About three weeks after Phase III data showed Cerovive hit its primary endpoint, Renovis Inc. formed a preclinical research deal with Pfizer Inc. worth up to $187 million or more for products that inhibit the vanilloid receptor (VR1).

But the stock (NASDAQ:RNVS) of South San Francisco-based Renovis did not respond as expected on Tuesday, dropping 22.8 percent, or $3.90, to close at $13.20.

It might look like Wall Street didn't like the deal. But that was not the case.

"It seems like the terms for the research collaboration were good, in that they got a decent up-front payment of $10 million, and $7 million in research funding," said Phil Nadeau, an analyst with New York-based SG Cowen & Co. "That's a solid research deal."

So what's going on with the stock? Company management was inundated with investor phone calls Tuesday asking that very question.

The stock drop had little to do with the Pfizer research collaboration, and everything to do with detailed Cerovive Phase III results presented over the weekend at the European Stroke Conference in Bologna, Italy.

"Overall, the data were solid, but I think you might have a little disappointment in that some of the details might not have lived up to Street expectations," Nadeau said.

Renovis' stock jumped 94 percent in early May when preliminary results of 1,700 patients in Europe showed that Cerovive met its endpoint, a statistically significant reduction on the primary outcome of disability three months after an ischemic stroke. (See BioWorld Today, May 5, 2005.)

But more detailed results showed that Cerovive did not come close to meeting a secondary endpoint of the trial involving the National Institutes of Health stroke scale.

"The speculation was that the secondary endpoint was going to show a very strong trend in favor of Cerovive and, in fact, it didn't," Nadeau said.

Preclinical Deal Has Massive Upside

The $7 million in research funding covers the first two years of the agreement and New York-based Pfizer can choose to extend the deal and the funding for two more years. In return, it takes exclusive worldwide rights to commercialize any resulting small molecules that target VR1, which is an ion channel protein that mediates and influences cell signaling. Renovis and Pfizer plan to identify best-in-class VR1 therapeutics from their respective research and development programs, and form a joint steering committee to monitor and oversee the collaboration.

By interrupting nerve cell signaling, a VR1 inhibitor can affect certain types of pain. The inhibitors also could be useful in treating inflammation. Renovis and Pfizer will initially focus on treatments for pain and urinary incontinence, among other diseases and disorders.

"The reason we chose to partner this program at a preclinical stage," said Corey Goodman, president and CEO of Renovis, "is because we believe that there are so many potential indications for a VR1 antagonist, that we really wanted the resources and the muscle of a company like Pfizer to help us move this through the clinic."

In addition to the $17 million in up-front and research funding, Renovis also could receive more than $170 million in milestone payments "for each product," Goodman said. "And even on a given product, there's a chance for further milestones for significantly different indications." The milestones are based on research, development, approval and commercialization achievements.

Once a product is commercialized, Renovis is entitled to low double-digit royalties on net sales. Not bad for a preclinical deal. But while the Cerovive news weighed on the stock Tuesday, Goodman said he didn't think those data were anything to worry about.

"We think what the regulators are looking for is the primary endpoint," he told BioWorld Today. "There have been 49 failures before this. This is the first time in history that a neuroprotectant has ever hit its primary endpoint."

While Goodman agreed that the NIH stroke scale secondary endpoint had some effect on the stock, he believed the drop had more to do with Boston-based Leerink Swann & Co.'s conference call on Tuesday morning. In the call, a neurology faculty member of the University of Massachusetts Medical Center, made "strong negative statements" regarding the Cerovive trial, even though he did not see the presentation in Bologna.

"We and the analysts who went to Italy and know the data have to just counter the fact that this guy gave a lot of misinformation," Goodman said.

Still, Renovis' stock has maintained most of its increase in value following those initial results in early May. And the Pfizer deal should keep the stock well above the $6 to $7 per share price Renovis had before the preliminary data were released.

Cerovive is under development with London-based AstraZeneca plc. A Phase III trial in ischemic stroke patients in North America is ongoing, as is a Phase IIb study of Cerovive in patients with hemorrhagic stroke. Analysts have said sales of the compound could reach $3.5 billion, and Goodman expects that AstraZeneca will file for approval in the U.S. sometime in 2006.

Renovis also has two internal programs, including a Phase II trial of the oral drug REN-1654 for sciatica, and a Phase I trial of the oral drug REN-850 for multiple sclerosis. Results of the Phase II REN-1654 trial should be available in the third quarter. Earlier this year, the drug failed to meet its endpoint in a proof-of-concept study in post-herpetic neuralgia. (See BioWorld Today, March 9, 2005.)

Results from the Phase Ia 45-patient trial for REN-850 should support a Phase Ib trial expected to begin in the fourth quarter.

As a result of the agreement with Pfizer, Renovis updated its financial guidance for 2005, saying it expects total contract revenue from existing agreements with South San Francisco-based Genentech Inc. and Pfizer to be $6.5 million to $7 million. It also expects to have total operating expenses of $45 million to $50 million.

The company, which priced its $66 million initial public offering in February 2004 at $12 a share, is collaborating with Genentech to discover and develop anti-angiogenic products and drugs for neurological disorders.