Building on a longtime partnership, Metabasis Therapeutics Inc. granted to Sankyo Co. Ltd. an exclusive option to enter an agreement that could range from $25 million to $50 million to develop a second-generation gluconeogenesis inhibitor to treat Type II diabetes.

The companies already are developing CS-917 (formerly MB6322), a first-generation gluconeogenesis inhibitor that Sankyo licensed under a 1997 agreement with San Diego-based Metabasis. And while Metabasis and Sankyo continue to collaborate on CS-917's ongoing development, the discovery portion of the original agreement concluded in May.

"Sankyo has been an excellent partner in this program, so I think there was an aspect of loyalty," Metabasis Chairman, President and CEO Paul Laikind said. "But they've done a good job on the first compound. And from a marketing perspective, we held onto co-promotion rights both in the first compound as well as in this next compound. It gives us a right to exercise that co-promotion, should we choose to, and really have a good working relationship and ability to market with them in the U.S."

If Tokyo-based Sankyo exercises its option to enter into the second-generation development deal - and it's paying a nonrefundable $8 million for that option - its decision assuredly would be tied to a proof-of-concept CS-917 clinical study now under way. In the trial, patients are dosed for 14 days to determine both safety and efficacy.

"Some of this is still an evolving story because we have not yet seen the Phase II data from the first-generation compound," Laikind said. "Obviously, we're learning a lot in the clinical stage now."

But any second-generation product would be expected to improve on CS-917's potency and bioavailabilty. Privately held Metabasis said CS-917, being tested in the U.S. and Europe, is the first specific gluconeogenesis inhibitor to reach the clinic. The drug entered clinical development in August 2001, and Phase II testing has begun in the U.S.

"We've completed our first series of Phase I studies. We've just completed the single-dose and are doing the multidose in patients now," Laikind said. "The results of those studies are going to tell us both the strength as well as any potential limitations with this first-generation drug, so we hope to build on that."

Laikind said Metabasis expects to complete the multidose study in the first half of next year, leading to a three-month, Phase IIb study in the second half.

Should Sankyo exercise the right to enter the new agreement, it would be structured similarly to the previous agreement. Sankyo fully funded the first deal, which included a substantial initiation fee, research funding, milestone payments and a royalty based on net sales.

"I'd say it's fairly balanced," Laikind said, "with clearly more in the back end as usual. There are also significant payments early on."

But its total potential value, in terms of various payments and royalties, would be higher than similar payments called for under the 1997 agreement. Sankyo also gains the right to license a new compound - discovered by Metabasis since May or during the option term - for use as a backup to CS-917 should one be required.

On the basis of a 1997 payment of $7.25 million from Sankyo to Metabasis as part of its Series A financing, the former has added interest in the latter's success beyond the diabetes drugs. And by early next year, Metabasis expects to have two other products in clinical development as well.

In addition to CS-917, Metabasis has developed its HepDirect technology that directly targets biologically active forms of drugs to the liver. Its first product borne of such technology, Hepavir B (formally MB6866), is expected to begin testing in patients early next year to treat hepatitis B. Developed in partnership with Costa Mesa, Calif.-based Ribapharm Inc., Hepavir B is a HepDirect prodrug designed to avoid the renal toxicity of an approved antiviral drug, adefovir dipivoxil (Gilead Sciences Inc.).

"By making this HepDirect prodrug, we get high levels into the liver but very minimal levels systemically," Laikind said. "So we can vastly reduce the exposure of the renal system and other systems in the body, but still get the efficacious dose in the liver."

The third product, MB7133, is a HepDirect prodrug targeting primary liver cancer that is scheduled to reach the clinic early next year. Laikind called the compound a prodrug of a drug that has been effective on other cancers, but not cancer of the liver, for which there is no approved drug. It has shown positive preclinical activity, he said, adding that Metabasis expects to file an investigational new drug application during the first quarter of next year.

The company is developing that drug absent a partnership.