West Coast Editor

Fallout from the rejection of Hollis-Eden Pharmaceuticals Inc.'s drug for radiation sickness came in the form of cutbacks that say goodbye to 25 percent of the work force, which the firm estimates could reduce spending to as low as $10 million for the second half of this year.

Daniel Burgess, San Diego-based Hollis-Eden's chief operating officer and chief financial officer, is resigning to take a job as CEO with a privately held biotech firm, as Hollis-Eden moves ahead with work on its next-generation adrenal steroid hormones HE3286 and HE3235.

The company's stock (NASDAQ:HEPH) closed Friday at $2.55, down 21 cents.

"Our stock has taken a tremendous beating because everybody has been evaluating us on a binary event," the potential government contract for Neumune, which targets acute radiation syndrome, noted Richard Hollis, chairman and CEO of Hollis-Eden.

In early March, the U.S. Department of Health & Human Services declared Hollis-Eden's Neumune technically unacceptable and no longer in the running for a Project BioShield contract. The company had spent $80 million to $90 million on developing the drug, but said HHS probably would need pivotal safety and efficacy trials, which Hollis-Eden would not fund without an advance purchase contract. (See BioWorld Today, March 9, 2007.)

Later the same month, Hollis-Eden filed an investigational new drug application to test oral HE3286 for metabolic disorders such as diabetes, obesity and dyslipidemia. The Phase I program in healthy volunteers could support a Phase II study in Type II diabetes, as well as one in rheumatoid arthritis patients under a separate IND that Hollis-Eden aims to file for autoimmune disorders later this year.

Preclinical HE3235 for cancer has shown activity in models of hormone-driven prostate and breast tumors, and Hollis-Eden is developing the compound as an oral therapy to stop growth of cancer that uses estrogen and other adrenal hormones to spread.

"Really, the purpose of founding the company [in 1994] was to solve the seven-decades-long question of the biological role and function of the most abundant hormone produced by adrenal gland," Hollis said. That, of course, is dehydroepiandrosterone, or DHEA.

After 9/11, the Department of Defense tapped Hollis-Eden to explore Neumune, a metabolite of DHEA that the military had been investigating since 1997.

"We were spending just a little bit of money working with the DOD, and then along came Project BioShield," Hollis recalled. "Since there was going to be a potential market, we got excited about it." Political changes intervened, and the chance for a lucrative contract dissolved.

"We were basically all set to go for a pivotal trial," Hollis said. "It was a complete shock. We had geared up the whole company for it, and there's no product that is even close to it" for ARS. But, in the course of researching Neumune, the company made "tremendous discoveries around DHEA" and its metabolites, he said.

Enter HE3286 for Type II diabetes. "You have all these products trying to manage glucose, and there are no endocrine products out there besides insulin," Hollis said. "If you have the natural hormone that regulates handling of glucose and can prevent Type II diabetes, that possibly represents a first-line therapy."

The ideal anti-inflammatory drug for a condition such as RA would be a steroid hormone that doesn't cause immune suppression, and Hollis-Eden may have found this as well, in the DHEA metabolite "with a few little chemical modifications [that] can not only reduce inflammation but enhance immunity."

Also intriguing, in the context of Hollis-Eden's research - focused mainly on disease associated with age - is the finding that interleukin-6 is a biomarker related to longevity. "These compounds are natural regulators of IL-6," Hollis said.

When Hollis founded the company, enthusiasm ran high for DHEA. "Everyone kept thinking, 'It just wasn't bioavailable [as a therapy].' But it's not DHEA, it's the metabolic conversions and transformations the product goes through in the body" that prove beneficial. "There are four steroidal rings, and Mother Nature moves chemical positions on those rings to create signals."

Hollis-Eden plans to drop its annual burn rate to the range of $20 million to $24 million. In previous years, spending had ranged from $28 million to $31 million. "Neumune was absorbing a lot of dollars," Hollis said. At the end of 2006, the company had about $67.1 million in cash and cash equivalents, and the firm has "enough cash to finish this decade," he said.

The firm hopes to take compounds into Phase II before partnering, and is putting in place a program to seek collaborators. "Some of these molecules are going to be pretty obvious [candidates of interest to pharma], once we start our discussions," Hollis said.

He acknowledged early days mainstream hoopla over DHEA as a possible anti-aging food supplement, but called nutraceuticals "hocus pocus. Everything's nebulous. But if you can identify the ingredient converted from food that has the medical component, and do toxicology on it, then you've really got something." His firm is "taking it a lot farther than nutraceuticals" but might "possibly explore that" later, Hollis said.

The main push is for pharmaceuticals. "Finance guys on Wall Street got so in love with gene therapy and rational drug design, they left the steroids behind," Hollis said, and the task ahead involves educating investors about DHEA though clinical proof. The company's story "might have been boring for the last 10 years, but it won't be boring for the next 10," he said.