BioWorld International Correspondent

Shares in Intercell hit an all-time high during early trading Monday on news that it had entered a broadly based alliance with Novartis AG, with a guaranteed cash element of €270 million (US$366.7 million), comprising an up-front, option and license payment of €120 million and a stock purchase worth €150 million. It could earn several hundred million more, through milestones from or profit shares in multiple development programs.

The deal focuses on three aspects of Intercell's pipeline. The first concerns its synthetic adjuvant IC31. Basel, Switzerland-based Novartis has gained an exclusive license to IC31 in the field of influenza vaccines, where the hope is that it could provide better efficacy, particularly in the elderly and infants, and greater cross-protection against circulating strains not included in the annual seasonal vaccine recommendation issued by the Geneva-based World Health Organization.

Vienna, Austria-based Intercell could earn up to €100 million in additional milestones, plus double-digit sales royalties on the use of IC31 in Novartis's mammalian cell culture influenza vaccine, Optaflu, which recently gained European Union approval. Novartis also is entitled to non-exclusive licenses to IC31 for other applications, for which it would pay Intercell total milestones ranging between €30 million and €60 million per license, plus single-digit sales royalties.

IC31 consists of an antimicrobial peptide, KLK, and an immunostimulatory oligodeoxynucleotide containing deoxy-Inosine/deoxy-Cytosine (ODN1a). It acts on the innate immune system and, indirectly, on both arms of the adaptive immune response, via the Toll-like receptor-9 (TLR-9)/MyD88 signaling pathway. It has entered the clinic in one partnered program so far, as part of a tuberculosis vaccine in development at the Copenhagen, Denmark-based Statens Serum Institut.

Intercell also recently began a Phase I trial of an IC31-adjuvanted seasonal influenza vaccine. "This adjuvant really pushes the T-cell response, while keeping antibody responses," Intercell CEO Gerd Zettlmeissl told BioWorld International.

The second part of the deal comprises Intercell's Antigen Identification Program (AIP), a systematic effort to produce new vaccines by screening antibodies isolated from individuals who have recovered from or who are resistant to a particular bacterial infection against peptide fragments derived from the genome of the associated pathogen. Novartis has an option to in-license vaccines coming out of that program, while Intercell retains the right to choose a profit-sharing agreement or to opt for milestone payments that would total €120 million per vaccine, plus double-digit sales royalties.

The first candidate at which Novartis might take a look is a Pseudomonas vaccine, which will enter a Phase II clinical trial early next year. After that is a pneumococcal vaccine, which will enter the clinic in 2008. The company has around half a dozen preclinical projects at earlier stages of the development, although none will enter the clinic before late 2008.

"What's not part of the deal is anything that comes out of AIP in terms of antibodies," Zettlmeissl said. Intercell already has therapeutic monoclonal antibody-based AIP deals with Whitehouse Station, N.J.-based Merck & Co. Inc. and with Tokyo-based Kirin Holdings Co. Ltd. It may develop and commercialize therapeutic monoclonal antibodies itself as well, he said.

In the third leg of the deal, the two companies are pooling their resources in the development of a therapeutic vaccine against hepatitis C virus (HCV) infection. Each already has a vaccine candidate in the clinic. Intercell's IC41, which consists of five synthetic peptides containing HCV T-cell epitopes plus an adjuvant based on poly-L-arginine, is undergoing a Phase II efficacy trial. The data will become available later this year, Zettlmeissl said.

Novartis gained a subunit vaccine based on the viral envelope glycoproteins E1 and E2, plus the MF59 adjuvant, when it became the outright owner of Emeryville, Calif.-based Chiron Corp. in April 2006. That product is undergoing a Phase I/II clinical trial. The two companies will decide which product to take forward on the basis of the data emanating from the two trials, Zettlmeissl said. Another option would be to combine the two in a prime-boost strategy.

Either way, the deal gives Intercell access to the U.S. market, he said. The Chiron patent estate had prevented it from entering that territory, although those patents are currently in the process of being overturned in Europe, he said.

The deal also makes Novartis the biggest shareholder in Intercell. The equity purchase pushes its stake from 6.1 percent up to 16.1 percent. It acquired 4.8 million shares at €31.25 each, a hefty premium on Intercell's closing price of €24 on Friday.

On closing the transaction, Intercell will have about €350 million cash on its balance sheet, having reported €86.3 million at the end of the first quarter. That additional financial muscle will enable the company to consider engaging in further in-licensing and acquisition activity. (It closed its takeover of Vienna-based Pelias Biomedical Development AG in January in a stock-based deal then valued at about €6.6 million.). The company also is looking at extending its adjuvant technologies into cancer and inflammation, although any move into the former area would be via a partnership, Zettlmeissl said.

Intercell's shares (VSE:ICLL) peaked at an all-time high of €29.30 shortly after the start of trading Monday, but then fell back to close at €27.75. The stock, the day's biggest gainer on the Vienna Stock Exchange, was still up more than 15 percent on Friday's close.