West Coast Editor

Genelabs Technologies Inc.'s technology platform chalked up a second, much larger deal centered on therapies for the hepatitis C virus - this one bringing $12.5 million up front (part of $20 million coming in the next two years), and potentially $175 million in milestone payments from Novartis AG, plus royalties.

Wall Street gave the recently troubled stock (NASDAQ: GNLB) a jolt of juice, sending shares up more than 200 percent to close at $2.30, a rise of $1.54.

"The up front from Novartis is practically the same as our market cap, because it had been so depressed lately," noted Matthew Loar, chief financial officer for Redwood City, Calif.-based Genelabs.

Under the terms of the agreement, Genelabs is responsible for drug discovery of non-nucleoside HCV polymerase inhibitors, and Novartis, of Basel, Switzerland, will handle development and commercialization, with an option to extend research funding for a third year.

An investigational new drug application was due to be filed in 2007, Loar said, but "that may change with Novartis as a partner."

Genelabs' other HCV deal, with Foster City, Calif.-based Gilead Sciences Inc., involves nucleoside inhibitors of HCV polymerase, and could mean up to $46 million if a compound reaches the market. (See BioWorld Today, Oct. 1, 2004.)

The Gilead deal is "moving along fine," but still also is preclinical, Loar said.

More in the news lately has been Genelabs' lupus drug, Prestara (prasterone), a synthetic form of the human hormone dehydroepiandrosterone. In January, the company said it would conduct another Phase III trial and seek a partner to help with the drug, which in the fall of 2004 yielded disappointing results from an intended confirmatory study. (See BioWorld Today, Oct. 6, 2004.)

"We're not going to do that trial ourselves because we don't have the resources," Loar said. "We're in some discussions about ways to externally fund that."

For now, investor eyes are on HCV.

"A lot of people still think of us as a lupus company, but most of our people have been in the HCV field for a few years," he said.

As part of Novartis' arrangement with Genelabs, the overseas pharma firm also gets a right of first negotiation for Genelabs' preclinical compounds for HCV targeting the non-structural 5a (NS5a) protein.

Last month, when Genelabs reported first-quarter earnings, the company said NS5a drugs with potency in the low-nanomolar range (under 100 nanomolar) were being optimized for better drug metabolism and pharmacokinetic properties.

"The polymerase [program] we've been working on since the early part of 2002, so that's clearly more advanced," Loar said. "We have active compounds that are potent, and we know their pharmacokinetic properties. NS5as are just getting off the ground."

Genelabs is not entirely alone in the NS5a space. Arrow Therapeutics Ltd., of London, earlier this year put its compound A-831 into preclinical development and said Phase I trials were planned for the second half of this year, by which time a second HCV program (also targeting NS5a) was expected to start preclinical work.

"Right now, we know of nothing in the way of us," Loar said, but added that Genelabs' patent position in NS5a consist of "all applications at this point."

The promise of NS5a has been long known, thanks to investigations at Washington University in St. Louis, published more than five years ago in the journal Science. Scientists ransacked the HCV genome and found nine genetic mutations in the NS5a gene, and learned that the protein expressed by the gene boosted viral replicative ability in vivo. (See BioWorld Today, Dec. 12, 2000.)

In April, Nasdaq sent Genelabs a staff deficiency letter warning that the company does not comply with the rule requiring the company to have a minimum of $2.5 million in shareholder's equity or a $35 million market value, and asked Genelabs to submit a plan to achieve and sustain compliance.

"We're in the process of working with them on that," Loar said.

As of March 31, Genelabs had $7.9 million in cash, cash equivalents, restricted cash and other current assets.

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