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Ariad, Merck forge $75m drug-development deal

Cambridge cancer drug maker Ariad Pharmaceuticals Inc. signed a major deal with Merck & Co. Inc. yesterday in which the global pharmaceutical giant will pay $75 million to collaborate on developing and selling Ariad's experimental drug to treat sarcomas, a type of tumor that attacks fat, muscle, and bone.

The deal could bring Ariad an additional $850 million or more, depending on the drug's success in clinical trials and long-term sales.

Cambridge's research-intensive biotechnology industry is largely built on such deals, where small companies with promising new ideas join forces with large, experienced multinational firms to develop and sell their products. Earlier this week, Alnylam Pharmaceuticals Inc. signed a $331 million deal with Swiss drug maker Roche , also with up to $1 billion in potential payments, for the rights to make new drugs using the Cambridge company's technology.

Like Alnylam and the majority of biotech companies, Ariad loses money and has never brought a product to market. The Merck deal is a partnership on its most advanced experimental drug, still identified by the internal code name AP23573 .

Although Ariad's drug is being tested against several kinds of cancer, the main target now is sarcomas. In a human test of 212 patients with advanced sarcomas, the drug appeared to stabilize or even reduce the cancer in about 30 percent of patients. The company expects to launch a larger trial soon. If the trials go well, Ariad expects the drug to be available in 2009 or 2010.

Ariad's drug is a member of a family called "mTOR inhibitors," which can help shut down the function of cancer cells. The company also hopes it will work against endometrial cancer, leukemia, lymphoma, and other tumors.

Phil Nadeau , a biotechnology stock analyst at Cowen & Co. , said the long-term potential of Ariad's drug may be in the breadth of different cancers it could treat.

"Sarcoma's where we have the best data, but what I think intrigues people is that mTORs have been shown to work in a lot of applications," he said.

Another potential application, unrelated to cancer, is on drug-coated coronary stents, where the drug could reduce the inflammation that can reblock arteries after they have been cleared in an angioplasty. Ariad has a separate deal to test its drug on stents made by Medinol Ltd. , an Israeli heart-device company.

The Ariad deal is somewhat unusual because it doesn't rely on Merck to take over sales of the product. Instead, Ariad -- now a small research company on Landsdowne Street -- will build a sales force and sell the drug to oncologists in the United States. Merck will sell it to doctors overseas. The companies will share revenues and development costs.

"This is an extraordinary partnership," said Ariad chief executive Harvey Berger. The firm had talked "extensively to several companies" about a deal on its cancer drug, he said, and picked Merck partly because the deal gave 16-year-old Ariad a chance to transform itself.

"You can either be a research company that's good at technology development, or you can be a real company that's a sustainable business. And I think the biotech industry has shown over and over again that the only way to build a long-term sustainable business is to be marketing and selling products in the US," Berger said.

Ariad currently has 110 employees, and Berger anticipates it will grow by about 25 percent this year.

Ariad's stock fell 28 cents, or 4.6 percent, to $5.77. Nadeau said investors had been expecting a large partnership deal for several months, and had already included that in their estimates of Ariad's stock value.

"People who bought this stock at $4.50 in April when they first started talking about this deal are taking their money today," he said.

Across Cambridge, Harvard University chemist Stuart Schreiber , who helped discover the mTOR pathway and was a cofounder of Ariad, said mTOR represented a "completely new approach" to treating cancer.

"The challenge of discovering truly effective new types of drugs is immense," said Schreiber, who now serves on the company's scientific advisory board. "Fifteen-some years later we find ourselves at this point, but it definitely feels terrific. I'm really happy for them."

Stephen Heuser can be reached at sheuser@globe.com.

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