By Don Long

Vertex Pharmaceuticals Inc. may have taken a giant step toward profit ground on Thursday by striking a multi-million dollar alliance with Eli Lilly and Co. for the development of protease inhibitors to treat the hepatitis C virus (HCV). Under terms of the collaboration, Lilly's support of the project could total as much as $40 million. Additionally, Vertex will sell stock worth $10 million to Lilly.

Vertex stock (NASDAQ:VRTX) closed Thursday up $0.875, to $46.125.

Richard Aldrich, Vertex's senior vice president and chief business officer, told BioWorld Today that, initially, "a large portion of that amount will be in the form of research support over four years." A smaller portion of the total will then be made as milestone payments, "after a candidate for [drug] development has been identified," he said.

The collaboration gives a major boost to Vertex's efforts in the search for orally delivered drugs that can inhibit hepatitis C protease, an enzyme believed to be the key to HCV growth and replication. The company specializes in developing small molecule drugs based on the 3-D structure of protein targets. Last September its scientists identified the atomic structure of HCV using X-ray crystallography.

With several products still in development, the company last year reported losses of $40 million, and this year had first quarter losses of $5.76 million. Aldrich projected total 1997 losses at between $20 million and $30 million but noted the company's current strong cash position: $270 million in the bank. In March, its initial public offering raised $136.5 million, which was the most raised by a biotech firm for the year.

While the new agreement provides "up-front financial support," its real benefit should come in the longer term, he said. "One of our priorities was to have a significant piece of success out of the collaboration through royalties and by retaining the right to manufacture the product on a global basis."

Besides the new alliance with Lilly, Vertex currently is collaborating with Glaxo Wellcome plc to develop its lead product, an HIV protease inhibitor, and its AIDS drug, VX-478, is currently in Phase III trials. Vertex hopes for launch of that product in the second half of 1998, Aldrich said, adding that "revenues [from VX-478] will drive profitability."

In the meantime, the collaboration with Lilly "will offset some costs at the research stage, and Lilly will pay for clinical trials and development" of the company's hepatitis drug discovery programs, he added.

Over the longer term, successful development of drugs to treat HCV has potential for tapping into a significant global market. Chronic HCV reportedly attacks nearly 4 million Americans, and nearly 1 percent of the world's population -- about 300 million -- are considered to be carriers.

Aldrich noted that because of the long time line between infection and onset of symptoms, the result could be "an epidemic of those people in the next 10 to 15 years * an enormous public health problem." That, he said, could translate into a market he estimates at $2 billion to $3 billion yearly.

Currently, the only treatment for HCV is alpha interferon, which has limited efficacy and negative side effects, according to experts.

Vertex employs 210 people, approximately 150 of those in the research area, and teaming with Lilly gives its effort significant backing, Aldrich said.

Carlos Lopez, a research fellow at Lilly, told BioWorld Today that Vertex is an excellent candidate for developing an HCV therapy because it can use, as a model, its work with protease inhibitors to treat HIV.

"What's promising is the approach, which is similar to that taken against HIV. What's attractive is that they have made dramatic strides in targeting and crystallizing those inhibitors and there is every expectation they could be very potent."

Failure of previous attempts to find treatments have been hampered, Lopez noted, by the inability to capture the virus with traditional culturing techniques.

"Vertex has been the first group to crystallize the protease in its active form, so it has a tremendous advantage. And their approach is furthest along," he said. "We have a lot of confidence that Vertex will be able to come up with the protease inhibitors to attack this virus."

Under terms of the agreement, Vertex will take the lead in drug design, process development and the pre-commercial manufacturing of the drugs that are discovered, and will receive royalties on product sales. If it exercises its commercial supply option, Vertex will receive drug supply payments rather than royalties outside of the U.S. and Japan.

Lilly will have primary responsibility for formulation, preclinical and clinical development and global marketing. Various phases of drug development, manufacturing and marketing will be jointly managed. *