Neurobiological Technologies Inc. signed a definitive agreement to sell the rights of its Phase III product Xerecept to a subsidiary of Celtic Pharma Holdings LP for up to $48 million.

Xerecept is a synthetic preparation of the natural human peptide, corticotropin-releasing factor (CRF). It works to reduce peritumoral edema, or an abnormal increase in brain water content, which can lead to brain ischemia, herniation and death.

Emeryville, Calif.-based NTI will receive $33 million in up-front money, of which $20 million will be paid at closing, expected by Sept. 30. It also can receive up to $15 million more by achieving certain regulatory milestones. If the therapy reaches the market, NTI would receive profit-sharing payments on sales in the U.S., and royalties on sales for the rest of the world.

In response to the deal, the company's stock (NASDAQ:NTII) rose more than 23 cents, to close at $3.55.

Hamilton, Bermuda-based Celtic, a private equity firm, will take over all product development, while NTI will provide services relating to the current clinical trials of Xerecept.

The up-front payments should offset the costs of NTI's Viprinex (ancrod) Phase III program for ischemic stroke, which the company gained through its July 2004 acquisition of Empire Pharmaceuticals Inc., of Greenville, N.Y. A Phase III trial is expected to start any day. The deal also enables NTI to reduce its burn rate, while it still maintains a financial interest in Xerecept.

The Xerecept Phase III program represents about $3 million in expenses a year to NTI, said Jonathan Wolter, the company's vice president and chief financial officer.

In addition, NTI's $10 million revolving credit facility, joined with the $33 million up front from the Celtic deal "puts in place $43 million of non-dilutive liquidity" for NTI, Wolter told BioWorld Today, "which we think positions the company very well to proceed with our trials and look at expanding our pipeline."

NTI developed Xerecept after licensing the product from the Salk Institute in 1988. It is a synthetic mimic of the naturally occurring human neuroendocrine hormone CRF, which is thought to be a key hormone involved in regulating the release of natural corticosteroids by the pituitary and adrenal glands.

Xerecept appears to block vascular permeability by inducing up-regulation of blood-brain barrier specific structural proteins.

NTI has invested $24 million in the compound's development. Celtic intends to develop the product globally, starting trials in Europe in the near term. It recently formed a strategic alliance with CMIC, Japan's leading contract research organization, which could become involved in the development of Xerecept in Asia.

The market for Xerecept is not huge, but brain tumor patients have few options for treatment. About 35,000 patients are diagnosed each year with primary brain tumors in the U.S., and another 170,000 patients with metastatic brain tumors.

Xerecept received orphan drug designation for peritumoral edema from the FDA in April 1998. NTI has completed animal toxicology studies and began enrollment of 200 patients in April 2004 in a pivotal trial for the chronic treatment of peritumoral brain edema. (See BioWorld Today, April 21, 2004.)

A second pivotal trial for acute peritumoral brain edema will begin enrolling 120 patients later this year. Each trial is expected to last about 18 months, meaning a new drug application filing for Xerecept could come in 2007.

"Enrollment has been slower than initially anticipated," Wolter said, "but we are successfully enrolling in that [first] trial. I'd say that 18 months is a reasonable estimate, but it is certainly possible we could extend beyond that, but not substantially."

A third long-term safety study of the intravenous therapy began in August, providing an extended use option for patients enrolled in the two other trials.

Xerecept represents the fourth late-stage product acquired this year by Celtic. Clinical data have shown that Xerecept could have better efficacy and safety than high-dose synthetic corticosteroids, specifically dexamethasone, the current standard of care for edema. Corticosteroid therapy is linked with several adverse effects, such as hyperglycemia, gastritis, gastrointestinal bleeding, weight gain, osteoporosis, psychosis, immunosuppression and skin fragility.

Nevertheless, dexamethasone - which is sold under the names Decadron, Dexameth, Dexone and Hexadrol as an oral therapy - is effective in treating brain tumors, Wolter said.

"We are hopeful that our trials will demonstrate the same efficacy with Xerecept, but with a far improved quality of life, without the side effects caused by the steroid," he said.

Several Phase I/II trials have shown Xerecept to be safe with mild side effects, such as flushing, minor nausea, nasal congestion, headache and tingling. The early studies also showed patient improvement in neurological function and the ability to enhance radiation therapy for brain tumors.

Aside from developing Xerecept and Viprinex, NTI receives revenues from its one marketed product - Namenda (memantine HCL), which received FDA approval in October 2003 for Alzheimer's disease.

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