ESBATech AG is starting a drug discovery collaboration with Novartis Pharma AG, following a proof-of-concept pilot study using ESBATech's small-molecule screening technology.

The agreement calls for ESBATech to provide Novartis access to its cellular high-throughput screening technology, and their work will focus on identifying inhibitors for receptor tyrosine kinases that could provide targets for cancer drugs, said Dominik Escher, CEO of Zurich, Switzerland-based ESBATech.

Financial terms of the collaboration were not disclosed, but Escher called it "a significant deal" for ESBATech that will generate "substantial revenue" for the company, via up-front payments, research funding and potential milestone payments.

Before signing the deal, the companies conducted a pilot study of the technology, which eventually triggered collaboration negotiations.

"We have shown that the technology works," he told BioWorld Today.

Based on yeast cells, ESBATech's technology allows for the screening of proteases, secretases and receptor tyrosine kinases to find potential small-molecule inhibitors that act on specific targets. The advantages of that technology are its ability to quickly identify possible small-molecule inhibitors that are stable, non-toxic and have high cell permeability, for use in indications such as cancer, Alzheimer's disease and viral infections.

"The special thing is that our technology is based on cell proliferation," he said, while many other technologies lead to the cessation of cell division, resulting in the selection of potentially cytotoxic compounds. "So we get rid of the false positives," selecting only compounds that are metabolically stable and cell-permeable, he said.

Its deal with Novartis is the largest ESBATech has signed since it was founded in 1998 as a spin-off from the Institute of Molecular Biology at the University of Zurich. It signed a two-year agreement with F. Hoffmann-La Roche Ltd., of Basel, Switzerland, for target identification and validation in Alzheimer's disease in 1999, and has an ongoing collaboration with Toronto-based Viventia Biotech Inc. to improve the stability of Viventia's antibody fragments.

Escher said he hopes ESBATech will reach break-even on the strength of collaboration revenues, and, as the revenue grows, then subsidize internal development programs that center on antibody fragments.

It has three product candidates in preclinical development, he said, with an investigational new drug application expected for the first product within the next year. INDs for the other two candidates likely will be filed about 18 months from now.

ESBATech screened about 1.5 million naturally occurring antibody fragments to find those with high stability.

"The problem with most [antibody fragments] is that they are not stable" making it impossible to use them for therapeutic indications, Escher said. Of the 1.5 million screened, the company has identified about 50 stable fragments, and those now serve as the focus for generating drug targets.

The lead candidate, ESBA105, is directed against TNF-alpha and can be applied in local and topical applications in different inflammatory indications.

"We think TNF-alpha is an enormously growing market," Escher said. Although there are existing marketed products that target TNF-alpha - such as Enbrel (Amgen Inc., Thousand Oaks, Calif.), Raptiva (Genentech Inc., South San Francisco) and Remicade (Centocor Inc., Malvern, Pa.) - he said the antibody-fragment-based therapeutic appears to be "safer, with shorter systemic exposure." If approved for sale, the product also would cost less than the biologics on the market.

"It's also a small protein that offers much better cell penetration," he added. "Those three advantages are why we think we have a great opportunity in TNF-alpha."

Escher said the company recently started raising money in a Series C financing round and is "receiving good feedback." ESBATech raised CHF14.5 million (US$12.1 million) in its second financing round in May 2002. The upcoming round is expected to provide funding to move the therapeutic development program up to proof-of-concept clinical trials.

ESBATech has about 30 employees.