Swedish company Diamyd Medical AB is picking up a gene therapy program involving glutamic acid decarboxylase (GAD) to go alone with its protein-based GAD portfolio through its merger with Nurel Therapeutics Inc.

Diamyd will pay Nurel about $1.5 million in a stock transaction, issuing Nurel shareholders 223,208 Diamyd B shares valued at SEK55 (US$6.80) each, representing a 15 percent premium to the closing price on Nov. 21. Diamyd also will issue an additional 110,000 shares against convertible loans previously used to finance Nurel.

The deal "primarily came about because of complementary technologies," said Michael Christini, CEO of Pittsburgh-based Nurel, specifically the work both companies have done using their GAD platforms.

Founded in 2003 by Christini and University of Pittsburgh professor Joseph Glorioso, Nurel develops products based on a drug-delivery technology derived from an inert herpes simplex virus, designed to deliver therapeutic proteins through local injections into the peripheral nervous system. A single injection is intended to deliver medicine over a period of months.

The company's lead product, NG2 (HSV-GAD) is in late-stage preclinical development for the treatment of chronic pain due to diabetes. The product could work well with Diamyd's platform, which is developing compounds targeting GAD65 to treat diabetes. That product has completed a Phase II study and is being evaluated in an ongoing Phase II/III trial in Type II diabetic patients.

Diamyd therapies are "protein-based to treat diabetes, while ours is a gene-based therapy that's intended to treat complications from diabetes," such as neuropathy and nerve degeneration, Glorioso said. So the two companies' products are a "good fit in terms of patients."

NG2 is expected to enter the clinic within the next 18 months. Behind it, Nurel has a second product aimed at protecting nerve cells from degradation caused by diabetes.

The advantage of using the inert herpes virus to administer the therapeutic is that the product is delivered locally, without leading to some of the systemic toxicities seen in protein-based drug candidates. The virus also is engineered to prevent replication, so the number of viral particles in the body does not suddenly increase.

Early studies have shown that the product "blocks pain in animal models for several weeks," Christini told BioWorld Today.

In addition to diabetic neuropathy, Nurel's early candidates also have been investigated in models of pain caused by spinal cord injury.

Development of another Nurel compound, NC3, a cancer drug targeting glioblastoma multiforme, is being supported with grant funding. Nurel has received $1.4 million in federal money to help with Phase I trials for that product, the first of which is scheduled to begin in 2007.

To date, Nurel's financing has come from convertible debt funding from Pittsburgh-based investment firms, such as UPMC Health Ventures, Innovation Works, and support from the Pittsburgh Life Sciences Greenhouse, a public/private partnership aimed at building the life science industry.

Nurel outsources its work, relying heavily on its relationship with the University of Pittsburgh, which handles "engineering for our gene therapy products, and has an established facility of animal models, particularly in neuropathic pain and spinal cord pain," Christini said.

At the close of the deal, Nurel's office in Pittsburgh is expected to remain operational, with Christini at the helm. Glorioso will stay on board in a consulting role to continue working on the science.

Diamyd will retain its corporate headquarters in Stockholm.

The merger is expected to have little effect on Diamyd's financial position, and the company said it anticipates little change to its burn rate.

For the three months ending Aug. 31, Diamyd reported a net loss of SEK11.9 million, or SEK1.3 per share. The company ended the quarter with cash, cash equivalents and short-term investments totaling SEK115.5 million.

Shares of Diamyd, listed on the Stockholm Stock Exchange (OMX:DIAMB) rose SEK1.30 Tuesday to close at SEK48.50.