Vernalis plc announces that the Novartis Institutes for BioMedical Research, Inc (Novartis) has exercised its option to license exclusive worldwide rights to Vernalis' lead oncology research programme on Hsp90. The announcement is the positive conclusion of the option agreement the companies signed in December 2003.

The companies will conduct a joint research programme under which Novartis will provide research funding to Vernalis over an initial three-year period. In addition, Novartis is responsible for funding and conducting the preclinical and clinical development of product candidates, and for commercialization, the company release said.

Novartis will pay Vernalis a signature fee of $1.5 million and a series of further payments upon achievement of development milestones for each product candidate that Novartis takes into development. Vernalis will also receive royalties on commercial sales of collaboration products. In addition, Novartis will make an equity investment of approximately £5 million ($9 million) through the subscription for 7,106,344 new Vernalis ordinary shares, representing almost 4.6 per cent of Vernalis' enlarged issued share capital. The methodology for calculating the subscription price was established at the time of entering the option agreement in December 2003.

In the event that two product candidates from the collaboration reach the market, total payments to Vernalis from Novartis could exceed $75 million, excluding royalties.

Simon Sturge, chief executive officer of Vernalis said, "I am delighted to be announcing a third major deal for Vernalis in only six weeks. Novartis is a world leader in oncology and an optimal partner to help maximise the opportunity for developing Hsp90 inhibitors as potential cancer treatments. This collaboration further validates Vernalis' research capability and provides additional funding."

The Vernalis Hsp90 programme is the result of a collaboration established in March 2002 with Cancer Research Technology Ltd (CRT) [formerly Cancer Research Ventures Ltd] and The Institute of Cancer Research, under which Vernalis will pay CRT and The Institute of Cancer Research a proportion of its revenues from the agreement with Novartis.