Associate

Pharmacopeia Inc. is continuing its long-running show with Schering-Plough Corp., which signed on for another three years in an agreement with a potential value "beyond an eight-figure deal," said Pharmacopeia's chief financial officer.

The extension of at least three years will bring the total time the companies have worked together to about 12 years. (See BioWorld Today, Nov. 4, 1998.)

"We've worked with them since 1994," said Stephen Spearman, chief operating officer of Pharmacopeia Drug Discovery Inc., a division of Pharmacopeia. "Our initial agreement dealt with our ECLiPS technology. And we made chemistry libraries and also began an optimizing program with them as well."

ECLiPS stands for Encoded Combinatorial Libraries on Polymeric Supports.

In 1998, the companies signed a five-year deal. Under those terms, Pharmacopeia created combinatorial libraries for Schering-Plough to use and Pharmacopeia assisted in optimizing compounds. The agreement disclosed late Thursday stipulates the companies will work to identify candidates for Schering-Plough, of Kenilworth, N.J., to develop. Schering-Plough for the first time will have access to Pharmacopeia's internal collection of more than 5 million compounds. Schering will nominate targets for Pharmacopeia to screen, and Schering will license any optimized drug targets. Certain optimization angles of the 1998 agreement will progress under the new agreement.

Princeton, N.J.-based Pharmacopeia will receive research funding and would receive other payments as milestones are reached. Specific financial details were not released, but if the new deal is structured similarly to the deals in 1994 and 1998, valued at up to $75 million and $60 million, respectively, funds could be significant.

"I would put [this deal] in that form," said John Hanlon, executive vice president and chief financial officer for Pharmacopeia. "Clearly it's a substantial deal [and] comparable to the other two deals."

Spanning the years, Pharmacopeia's work with Schering-Plough has been an important source of revenue. But with a goal of being profitable this year and a keen eye on its cash flow, Pharmacopeia is somewhat different from the usual cash-thirsty biotech company.

"We have about $140 million in the bank and we aren't burning," Hanlon told BioWorld Today, adding that the company specializes in "low-risk development."

Pharmacopeia's other collaborators include Novartis AG, of Basel, Switzerland; NV Organon, of Oss, the Netherlands; and Celgene Corp., of Warren, N.J. It has turned back 20 compounds to collaborators for further development and Bristol-Myers Squibb Co., of New York, filed an investigational new drug application in August for one of those, making it the first to approach the clinic. The filing, for a p38 kinase inhibitor for rheumatoid arthritis, triggered an undisclosed milestone payment to Pharmacopeia.

With the ability to screen for others, it would seem a likely progression for the company to develop compounds on its own.

"We are doing that," Spearman told BioWorld Today. "We have two programs in angiogenesis right now. One is in animals for efficacy and the other one we just finished optimization on."

The idea is to partner both programs, and Pharmacopeia is working toward that, as the company plans to stop development before Phase I as part of its business model. The work Pharmacopeia does for itself is on a restricted basis.

"We balance our spending," Hanlon said. "We limit our internal work to the extent of our external work."

The company is expecting revenues to be down this year, and has advised The Street accordingly. However, "even at that lower revenue, we can be cash-flow positive and potentially show a profit," Hanlon said. The difficult part in forecasting, he said, is figuring in revenues for Pharmacopeia's software unit, Accelrys Inc., since 75 percent of Pharmacopeia's income is from software and 35 percent of Accelrys' revenue is usually recorded in the fourth quarter.

Looking toward profitability, the guaranteed funding from the Schering-Plough deal will come in handy.

"Schering-Plough has been our longest and most successful collaborator," Spearman said. "Schering is approaching 10 years. For a biotech to develop a relationship and deliver for this many years is sort of unusual."

Pharmacopeia's stock (NASDAQ:PCOP) fell 30 cents Friday to close at $12.80.