To hasten development and build value for its RNAi technology, CytRx Corp. opted to transfer all of its ribonucleic acid interference therapeutics assets into a new subsidiary.

The unit should be formed and named within the next few months, if CytRx secures an initial financing.

The decision to form the subsidiary follows several road shows in which investors and research analysts seemed to undervalue the RNAi technology.

"It became obvious that CytRx was valued for its small-molecule programs in metabolics and in central nervous system disorders," said Steven Kriegsman, the company's president and CEO, "and there was essentially no value given to our RNAi programs."

The subsidiary's main focus will be on accelerating the development and commercialization of drugs based on RNAi technology, which employs a method of fighting illness by shutting down disease-causing genes.

Los Angeles-based CytRx is working on RNAi therapies in a RIP140 program for obesity and Type II diabetes, an SOD1 program for familial amyotrophic lateral sclerosis (ALS) and a cytomegalovirus (CMV) program. By repositioning the technology, the company believes it will more quickly move RNAi drug candidates into the clinic and increase shareholder value.

"We believe potentially that [the SOD1] program could be the first one into humans," Kriegsman said, "and if that goes well, it's possible we could have the first RNAi product on the market."

The new structure should help CytRx form research collaborations and other strategic alliances, as well as secure direct financing. The plan is to make the subsidiary a "pure play" RNAi company that can be stacked against and compared to other RNAi-focused companies, such as Cambridge, Mass.-based Alnylam Pharmaceuticals Inc., which has a market cap of $333 million.

CytRx's market cap is $69.25 million, and its stock (NASDAQ:CYTR) lost 1 cent Monday, closing at $1.18.

The company intends to retain significant ownership in the unit once investors are found to capitalize it.

"It puts the CytRx shareholders in a position to own a substantial piece of what we believe will be a very, very lucrative company," Kriegsman said. "Right now, they have 100 percent of what isn't being valued on Wall Street."

CytRx entered the RNAi space when it established an exclusive license agreement in April 2003 with the University of Massachusetts Medical School (UMMS) to use RNAi technology to develop products to prevent, treat and cure obesity and Type II diabetes. That same month, it signed an exclusive, worldwide license agreement with the university to use RNAi technology to develop a treatment for ALS.

Since then, the company has funded research at the university and at Massachusetts General Hospital in the fields of ALS and CMV.

In May 2004, CytRx gained exclusive rights from Imperial College Innovations Ltd. to intellectual property covering a drug screening method using RIP140, a nuclear hormone co-repressor that regulates fat accumulation. Last August, CytRx said UMMS researchers had developed siRNA inhibitors that target RIP140, and early investigations in mouse models showed that suppression of RIP140 resulted in the absence of fat accumulation even when mice were fed a high-fat diet.

The license from Imperial College was followed in July 2004 by a new collaboration with UMMS that gave CytRx option rights to license new RNAi technologies developed over a three-year period in the fields of Type I and Type II diabetes, obesity, neurodegenerative diseases and CMV. At that time, UMMS researchers had silenced the mutant SOD1 gene known to cause familial ALS in a mouse model. The relationship with UMMS was further expanded in December to cover newly discovered drug targets that are involved in the regulation of insulin activity in fat cells.

CytRx's new subsidiary also will benefit from several scientific advisers and sponsored researchers from UMMS, Imperial College London and Harvard Medical School, including Craig Mello, Michael Czech, Malcolm Parker and Robert Brown, among others.

In the meantime, CytRx will continue its work with arimoclomol and its library of 500 small-molecule drug candidates, which it acquired when it bought out Biorex Research & Development RT, of Veszprem, Hungary, in October 2004. (See BioWorld Today, Oct. 6, 2004.)

Arimoclomol entered a double-blind, placebo-controlled Phase II trial to treat 80 ALS patients in September. The drug has received orphan drug and fast-track designations from the FDA. (See BioWorld Today, Sept. 23, 2005.)

It also "may be efficacious" in other neurodegenerative diseases, such as Huntington's and Parkinson's diseases, Kriegsman said, adding that CytRx expects to start Phase II trials in additional indications once it completes some more preclinical work.

Two other drugs acquired from Biorex are iroxanadine for diabetes and cardiovascular disease, and bimoclomol for neurodegenerative diseases. The former was tested in two Phase I studies and one Phase II trial, showing it was well tolerated and had signs of efficacy. CytRx expects to partner it for clinical development.

It has not yet made a decision on what to do with bimoclomol, which was shown to be safe in two, large Phase II trials, but failed to work in diabetic neuropathy.

CytRx also has rights to an HIV DNA+ protein vaccine developed by UMMS researchers and Advanced BioScience Laboratories Inc., of Kensington, Md. A Phase I trial demonstrated its ability to produce potent antibody responses with neutralizing activity against multiple HIV viral strains.

As of Sept. 30, CytRx had cash and short-term investments of $11.2 million.