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UK's Epistem Inks Two-Year Stem-Cell Drug-Discovery Collaboration With Novartis

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Epistem, a Manchester, UK-based epithelial stem cell vendor, announced this week that it has entered into a research and development collaboration with Novartis to identify drugs and drug targets across a range of undisclosed disease areas.

An Epistem official said this week that the agreement will bring together Epistem's experience with stem cells and its novel therapeutics program with Novartis' experience with disease pathways and bioinformatics.

Terms of the two-year agreement, which is open for renewal, call for Novartis to pay Epistem a $4 million upfront cash payment and provide research funding to study the stem cell shop's drug targets. Novartis also gains an option to exclusively license promising targets for development in exchange for undisclosed license fees, milestone payments, and royalties.

For its part, Epistem is eligible to receive up to $45 million in milestone payments for each drug developed from those targets. Epistem is also eligible to receive undisclosed tiered royalties on worldwide sales of any commercialized targets.

The deal has also enabled Epistem to "effectively put a new laboratory dedicated to this work in place," according to CEO Matthew Walls. It will be led by Jeffrey Moore, managing director of Epistem's Manchester, UK-based novel therapeutics division.

"To start with, we will have a team of eight to 10 people, and as the program grows we will look to add" to that, said Walls.

The company currently comprises three divisions: a clinical research organization, which operates in the areas of oncology, oncology supportive care, inflammatory bowel disease, and dermatology; a biomarker division, which, according to the Epistem website, develops robust, non-invasive biomarkers that measure drug-induced changes in gene expression from individual hairs plucked from cancer patients undergoing treatment; and the therapeutics division, which develops protein therapeutics based on the body's regulators of epithelial stem cells, and identifies novel targets and pathways for intervention with small molecules and antibodies. The Novartis deal will be centered on this division, said Walls.

As a result of the Novartis deal, "we are now profitable" because the other two divisions are currently profitable and growing quickly, Walls told CBA News this week. He did not elaborate.

About 18 months ago, Epistem officials began to meet with Novartis and an undisclosed number of mostly large, US-based pharmaceutical and biotech companies.

"There was a very strong complementary fit with what they do on the molecular pathways side, and what we do on the cell-biology and stem-cell understanding side," Walls said.

Walls added that Epistem's drug-discovery program is now "effectively funded by Novartis."

Limited Exclusivity

Epistem's therapeutics division will work exclusively with Novartis during the two-year duration of the agreement, Walls said.

He stressed the agreement will not affect Epistem's other two divisions. For instance, internally Epistem will continue to invest in areas of drug discovery exclusive of those agreed upon with Novartis. Walls cited "antibody or small molecule work that we [may] decide to take on ourselves." He did not disclose potential disease states or indications.

Walls said Epistem has already identified lead targets that it has brought into the collaboration, but declined to identify them. Over the next two years, it is important that "we start to generate the leads and targets that we have essentially [brought] into the collaboration," he said. "We want to develop those quickly and move them forward.

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"I want to know at two years' time that we have made great progress, and that we start to see leads emerging," he said.

Novartis declined to comment for this story.

Epistem was founded in 2000 and, according to its 2008 annual report, employs 35 people. According to its website, Epistem's scientific foundation is based on co-founder Chris Potten's stem cell research over the last 30 years at the Paterson Institute for Cancer Research at the Christie Hospital in Manchester. During that time, Potten identified and characterized the location and behavior of stem cells in the small intestine, epidermis, hair follicles, and breast.

Epistem reported that its net loss for the 12-month period ended Dec. 31, 2008, widened 11 percent to £1.2 million ($1.6 million) from £1.08 million in 2007.

The therapeutics division reported that operating losses rose nearly 4 percent percent to £1.07 million from £1.03 million in 2007.

Epistem had £2.1 million in cash and equivalents at the end of 2008.

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