about 21 million shares outstanding. At the endof its third quarter, March 31, the company had $29.7 million in cashand a burn rate of about $2.9 million a month. The June 30 fiscal year-end figures have not been released. n

-- Charles Craig

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