Shaman Pharmaceuticals Announces Second Diabetes Drug Collaboration; Combined Agreements Infuse Over $25 million Committed Funding -- Plus Additional Milestone Payments to Shaman.

SOUTH SAN FRANCISCO, Calif.--(BUSINESS WIRE)--Sept. 25, 1996-- Shaman Pharmaceuticals, Inc. (NASDAQ:SHMN) announced today that it has entered into a five-year collaborative agreement with Lipha S.A. to jointly develop the compounds that have been identified by Shaman as potential new antidiabetic drugs.

Lipha, a French-based pharmaceutical company and leader in the discovery and development of drugs to treat diabetes, is a wholly-owned subsidiary of Merck KGaA, Darmstadt, Germany.

This second collaborative agreement follows an announcement in May 1995 of a similar agreement with Ono Pharmaceutical Co., Ltd. for development and marketing of Shaman's antidiabetic drugs in Japan, South Korea, and Taiwan. The Lipha agreement covers the world except those three countries.

Under the terms of the Lipha agreement, in exchange for development and marketing rights of Shaman's antidiabetic drugs, Lipha will provide equity investments at a premium to the market price and collaborative research funding of $19.5 million over the five year term of the agreement (which when combined with the Ono agreement provides over $25 million in committed capital to Shaman).

Complete funding assumes the initiation of human clinical trials of at least one compound within two years, and the company expects the first IND to be filed on a compound which has already successfully completed pre-clinical efficacy and toxicity testing. Additional preclinical and clinical milestone payments in excess of $10 million per compound are payable for each antidiabetic drug that is developed and commercialized.

To date, Shaman has discovered 10 patentable, orally active compounds that reduce blood glucose in animal models of Type II diabetes. These compounds are derived from tropical plants that have been used (often for centuries) for treating individuals with diabetes.

Shaman will also receive royalties on sales outside the U.S. and has the right to co-promote antidiabetic products in the United States with equal profit sharing between the two companies.

Lisa Conte, Shaman's President and Chief Executive Officer, stated, "Uniting our scientific discovery and development with the chemical optimization, development capabilities, and marketing know-how of Lipha is a winning combination for both companies.

"With the recent approval of Glucophage (metformin) in the U.S., Lipha's worldwide market share of oral antidiabetic agents more than doubled, from 8% in 1993 to 20.5% in 1995. We are delighted to join forces with such an important player in the diabetes arena."

Professor H.J. Langman, Chairman of Merck KGaA, stated, "This important collaboration between Lipha and Shaman is yet another example of Merck's continued commitment to invest wisely in companies with distinctive technology that will rapidly bring innovative drugs to the market.

"Shaman's ability to identify active antidiabetic compounds will complement Lipha's aggressive programs to develop drugs for the treatment of Type II diabetes. The combination of strengths will offer a synergistic advantage for commercialization of products."

In 1995, Shaman recruited Gerald Reaven, M.D., a Stanford University Professor of Medicine and recognized leader in diabetes research. As Senior Vice President of Research, Dr. Reaven stated, "Through my prior association and interactions with Lipha and a long-standing relationship with their researchers, I have great respect for the quality of their work.

"Metformin is one of the best treatments for Type II diabetes on the market. And since Shaman has focused entirely on plant derived compounds for the treatment of diabetes, it is especially interesting that metformin, although now chemically modified, was originally derived from a plant."

Lipha CEO and Chairman, Mr. J.N. Treilles, stated, "Lipha intends to commit significant development resources to the multiple product leads that Shaman has identified for the treatment of Type II diabetes. We believe this collaboration has the potential to yield new chemical entities representing new mechanisms of action for the effective management of the diabetic patient throughout the lifetime of their disease."

Type II diabetes afflicts over 100,000,000 people. The worldwide market for oral antidiabetic agents, which is the focus of Shaman's diabetes drug discovery program, is over $2.0 billion dollars annually, consisting largely of generic products. According to the Center for Disease Control (CDC), the total costs associated with diabetes in the United States exceed $90 billion per year. It is the fourth leading cause of disease-related deaths in this country.

Lipha S.A. is based in Lyon, France, the second largest market of the Merck Group. The Company is involved in the research, development, and production of ethical and non-prescription pharmaceuticals, with an emphasis in therapeutic products for the treatment of diabetes and other pathologies related to the Insulin Resistance Metabolic Syndrome. In the U.S., Lipha owns and operates Lipha Americas in New York and Dey Laboratories in California.

Lipha is a subsidiary of Merck KGaA, Darmstadt, Germany, an international company with sales of about $2,296 million (USD) in the first half of 1996. The Group operates in the pharmaceuticals, laboratory, and specialty chemical business sector and employs 28,564 people worldwide.

In the United States, Merck KGaA, Darmstadt, Germany subsidiaries are known as EM Industries Inc., New York. Merck is also represented in the U.S. through Bracco Diagnostics, New Jersey, a 50% owned company.

Shaman Pharmaceuticals discovers and develops novel pharmaceutical products for major human diseases by isolating active compounds from tropical plants with a history of medicinal use.

The company targets complicated diseases that are not conducive to high throughput models typically used by the pharmaceutical industry. The Company has three compounds in development: Virend, a topical antiviral for the treatment of herpes; Provir, an oral product for the treatment of secretory diarrhea; and nikkomycin Z, an oral antifungal for the treatment of endemic mycoses.

Both Provir and Virend have demonstrated efficacy in Phase II clinical testing, and the company is continuing their development in the clinic. Phase I testing on nikkomycin Z will begin this year. Shaman's diabetes research has resulted in the discovery of 10 new compounds for the potential treatment of Type II diabetes. -0-

Note to Editors: Virend(R) and Provir(TM) are trademarks of Shaman Pharmaceuticals, Inc.

CONTACT: Shaman Pharmaceuticals, Inc.

Jackie Cossmon, 415/952-7070, ext. 465