Eli Lilly & Co. tentatively agreed Friday to pay Seragen Inc. up to $45million for exclusive rights to develop and market the Hopkinton,Mass.-based biotechnology company's fusion toxin molecules fortreatment of cancer and other diseases.The deal calls for the Indianapolis-based Lilly initially to pay $10million, half of which would be used to purchase Seragen commonstock. The $5 million in stock would give Lilly about a 5 percentinterest in Seragen. The other $5 million is an advance for bulkpurchase of the fusion toxin molecules.Carol Werther, a market analyst for Cowen & Co., of Boston, said,"This is another example of a biotechnology company with less than aone year of cash left that has struck a positive deal with a strongcorporate partner."The up-front cash is based on Seragen's progress in developing itsinterleukin 2 fusion toxin for treatment of cancer, specificallycutaneous T cell and non-Hodgkin's lymphomas. Phase III trials areexpected to begin this year for cutaneous lymphomas and Lilly wouldmanage those studies with Seragen.The agreement also requires Lilly to pay Seragen another $10 millionupon meeting certain regulatory milestones in developing a cancerdrug.An additional $25 million would be paid to Seragen if Lilly exercisesvarious options. Those include taking over clinical trials of interleukin2 fusion toxins for rheumatoid arthritis, diabetes, AIDS and ofdeveloping Seragen's epidermal growth factor (EGF) toxins fortreatment of solid tumors (cancer). The EGF toxin is in phase I/II trialsfor cancer.Seragen will retain rights to manufacturing bulk quantities of itsproducts for sale to Lilly. Seragen also will keep exclusive rights todevelopment of dermatological applications of its fusion toxins thatdon't involve cancer."This (agreement) allows for the development of all our pipeline ofproducts," said Richard Svrluga, Seragen's president and chiefoperating officer. "Lilly will develop the products for cancer and wewill develop products for dermatology. We're focusing on the futureand this will allow us to continue to be a player."With multiple clinical trials underway, Seragen said it had been lookingfor a corporate alliance since last year. As of March 31, the companyhad $12 million in the bank and a burn rate of $1.4 million a month.No date was given for completion of the tentative agreement.With the announcement of the Lilly alliance, Seragen's stock(NASDAQ: SRGN) closed at $7.75 Friday, up $2.50. Lilly's stock(NYSE:LLY) closed at $50.50, down 13 cents.A Lilly spokesman said the collaboration gives Lilly a second potentialcancer drug at the Phase III clinical trial level. The company'sgemcitabine is in Phase III trials for pancreatic cancer.In explaining its fusion toxin technology, Seragen officials said,"Fragments of diphtheria toxin are genetically fused to a targetingligand, such as a hormone or growth factor. The ligand binds the fusiontoxin to specific surface receptors on cells that are active in diseasessuch as cancer. Once attached to the receptor, the fusion toxinpenetrates the diseased cell and kills it." n

-- Charles Craig

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