After PYY3-36 failed to demonstrate efficacy in a preliminary proof-of-concept obesity study, Merck & Co. Inc. decided to terminate its part in the program, leaving all future development plans in the lap of Nastech Pharmaceutical Co. Inc.

Bothell, Wash.-based Nastech reacquired its rights to the peptide YY (PYY) nasal spray, and expects to recognize $3.7 million in revenue in the first quarter due to the termination. The company intends to conduct dose-optimization studies and continue development through a Phase II program before seeking a new commercial partner.

Wall Street remained skeptical, however, as shares (NASDAQ:NSTK) plummeted 37.3 percent Thursday, or $8.59, to close at $14.43.

Merck gave up on the program following the proof-of-concept study. Merck "felt that it did not demonstrate effectiveness," said Steven Quay, chairman, president and CEO of Nastech, adding that his company put together a panel of thought leaders who had a different impression.

"They believe that additional studies need to be performed in a dosing range of between 50 and 180 micrograms to really tease out whether PYY will be effective as an obesity agent," Quay told BioWorld Today.

Nastech’s review of the data indicates that its formulation is capable of delivering PYY with an acceptable nasal safety profile. PYY is a naturally occurring hormone produced by specialized endocrine cells in the gut in proportion to the calorie content of a meal. Research has shown that it could be used successfully in regulating appetite control. Nastech believes it can identify an appropriate dose or dosage regimen with further studies.

Quay said Nastech can continue development of PYY on its own, while it advances its other ongoing programs. It likely will move from the dose-ranging studies into a six-month Phase II trial, which should be complete in about a year.

"We believe that the amount of cash needed to get this through a Phase II trial of demonstrating weight loss would be sufficient," he said. "We have the resources to do that."

Merck and Nastech started their relationship in that area back in September 2004 in a deal worth up to $346 million. Whitehouse Station, N.J.-based Merck was responsible for clinical and nonclinical studies, as well as regulatory approvals throughout the world, while Nastech was in charge of all aspects of manufacturing and drug supply. For Nastech, the agreement included a $5 million up-front payment, up to $131 million in development and approval milestones, and up to $210 million in sales-related milestones, as well as royalties. (See BioWorld Today, Sept. 28, 2004.)

The parties plan to cooperate to produce a manuscript of the clinical trials conducted by Merck, which will then be submitted for publication.

The terminated agreement follows two bits of positive news for Nastech, which together drove up the company’s stock by $4.54 within the last month. In early February, the company landed a $577 million deal with Cincinnati-based Procter & Gamble Pharmaceuticals Inc. to develop Nastech’s nasal spray, PTH1-34, for osteoporosis. Later in the month, the company announced its buyout of the RNAi intellectual property estate of Cambridge, Mass.-based Galenea Corp. - an event that pushed the company’s stock to a six-year high of $20.32. The patent portfolio includes IP licensed from the Massachusetts Institute of Technology for the development of RNAi therapeutics against respiratory viral infections such as influenza, rhinovirus and other diseases. (See BioWorld Today, Feb. 2, 2006, and Feb. 24, 2006.)

Aside from PYY and PTH1-34, Nastech is developing an intranasal insulin product at the late preclinical stage. It hopes to move it into the clinic sometime this year.

The company also is waiting to hear from the FDA on its calcitonin-salmon nasal spray, for which it filed an abbreviated new drug application to market it as a treatment of osteoporosis in postmenopausal women.

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