VistaGen Therapeutics Inc. signed a research agreement with Sanwa Kagaku Kenkyusho Co. Ltd. to develop customized stem cell-based discovery tools that could result in more effective therapies for diabetes.

Burlingame, Calif.-based VistaGen will apply its embryonic stem cell technology portfolio to develop the tools for Nagoya, Japan-based Sanwa, which will use them to screen compound libraries for new drug candidates to treat Type I and Type II diabetes.

"It's quite significant for us, because it's our first true drug discovery and development deal with a pharmaceutical organization using the embryonic stem cell technologies," said Ralph Snodgrass, VistaGen's president and CEO. "I think that's a very nice demonstration of how the pharmaceutical organizations and companies are starting to value this technology."

Sanwa retains limited, field-restricted, exclusive rights to develop new drug candidates identified using VistaGen's technology. VistaGen, in turn, will receive funded research payments for at least two years, and it could receive milestone payments up to $15 million per drug product developed by Sanwa, as well as royalties on product sales. The diabetes market is worth about $10 billion a year.

VistaGen will keep commercial rights for certain new drug candidates and intellectual property developed during the collaboration. The companies will share 50/50 in both the development and the commercialization and marketing responsibilities.

Snodgrass said the partnership validates VistaGen's business model of providing pharmaceutical companies with access to the embryonic stem cell-based drug discovery and development tools.

"We plan to do one or two more of these in the next 12 to 18 months," Snodgrass told BioWorld Today. Subsequent deals would leverage the stem cell technology in areas outside diabetes, probably central nervous system disorders.

The agreement to find diabetes therapeutics represents the second deal signed by VistaGen and Sanwa. They first joined up in April 2003 in a multiyear research partnership to develop stem cell-based discovery tools that would be used for internal research programs and for commercialization by third parties. VistaGen was entitled to up-front technology license fees, an equity investment and several years of funded research. (See BioWorld Today, April 9, 2003.)

VistaGen is focused on the development of products to treat disorders of the central nervous system and metabolic syndromes. The company is developing its lead drug, AV-101, for epilepsy and for chronic neuropathic pain - markets with global annual product sales of $7 billion and $2.5 billion, respectively.

The product is a prodrug acting as an NMDA-receptor antagonist that has shown substantial anticonvulsant and neuroprotective activity in animal models of epilepsy. VistaGen said it might improve efficacy with fewer side effects compared to drugs being used to treat epilepsy patients. About 30 percent of epilepsy patients are unable to effectively control their seizures with any of the approved drugs, the company said.

If all goes as planned, AV-101 could enter the clinic in early 2006.

Aside from AV-101, privately held VistaGen uses its stem cell technologies for its own research and the research of its collaborators. The company has had deals with Pfizer Inc., of New York; London-based GlaxoSmithKline plc; and Novartis AG, of Basel, Switzerland.

VistaGen licensed certain exclusive worldwide rights to embryonic stem cell patents and technology in 1999, shortly after the company was founded, from the National Jewish Medical and Research Center in Denver.

The company has raised about $10 million since its inception. It is preparing to conduct another financing round to carry AV-101 through Phase II trials, the point at which VistaGen would seek a partner.

"We are in the process of starting to initiate an effort to raise up to $20 million in this next round, so we are in a financing mode," Snodgrass said. "That will take us through Phase II in the clinic with this epilepsy drug."

VistaGen has received several Small Business Innovation Research grants from the National Institutes of Health to develop clinically predictive assays and tools to find new, safer drugs, to develop biomathematical systems to analyze data from stem cell-based evaluation of known cancer drugs, and to develop an in vitro stem cell assay for cancer drug toxicology assessment. Its most recent Phase I SBIR grant was awarded in January for $379,000 to advance the preclinical development of AV-101 to treat epilepsy. At that time, VistaGen started the safety and pharmacokinetic studies necessary to file an investigational new drug application with the FDA next year.