By Lisa Seachrist

Washington Editor

Pharmacopeia, Inc., signed a three-year research and development collaboration with Bristol-Myers Squibb to develop small molecule drugs aimed to two chemokine receptors involved in atherosclerosis, glomerulonephritis, asthma and allergy which could be worth up to $40 million.

The collaboration centers around Pharmacopeia's in-house efforts to target drugs to chemokine receptors using its proprietary Encoded Combinatorial Libraries on Polymeric Support (ECLiPS) and high throughput screening technologies. The companies are not specifying the chemokine receptors to be targeted in the collaboration. However, the deal comes a year after the Princeton, N.J.-based company announced its discovery of a small molecule antagonist for the inflammatory chemokine interleukin-8.

"This is a very difficult class of interactions to target," said Lew Shuster, executive vice president for corporate development and chief financial officer for Pharmacopeia. "Many people thought the only way to target protein-protein interactions was with monoclonal antibodies. This deal validates our internal research program."

Under the terms of the agreement, Bristol-Myers, of New York, will pay Pharmacopeia an up-front payment to defray research costs incurred this year. Bristol-Myers also will fund research for the next three years and pay milestones. Should a product result from the collaboration, Bristol-Myers will pay royalties.

Additional milestones and royalty payments are possible from Bristol-Myers' screening of Pharmacopeia's ECLiPS data.

ECLiPS involves solid phase synthesis and the use of microscopic beads to identify the structure of a compound. The company can create of pool of over 100,000 compounds attached to beads. The compounds are identified based on a sequence of inert chemical tags on the beads, which encode the series of chemical reactions that produced the compound. Once a compound is found to have activity, the tags can be read and a compound can be synthesized on a large scale for additional testing.

"This cooperative project with Bristol-Myers leverages our internal capabilities in both biology and chemistry," Shuster said. "It also allows us to gain from their expertise in drug development in cardiovascular and inflammatory diseases."

Kevin Tang, senior biotechnology analyst with BT Alex. Brown, of New York, said the deal is "quite significant not only because it addresses both their ability to produce compounds and select biological targets, but because a major pharmaceutical company has chosen to invest in technology. The large pharmaceutical firms invest tens of millions of dollars on in-house combinatorial chemistry efforts. It is a major coup for Pharmacopeia to form a collaboration with Bristol-Myers."

Tang noted that Pharmacopeia's technology has resulted in a total of eight pharmaceutical collaborations to date with companies such as Basel, Switzerland-based Novartis AG and Schering-Plough Corp., of Madison, N.J.

"Right after their IPO, we saw a number of corporate collaborations," Tang said. "It's been pretty quiet for the past six to nine months. I think we are going to continue to see deals being announced. We are quite bullish on this stock."

Pharmacopeia's stock (NASDAQ:PCOP) closed at $19.312, up $0.625. *