In a deal worth up to $51 million, NexMed Inc. agreed to grant exclusive worldwide rights for its onychomycosis nail lacquer treatment, NM100060, to Novartis International Pharmaceutical Ltd.

The product is in Phase I development in the U.S. While Novartis, a unit of Basel, Switzerland-based Novartis AG, will assume all further development, regulatory, manufacturing and commercialization responsibilities, as well as costs, NexMed receives up to $51 million, consisting of a $4 million up-front payment and milestone payments based on development and regulatory achievements. The Robbinsville, N.J.-based company also will receive sales-based royalties.

"It's a watershed event in the life of NexMed," said Ken Anderson, the company's vice president of commercial development. "They are experts in the field of onychomycosis. We are experts in the field of drug delivery. So it's a nice marriage."

One of the most common dermatological diseases, onychomycosis is a fungal infection that affects the toenails or fingernails of an estimated 30 million Americans. Those with the infection often find the fungus to be painful, embarrassing, expensive and difficult to treat. According to the American Journal of Dermatology, it costs between $700 and $1,200 per patient annually to monitor and treat the infection.

Novartis already has a marketed product for the condition, the blockbuster antifungal drug Lamisil, which is an oral product with a high efficacy rate, but one that is linked to an increased risk of liver failure. NexMed's product incorporates terbinafine, the active ingredient in Lamisil, with its NexACT penetration enhancers.

The technology boosts the skin's absorption of drugs, and is used in NexMed's other products, Alprox-TD, which is in Phase III as a topical cream for erectile dysfunction, and Femprox, which is in Phase II as a cream to treat female sexual arousal disorder. NexMed expects to file for approval of Alprox-TD in 2007.

And if things go as planned for NM100060, the fungal product could reach the market in 2008.

"You never know when you're developing a drug what hurdles you might encounter," Anderson said.

NexMed expects its nail lacquer treatment to be more effective than the topical treatment Penlac (ciclopirox), which has had only a modest response rate and is marketed by Paris-based Sanofi Aventis.

The market for onychomycosis is estimated to be about $2 billion worldwide, with Lamisil booking about $1.2 billion and Penlac pulling in about $200 million. There are a number of other players, including Janssen Pharmaceutica's Sporanex, Anderson said, but Lamisil is the most popular and Penlac is the only other topical treatment for onychomycosis.

"The market potential is at least double the $2 billion, and it may be triple the $2 billion," Anderson said. "And the reason is an awful lot of people who have nail fungus don't seek treatment."

Patients ignore the condition because they see it as cosmetic, or the treating of it as labor-intensive and expensive. Penlac, for example, must be applied for about 12 months, and a bottle of it can cost about $120. Even so, it has demonstrated efficacy rates in the single- or low-double-digit percentiles.

Lamisil is taken orally for three months, but its effects are seen in about 12 months, once the nail grows out, and patients must undergo regular screenings for liver toxicity. A three-month supply can cost more than $1,000. Many insurance companies do not cover onychomycosis drugs.

Lamisil patents are set to expire in 2006, and Novartis might be looking at products like NM100060 to extend its patent lifespan.

"If I were in their position, I would be seeking ways to potentially maintain the brand and potentially expand the portfolio," Anderson said. "But I don't know if that's Novartis' objective or not."

While shares rose 14 percent in early trading on Friday to $2.56, hitting a 52-week high, NexMed's stock (NASDAQ:NEXM) closed out the day at $2.03, down 21 cents.

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