By Debbie Strickland

Science Editor

After months of re-evaluating their relationship, Schwarz Pharma AG and Cytel Corp. have made their break-up official.

"Fortunately, even though they've been a wonderful partner, this is not overly significant," said Virgil Thompson, president and CEO of Carlsbad, Calif.-based Cytel.

The announcement was "not unexpected," said analyst Edmund Debler, of New York-based Mehta and Isaly. He gave Cytel credit for forestalling the departure of its German big pharma partner until nearly a year after a Phase II flop of Cylexin, the carbohydrate-based selectin blocker Schwarz had agreed to market. Debler's current recommendation on Cytel's stock is "hold."

The stock (NASDAQ:CYTL) closed Thursday at $1.468, up $0.031.

The company has $18 million in cash, enough to carry it through the next year, plus collaboration agreements for vaccine and nutritional-supplement development. Moreover, Thompson said he remains optimistic about Cylexin, even though it failed to beat placebo in a Phase II trial assessing its ability to reduce cardiac reperfusion injury in heart-attack patients receiving angioplasty treatment. (See BioWorld Today, June 7, 1996, p. 1.)

The study may have suffered from an under-dosing flaw, Thompson said, adding, however, that there is no chance of a repeat trial. Instead, Cytel is conducting a Phase II dose-ranging trial for a second Cylexin application: prevention of reperfusion injury in babies undergoing cardiopulmonary bypass during surgery for congenital heart lesions.

The Schwarz agreement dissolved, Thompson said, because this indication is "very attractive niche market but not one large enough for two companies to share." The company's agreement with Sumitomo Corp., of Osaka, Japan, to market Cylexin in Asia remains in effect.

According to Debler, the infant cardiopulmonary bypass market is too small for "commercial viability," period.

"This molecule is not a viable commercial candidate," he said. "[The infant study] involves a very small application. This is a molecule in quest of a disease.

"It's very much touch-and-go how they're going to be able to finance themselves," he said.

To deal with a looming cash crunch, the company earlier this month proposed spinning off its vaccine development business.

"Our plan," Thompson said, "is to finance the vaccine company, and get the vaccine burn, or expenses, out of Cytel as quickly as possible."

Cytel would spin off the vaccine unit as a subsidiary, funded privately through venture capital financing. Cytel would retain "some significant share of the vaccine company," Thompson said.

Debler was skeptical of the company's ability to pull off such a deal.

"In concept, it's a good idea, but in this current environment it's going to be very difficult."

Both market conditions and the "cloud of the clinical trial results" stand in Cytel's way, Debler said. *