West Coast Editor

Score one for overseas nanotechnology, as the Australian firm pSivida Ltd. nails down a potential $165 million licensing deal with Pfizer Inc. to use sustained-release drug delivery, including pSivida's Medidur, in ophthalmic applications.

Shares of pSivida (NASDAQ:PSDV) jumped on the news, closing Wednesday at $2.25, up 21 cents, more than 10 percent.

Pfizer, of New York, agreed to invest $5 million in ordinary shares up front, proceeds of which will be held in escrow until pSivida could use them to redeem an outstanding convertible note.

Within hours of disclosing the Pfizer deal, pSivida made public an arrangement with its principal institutional lender, Sandell Asset Management Corp. in New York, regarding the loan. Sandell agreed to close the Dec. 29, 2006, amendment disclosed at the start of this year, and pSivida issued a redemption notice for the balance of the loan.

From Pfizer, another $5 million investment in pSivida common equity could come later, subject to conditions, and the rest of the potential $165 million would be paid in development and sales milestones.

Meanwhile, Pfizer is funding the cost of joint research, and claims an exclusive license to market any products in ophthalmic indications (outside of diabetic macular edema, or DME, where Medidur already is in Phase III trials), with royalties to pSivida.

Paul Ashton, managing director of Perth, Australia-based pSivida, described Medidur as "a very small tube that contains the drug and can be injected down a 25-gauge needle," after which the tube takes up residence at the target site and starts releasing an active ingredient for up to three years.

Delivering the corticosteroid fluocinolone acetonide, Medidur is undergoing Phase III clinical trials in DME, which is the leading cause of blindness for Americans under age 65. For DME, Medidur is partnered with the specialty pharma firm Alimera Sciences Inc., of Atlanta, founded by scientists from such heavy hitters as Novartis AG, Alcon Inc., and Bausch & Lomb.

Already pSivida has won FDA approval for Retisert (which also delivers fluocinolone acetonide) for uveitis, and for Vitrasert as a therapy for AIDS-related cytomegalovirus retinitis. Vitrasert, delivering ganciclovir, was "our first foray into this," said Ashton, formerly president, CEO and director of Watertown, Mass.-based Control Delivery Systems (CDS), which pSivida agreed to acquire in the fall of 2005 for about $104 million.

Rochester, N.Y.-based B&L owns the licenses and trademarks for Retisert and Vitrasert, having gained the latter by buying out the vision arm of CDS' partner, Emeryville, Calif.-based Chiron Corp., in 1997 for about $300 million. (See BioWorld Today, Oct. 23, 1997.)

Medidur could have much broader applications, and pSivida - whose name combines "pS" for porous silicon with "vida," the Spanish word for life - will be seeking more partners.

"This thing can release drugs for up to three years down a very small needle, and it's safe enough to be injected into the eye, apparently," Ashton said of Medidur. For diseases such as cancer, "you could inject a series of them. And we can make them a lot larger. It's a very simple technology - if you can make them small, you can make them big."

Under the terms of the Sandell convertible-loan deal, pSivida will issue warrants to Sandell to acquire 4 million American Depository Shares with an exercise price of $2 each, as previously agreed, and pSivida has issued a redemption notice for the entire convertible loan pursuant to which the outstanding balance of the loan will be repaid in early June.

As the loan requires, pSivida will issue warrants to acquire 2,341,347 ADSs, and will also issue to Sandell warrants for 4 million more, with an exercise price of $1.57 each, along with warrants for 1 million ADSs with an exercise price of $1.95 each. All are five-year warrants.