Staff Writer

Procyon Biopharma Inc. will cut a third of its work force and halt much of its preclinical development in a restructuring move following disappointing results from its Phase IIb trial of topical scar treatment drug Fibrostat.

The Montreal-based company will shift its focus from an early stage research company to a late-stage drug development company to maintain an adequate cash flow and fund clinical trials for its top three products, said Hans Mader, president and CEO of Procyon.

"We all expected that the Phase IIb study results would be positive," he said, and the company "would have had a revenue stream of C$10 million to C$12 million for our 2005 budget."

Procyon reported Jan. 18 that Fibrostat, a topical cream for hypertrophic scars, missed the primary endpoint in the North American Phase IIb trial. Results indicated that the product showed no significant improvement when compared to a placebo in the reduction of scarring.

The news hurt Procyon's stock the day it was released, as it fell C31 cents, or about 42 percent, to close at C43 cents. Wednesday, the stock (TSE:PBP) gained C1 cent to close at C48 cents (US39 cents).

Mader said the company will have to reduce its burn rate, while ensuring enough funds for further testing of Fibrostat, as well as trials for a prostate cancer drug and a protease inhibitor for drug-resistant HIV/AIDS.

"Everything else is cut or put on hold," he said, referring to preclinical development and support programs that can wait until next year.

Procyon is closing three of its five research laboratories and terminating 14 of its 42 employees, mainly in research and administrative support areas. Mader said employees have been offered severance packages and the company has provided them with assistance in finding new jobs.

"We have to manage our cash flow to make sure we have an 18-month survival period for the company," Mader told BioWorld Today. Procyon will focus on "adding value to the work that is ongoing and to add milestones," and later it will look at raising additional funds. "We don't want to go below a 12-month cash flow."

The company estimated an C$850,000 per month burn rate for the year, down from the average C$1.2 million spent per month last year, Mader said.

Procyon has about C$17 million in cash, cash equivalents and short-term investments.

While Fibrostat missed in the Phase IIb, the product was well tolerated and Procyon said it might be effective earlier in the scarring process.

"We know now that the mechanism can prevent scars, but, once a scar happens, it can't reduce it," Mader said. Fibrostat's active ingredient is 1, 4 diaminobutane dihydrochloride (1,4 DAB 2HCl) and works by inhibiting activity of the enzyme tissue transglutaminase.

Procyon's scientific advisory board suggested the company initiate a trial to determine whether Fibrostat is effective in preventive scar treatment by testing the drug in patients immediately after surgery.

"We're going to do a proof-of-concept study and should have that data by the end of the year," Mader said. "Then we're back in business."

In addition to the studies involving Fibrostat, Procyon will fund clinical development for two other products this year, including PPL-100, an antiviral drug designed to address drug and multidrug resistance strains of HIV. Mader said the company expects to disclose the product's pharmacokinetic profile during the first half of the year, following by the filing of an investigational new drug application and Phase I trial.

Last month, Procyon filed an IND for PCK3145, a peptide aimed at reducing hormone-refractory metastatic prostate cancer, to enter a Phase II North American study. The company expects to publish details of the drug's mechanism of action and is "very close" to finding a receptor, Mader said. A complete dose-administration study will be followed by a Phase IIb trial for efficacy.

A Phase IIa study in the UK, completed last year, in patients with metastatic hormone-refractory prostate cancer indicated the drug was safe and effective in normalizing plasma MMP-9 levels. The levels generally are elevated in those patients, and are believed to be involved in metastasis.

Procyon typically develops products from preclinical efforts through Phase II trials and then tries to license out the products to a pharmaceutical company for Phase III trials and marketing, Mader said. Though looking for partners for its oncology and HIV products, the company already agreed to a partnership with Toronto-based Biovail Corp. for marketing Fibrostat.

The deal, signed last year, would give Biovail North American marketing rights, while Procyon receives milestone and royalty payments.