Sonus Pharmaceuticals has attracted a deep-pocketed partner with global reach to back its promising cancer drug. The small Bothell biotech...

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Sonus Pharmaceuticals has attracted a deep-pocketed partner with global reach to back its promising cancer drug.

The small Bothell biotech announced yesterday a worldwide licensing deal with Schering AG, a German pharmaceutical giant, worth up to $168 million. The transaction is a mix of equity investment, upfront license fees and milestone payments for completion of clinical trials and regulatory approvals.

Sonus could also receive royalties worth hundreds of millions more if its lead product, Tocosol paclitaxel, takes a significant share of the $2.5 billion chemotherapy market.

“This is a great deal for them,” said Matthew Kaplan, a Punk Ziegel & Co. analyst who has a “buy” rating on Sonus and owns shares in the company. “They got a name-brand European pharmaceutical company that has a presence in the U.S. as well.”

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“Securing a partner for Tocosol paclitaxel has been a key priority ,” Sonus President and Chief Executive Michael Martino said on a conference call with analysts before the markets opened yesterday. The company has talked about a partnership since late 2003.

Schering’s global presence and focus on cancer will “maximize the clinical and commercial success of the product,” Martino added.

Carlo Montagner, head of Schering’s global oncology business, said the company has been looking to complement its portfolio through partnerships with biotech companies. Schering wanted a chemotherapy product that was closer to market than the candidates it has in-house, he said.

Schering-Sonus deal

Cash, investments now and later

What Schering bought

Licensing: Exclusive worldwide license to Tocosol paclitaxel, Sonus Pharmaceuticals’ leading product candidate now in a late-stage trial in women with metastatic breast cancer. If approved, the drug will compete in a $2.5 billion market.

Shares: 3.9 million shares of Sonus common stock at Friday’s closing price of $4.02, totaling $15.7 million, and giving it a 15 percent stake in the Bothell biotech company.

Warrants: Five-year warrants for an additional 975,000 shares at an exercise price of $4.42.

What Sonus gets

Upfront: $20 million in license fees.

Milestone payments: Up to $132 million for completing clinical trials and gaining regulatory approvals.

Development: Equal cost sharing of further Tocosol development, including additional clinical trials to support sales, marketing and use of the drug in other cancers.

Royalties:15 to 30 percent of U.S. net sales, escalating as sales increase; 15 percent of sales outside the U.S.; and, up to $35 million in one-time payments if certain undisclosed sales targets are reached.

Source: Sonus

“We have a lot of compounds at a really early stage of development,” Montagner said. “It’s actually very difficult to find Phase III compounds that are available for licensing worldwide.”

Sonus last month launched a Phase III clinical trial of Tocosol in 800 women with metastatic breast cancer in locations including South Africa, Israel, Europe and the U.S. A Phase III trial is the final stage in human testing.

It’s positioning the drug as gentler and easier to use than existing versions of paclitaxel, which is widely prescribed for treatment of solid tumors.

The Schering partnership will solidify Sonus’ ability to complete that trial, which will cost as much as $40 million and be funded entirely by Sonus.

Schering and Sonus said they expect to file a new application for the drug in Europe and the United States by the end of 2007.

Prior to yesterday’s announcement, Sonus had $11.4 million in cash and equivalents as of June 30, plus $16.8 million raised in an August stock offering. Additional trials to support the marketing and sale of Tocosol and to explore its use in other cancers will be funded equally by both companies.

Montagner said Schering’s existing and growing operations in the Puget Sound area were a factor in striking a deal with Sonus.

Schering’s subsidiary Berlex has about 240 employees in Seattle and Bothell. Its $70 million Leukine manufacturing plant under construction in Snohomish County, not far from Sonus, could employ up to 70 people when it’s complete.

Schering purchased Leukine from Seattle biotech star Immunex for $380 million in 2002.

Sonus has retained the rights to manufacture Tocosol, which it does now through Sicor in Irving, Calif., but Schering has an option to produce the drug.

Montagner said the company hasn’t decided where it would make Tocosol.

Sonus and Schering also plan to explore additional partnerships in oncology. Montagner said Schering is going to “significantly add” to its work force here, though he could not be more specific.

Sonus also expects to increase employment from its current 46 to 60 during 2006.

David Miller, president of Biotech Stock Research in Seattle and a Sonus shareholder, said Schering’s local operations could play into a possible acquisition Sonus in the future.

“The fact that [Schering] already has a group of people on the ground in another office building in town makes that a little easier,” he said.

Part of yesterday’s deal gave Schering a 15 percent stake in Sonus and warrants to acquire 3 percent more within the next five years.

Investors pushed Sonus shares to a 52-week high of $5.04 in early trading, only to see them slide back to $4.40, up 8.4 percent on the day.

Material from The Associated Press is included in this report.

Benjamin J. Romano: 206-464-2149 or