Washington Editor

A week after losing a major partnership, Nastech Pharmaceutical Co. Inc. said it plans to lay off up to 75 workers in an attempt to cut costs.

The Bothell, Wash.-based firm said it also plans to spin out its RNA-based research and development subsidiary, MDRNA Inc., into an independent, separately financed entity and transfer up to 45 Nastech employees to it.

Last week, Cincinnati-based Procter & Gamble Pharmaceuticals Inc. pulled out of its $600 million deal with Nastech to develop and commercialize teriparatide, a nasally administered form of parathyroid hormone, as an osteoporosis therapy. Since then, said CEO Steven C. Quay, the firm has been focused on reducing its expenses as quickly as possible. (See BioWorld Today, Nov. 8, 2007.)

While the loss of the P&G deal sent shares tumbling last week, news of the firm's restructuring provided a 92-cent boost Wednesday, or 18.89 percent, and the stock closed at $5.79.

The company plans to start cutting jobs this Friday, Quay said Wednesday during a conference call. The layoffs will continue over the next month "to permit completion of ongoing work," he added. Restructuring Nastech's nasal drug delivery business will let the company focus on its Phase II development programs.

"We want to place all of our resources to support those efforts and have the best possible opportunity for success," Quay said. "We need to be properly sized and focused so that we can continue to pursue the best opportunities with adequate financing."

A Phase II study is expected to start in the first quarter of 2008 with Nastech's autism product Carbetocin, a long-acting analog of the naturally produced hormone oxytocin, and the firm is examining peptide YY (PYY), a naturally occurring human hormone produced by specialized endocrine cells, as a nasally administered therapy for obesity.

The Phase II study of PYY should be fully enrolled by the end of the year, with about 500 patients on the drug, Quay said, with data available in the third quarter of 2008. Once the Phase II results in hand, Quay said, the company plans to partner the product.

Data from the ongoing intranasal insulin Phase II study are due in the first quarter of 2008. "That program will then be partnered, if feasible, and all further costs will be taken up by the partner," Quay said.

Nastech is mulling whether to proceed with a Phase II bone-mineral density (BMD) study of teriparatide planned under the P&G partnership. Before that program can move forward, Quay explained, it must pass through two clinical and commercial gates.

To pass the clinical gate, Nastech must reconvene its panel of osteoporosis experts and get the go-ahead from that group. "Based on the prior expert recommendations, we believe they will again support going forward," Quay said.

To pass the commercial gate, the firm needs third-party validation of the commercial value of the drug in osteoporosis. "Unless both gates are passed, we will not go forward and extend the money on the program," he said. Nastech expects to make a decision on the BMD in less than 90 days.

Along with the job cuts, Quay said, the firm plans reductions in all nonessential costs related to programs other than the Phase II studies, while continuing to support ongoing partnerships.

Nastech next year will see a $20 million reduction in development costs from the MDRNA spin out. The move was "not a recent idea for Nastech, and is not a reaction of recent events," Quay said. "Management and the board have been working for many months on the question of the best way to unlock the value of MDRNA's RNA interference [RNAi] technology for the benefit of Nastech shareholders."

The firm convened a special committee of its board in September to consider a path forward for its RNA program, Quay said, adding that the committee hired advisers to analyze the situation and review all options, including the potential for a spinout. In RNAi, product candidates are in development that target influenza and rheumatoid arthritis.

While seeking financing, MDRNA is searching for academic and corporate collaborations for its RNA-based diagnostic and therapeutic programs, Quay said.

He noted that the firm has taken a different path than other companies in the RNA space, choosing the Dicer enzyme as a starting point for drug candidates rather than the RNA-induced silencing complex, or RISC, enzyme.

Nastech entered into a licensing agreement with the Los Angeles-based City of Hope last year for the certain rights to Dicer-substrate RNAi intellectual property and technology, Quay noted.

"Using Dicer allows us more freedom to attack the central problem of RNAi delivery," he said. "We believe 2008 will be the year that Dicer substrates come out of the closet and show their superior attributes to the pharmaceutical and investment communities."