Onyx Pharmaceuticals, spun off from Chiron Corp. in 1992, hasentered into an agreement with Miles Inc., a subsidiary of the Germancompany Bayer AG, that could be worth $75 million to Onyx. Someanalysts hailed the largest biotechnology collaboration of the year as asign that the value of biotechnology companies is being recognized bythe pharmaceutical industry and rewarded accordingly.Collaboration between big pharmaceutical companies and smallbiotech companies with big ideas has become a trend. In 1993, therewere 69 such deals struck, and in the first quarter of 1994 the numberof collaborations was more than double that of the same period in1993. (For more information, see BioWorld Financial Watch, March28, 1994, p. 1.) Last year, the biggest deal was Human GenomeScience Inc.'s $125 million agreement with SmithKline BeechamCorp. Earlier this year, Millenium Pharmaceuticals Inc. entered into a$70 million collaboration with F. Hoffman-La Roche Ltd. andHoffman-La Roche Inc.The agreement between privately-held Onyx and Miles is for a five-year research and development program to discover new smallmolecule drugs that work by inhibiting ras intracellular signalingpathways and curbing cancerous cell growth. Financial terms of theagreement include the following:yMiles, of Pittsburgh, will fund the joint research and developmentprogram for five years, including $25 million in research funding atOnyx, of Richmond, Calif., and all preclinical development costs up tothe time when an investigational new drug application (IND) is filed.yMiles will make a $13.5 million minority equity investment in Onyx.yOnyx will have the right, when INDs are filed for any compound, toco-fund the future development of the drug with Miles in return for upto half of the profits in addition to milestone advances of up to $40million that will be deducted in the profit-sharing process, or to allowMiles to accept all the development costs in return for a royaltypayment on sales. In Japan, Miles has marketing rights and Onyx willreceive a simple royalty payment.In return, Miles will have exclusive worldwide clinical developmentand marketing rights to products emerging from the collaboration. In aprepared statement, Miles said that the alliance with Onyx will furtherits cancer research. It may also complement its work in areas such asdementia, metabolic disease and bone and joint disease, the companysays. Wolf Dieter Busse, Miles' head of international pharmaceuticalresearch, will also have a seat on Onyx's board.A spokesman for Miles did not return phone calls to BioWorld tocomment further on the agreement.Hollings Renton, Onyx's president and CEO, would not disclose termsof milestone payments or other financial arrangements, nor the stakethat Miles will get in Onyx _ beyond noting that it would be a sizableminority investment. However, he noted that the arrangements giveOnyx a choice. "This gives us the option of co-funding andparticipating more fully in profits, sharing in the risks and rewards. Wewill make the decision on a compound by compound basis."Renton said the agreement with Miles will allow Onyx to accelerate thecommercialization of ras proteins. "This is not just a financialdevelopment. This is a strategic combination of resources. We have astrong research base in ras and Miles has a chemical library, and drugdevelopment and marketing skills. Together we will be a formidableentity."High Dollars, Low RiskAnalysts tended to agree: Michael Walsh, an analyst with Robertson,Stephens and Co., of San Francisco said, "It's very good _ a verysmart thing to do. It's the kind of deal other companies need to do toensure their existence in a difficult financing environment. It's highdollars and low risk up front for Onyx, and if the product is successful,they can share in the profits later on."Walsh said this deal shows how valuable good drug developmentprograms are, noting that the large pharmaceutical companies spendover $1 billion a year on research and development each year. "A thirdof this is for `me too' drugs that are not cost effective. They arespending hundreds of millions a year for programs that are notprofitable. They need to find good scientific programs to invest in andthat's what's happening in deals like this."David Stone, director of the biotechnology group at Boston-basedCowen and Co., said the deal continues the trend of better terms forbiotechnology companies in deals with pharmaceutical companies."Instead of a royalty in return for worldwide rights, we are now seeingmuch richer terms for biotech companies. It's encouraging to see thesekinds of deals being made in an environment that is increasinglychallenging for drug companies," Stone commented.But, both Walsh and Stone pointed out that the terms of the Onyx-Miles deal were less favorable to Onyx than those of the collaborationsigned in December 1993 between Vertex Pharmaceuticals Inc. andWellcome plc in terms of development funding. That deal allowsVertex to receive up to $42 million during the collaboration with allexpenses, including the cost of clinical trials, picked up by Wellcome.By contrast, Onyx must share in the development costs with Miles inorder to share in profits.Stone noted, however, that Vertex had a product very close to market,whereas Onyx has nothing close to that stage, with earliest possibletrials in 1996.While the terms of the Onyx-Miles deal are not unique, Stone said itrepresents the best sort of arrangement. "Onyx has the opportunity butnot the obligation to go forward as a co-partner. This is important whenyou are looking 10 years down the road. Having a deal that has richterms and flexibility in different scenarios is better still. For thepharmaceutical companies, this is more profitable than having aslightly improved agent in a therapeutic class because these agents arebecoming more and more price competitive."What Miles gets from the arrangement, according to Walsh, is "someof the best cancer research out there _ Frank McCormick and histeam." Walsh said McCormick, one of Onyx's founders, is one of thebest known cancer researchers in the world, having made his reputationat Cetus Corp. and Chiron. "They are buying his expertise _ andkeeping other companies from getting it," said Walsh.Until he assumed the role of director of the National Institutes ofHealth, Nobelist Harold Varmus chaired Onyx's scientific advisoryboard, which includes a number of well-known scientists.Is Ras Protein Research Risky?Onyx is not the only company pursuing research into ras proteins as atreatment for cancer. But one big contender in the field, a collaborationbetween Agouron Pharmaceuticals Inc. and Schering Plough AG,recently dropped out, citing ras' complicated pathway and biologicaluncertainties.Renton, however, said his company is using a different approach fromthat of Agouron. "Instead of looking at ras as a single entity, we arestudying ras as one protein on a pathway of proteins that can go awry.We have a very deep research program. There is no question that ras isa very important target in cancer and is associated with over 40 percentof tumors."We feel that looking at how ras gets activated _ how it interacts withdownstream proteins such as raf and the downstream kinase cascade _are important ways we can impact the improper signalization in acancer cell. We look at ras as part of a pathway, a series of differentproteins and enzymes." n

-- Philippa Maister

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