Agensys to License Drug to Merck

Agensys Inc., a Santa Monica biotechnology company focused on cancer, and drug giant Merck & Co. today are expected to announce a licensing agreement that could be worth more than $200 million to the smaller company.

The deal for AGS-PSCA, an antibody drug being developed for prostate cancer, signals Merck’s increased interest in targeted cancer drugs, a lucrative area dominated by biotechnology firms, and serves as an endorsement of Agensys’ technology.

Merck will pay Agensys $17.5 million immediately and $11.5 million over the next 12 months, subject to certain events. The successful development and launch of AGS-PSCA could trigger milestone payments of $95 million, which could increase to more than $170 million if the drug is developed and approved for more than one type of cancer.

AGS-PSCA recently entered early-stage human tests for prostate cancer, but Agensys said its experiments indicated the drug might also be effective against pancreatic and bladder cancers. It blocks the activity of prostate stem cell antigen, a protein that is believed to play a role in tumor growth. The protein was discovered by UCLA scientists.

Deal terms call for Agensys to receive an undisclosed royalty on sales. Merck will lead development of the drug and take primary responsibility for marketing and manufacturing it.

The deal gives Merck, based in Whitehouse Station, N.J., its first antibody drug in human tests. The company markets an anti-nausea drug for cancer patients but has no approved drugs that treat cancer itself. Merck is among several large pharmaceutical companies putting greater focus on cancer. Pfizer Inc., for example, is developing several targeted therapies acquired from biotechs.

Today’s deal is the most significant yet for Agensys, one of the few privately held biotechnology companies in the Los Angeles area to successfully bring a drug into clinical trials. The company, founded in 1997, has struck smaller deals licensing drug targets to Genentech Inc. of South San Francisco and France-based Sanofi-Aventis.

Agensys Chief Executive Donald B. Rice said the company chose to license AGS-PSCA in part because of the cost associated with clinical trials needed to bring the drug to market. Rice said proceeds from the deal would help fund work on other possible products.

“We have a rich portfolio of drug candidates, more than a small company can develop itself,” he said.