Roche and Maxygen, Inc. announced that they have formed a broad strategic alliance to collaborate on the global development and commercialization of Maxygen's portfolio of next-generation interferon alpha and beta variants for a wide range of indications.

The collaboration will initially focus on the development of lead candidates for the treatment of infections with the hepatitis B virus (HBV) and hepatitis C virus (HCV). The drug candidates have been designed by Maxygen to have novel and superior efficacy compared to currently marketed interferon alpha products. This builds on Roche's commitment to hepatitis, following Pegasys, a new generation interferon that provides significant benefit over conventional interferon therapy in patients infected with HCV.

Roche has licensed worldwide commercialization rights to specific novel interferon product candidates for HBV and HCV. Maxygen will receive an initial payment, full research and development funding for the first two years of the collaboration and option fees. In addition, Maxygen is eligible to receive milestone payments and royalties based on product sales.

The agreement also provides the companies with the option to expand the collaboration to develop other novel interferon alpha and beta products specifically tailored for indications outside of HBV and HCV, including oncology, autoimmune diseases, inflammatory diseases, and other infectious diseases such as HIV. Maxygen retains the right to develop such products while Roche may elect to acquire worldwide license and commercialization rights to these product candidates.

Maxygen has the option to co-develop in the United States any product to which Roche acquires a license in exchange for profit sharing or an increased royalty rate.

Based on the continued successful development of the novel interferon product candidates and the satisfaction of certain contingencies, payments to Maxygen could exceed $230 million plus royalties on product sales.

"Roche has a long tradition in successfully developing and commercializing anti-viral drugs, alone or in partnership with other companies. We believe with Pegasys and Copegus we are establishing a new standard of care. Maxygen's portfolio of lead interferon product candidates represents an interesting and novel approach for further improvement in treatment. We are convinced that through our collaboration we will continue to be a clear leader in the treatment of patients suffering from this debilitating disease," said William M. Burns, Head of Roche's Pharmaceuticals Division.

"Maxygen's strategy has always been to partner with world leaders in their respective fields, and with its track record of excellence and an established and strong franchise, Roche is clearly a leader in the development and commercialization of interferon therapies," said Russell Howard, Ph.D., chief executive officer of Maxygen. "This innovative collaboration is structured to maximize the commercial potential of Maxygen's novel shuffled interferons by enabling their swift development and potential commercialization with a market leader in hepatitis. Importantly, Maxygen retains the right to conduct further discovery and development of novel interferons for additional indications. I am particularly excited about Maxygen's option to co-develop these products for hepatitis B and C in the U.S., as this provides substantial potential for long-term value creation for the company."

Total global interferon alpha sales (including ribavirin) for all indications including hepatitis B, C and several cancers were in excess of $2.9 billion in 2002.

Hepatitis B is a blood-born virus that attacks the liver and is the most common serious liver infection in the world. The HBV virus is highly contagious and is relatively easy to transmit from one infected individual to another. It is 100 times more infectious than the HIV virus.

Hepatitis C is a serious blood-born viral infection that attacks the liver, and in many patients it leads to liver disease, cirrhosis and cancer. It is the leading cause of liver transplantation. Only identified in 1989, the HCV virus has infected more than 170 million people world-wide, making it more common than the HIV virus.

Roche is committed to the viral hepatitis disease area, having introduced Roferon-A for hepatitis B and then C, followed by Pegasys and Copegus in hepatitis C. Pegasys is a new generation hepatitis C therapy that is different by design and provides significant benefit over conventional interferon therapy in patients infected with HCV of all genotypes. The benefits of Pegasys are derived from its new generation large 40 kilodalton branched-chain polyethylene glycol (PEG) construction, which allows for constant viral suppression. Pegasys is approved for monotherapy and for use in combination with Copegus, our proprietary ribavirin product in more than 70 countries, including the European Union and the United States. The most recent approvals for Pegasys have occurred in China and New Zealand. Pegasys is also in phase III clinical development for patients infected with the HBV virus. Roche manufactures and sells the Amplicor HCV Test, v2.0 and the Amplicor HCV Monitor Test, v2.0 - two tests used to detect the presence of HCV RNA (Ribo Nucleic Acid) in a person's blood. Roche's commitment to hepatitis has been further reinforced by the in licensing of Levovirin, which will be studied with the objective of demonstrating superior tolerability over the current standard, ribavirin.