West Coast Editor

With its anemia drug ready to start Phase II trials overseas, Neose Technologies Inc. plans to use the approximately $19.5 million in proceeds from the sale of a pilot manufacturing plant and corporate headquarters to pay off about $9.7 million in debt and pursue clinical goals.

Neose is saying goodbye to about one-fourth of the work force with the closure of the Witmer Road facility, and will move operations to an adjacent building, which now houses about half of its employees. About $3.5 million will be spent through the first quarter of 2007 to build more lab and office space, and parts of the Witmer space will stay occupied until the renovations are done, early next year. The rest of the Witmer building has been leased to Auxilium Pharmaceuticals Inc., of Malvern, Pa. (See Auxilium story, this issue.)

Neose's stock (NASDAQ:NTEC) closed Tuesday at $2.78, up 2 cents.

The layoffs come almost exactly a year after Neose reduced its staff by 25 percent in hopes of attracting a partner for the anemia compound, NE-180, a long-acting, glycoPEGylated erythropoietin, which the FDA delayed, pending more manufacturing and preclinical information. (See BioWorld Today, Aug. 8, 2006.)

George Vergis, president and CEO of Horsham, Pa.-based Neose, told investors during a conference call that the latest move "completes [the process] started last August," as the company turns into a more virtual outfit.

Neose uses recombinant transferase enzymes and sugar nucleotides to remodel sugar chains on therapeutic proteins and peptides, and to attach payloads via those glycan chains. The firm aims to transfer its technology to partners, who would handle manufacturing along with contract manufacturing organizations.

"Outsourcing plans for NE-180 drug supply, as well as the enzymes and reagents necessary for our partner products, are well under way," Vergis said.

The firm has entered an agreement to sell the Witmer building for about $21 million, and will get about $19.5 million after expenses to pay about $9.7 million in debt associated with Witmer, leaving about $9.8 million for other expenditures - including the consolidation push, if those costs cannot be financed through new debt, the company said.

Vergis said he was "quite pleased" with the $21 million price, which "slightly exceeded the high end of the range that we had anticipated."

Brian Davis, chief financial officer, noted that the sale gets around a provision under Neose's term loan that would "trigger certain repayment provisions" if the firm's cash and investments balance fell below $12 million. Barring further fund raising, Neose will end the year with $12 million to $13 million in cash, he added.

Full benefit of the Witmer sale will show in the fourth quarter of this year, with annualized savings estimated between $6 million and $8 million (including the cash effect of the sale plus construction costs of the other building, as well as $1 million severance and retention costs). This compares to $16.4 million in net cash used during the first half of 2006.

Most of the severance and retention costs will be reflected in third-quarter operating results, and the $7.5 million gain from the Witmer sale will appear then, too.

Neose expects to put NE-180 for chemotherapy-induced anemia and anemia associated with chronic renal failure into Phase II trials in a Western European country before the end of the year.

Vergis said two other trials are planned for the first half of next year, and "our hope is to have the availability to start either or both of those in Europe, and either or both of those in the U.S. We haven't made that call yet."

Potency-assay questions are yet to be resolved with the FDA.

"We gave guidance that we would resolve that by March 2007, and we are on trajectory to do so," Vergis said.