West Coast Editor

Almost six months after Aradigm Corp. and partner Novo Nordisk A/S decided to end early a Phase III trial with their inhaled insulin product because of problems with Type I diabetics, Novo said it agreed to buy all development and manufacturing rights to the AERx insulin diabetes management system (IDMS) program for $55 million.

Aradigm's stock (NASDAQ:ARDM) closed Wednesday at $1.20, up 4 cents.

"I hope we've surprised the market a little bit," said Richard Thompson, president and CEO of Hayward, Calif.-based Aradigm.

The bad news from the Phase III trial - which put a 29.7 percent dent in Aradigm's shares the day it was made public last spring - "caused Novo to think about how to approach the market, but not if they should approach the market," Thompson said. "This restructuring [of an existing deal with Novo] was in the works many months before that event," he added.

Under the terms, Bagsvaerd, Denmark-based Novo is taking over all responsibilities for development and funding, though Aradigm is keeping a long-term interest in AERx IDMS system through an adjusted royalty on sales.

Thus, along with the cash payment, "we're also being relieved of obligations to spend approximately $100 million over the next several years," Thompson said.

Novo has formed a new affiliate, Novo Nordisk Delivery Technologies Inc., also in Hayward, which will assume the leases and operational overhead on two of Aradigm's current three buildings, and will offer to hire about 130 Aradigm employees who have been working on the program. The overseas firm has said it will finish the Phase III trials under way now, evaluate them in the first half of next year and later in 2005 start new ones.

Novo and Aradigm have the option to continue collaborating in areas such as next-generation AERx technologies and Novo, if needed, will provide contract-manufacturing services to support other AERx efforts for up to three years. Aradigm's shareholders still must approve the deal, which is expected to close by the end of the year.

The pair entered the potential $50 million deal for IDMS in 1998, and finished Phase IIb trials several years later. Specifically this spring, the firms disclosed that primary safety endpoints had been met in an interim analysis of the Phase III data, but AERx insulin also delayed post-meal plasma glucose suppression in Type I diabetics. (See BioWorld Today, June 4, 1998; Nov. 21, 2001; and May 3, 2004.)

Type II patients in Phase II trials had shown satisfying post-meal glucose profiles. Results in Phase III with Type I diabetics, though, showed glucose levels right after meals were higher than those in patients given subcutaneous insulin. At night, levels were lower than those in trial participants given the subcutaneous form.

Type I patients are regarded as more sensitive than Type II diabetics, which might have affected results, Aradigm said at the time. Also, the company noted, patients in the subcutaneous group got a newer, faster-acting insulin, called insulin aspart, while AERx patients got regular human insulin.

Novo detected that "the world is shifting to fast-acting insulin for meal-time dosing," Thompson said, adding that the data from the Phase III trials "don't mean [AERx insulin] can't be used in Type I diabetics. That's still a decision to be made."

AERx has other applications as well. Earlier this month, APT Pharmaceuticals, of Tucson, Ariz., began clinical studies of hydroxychloroquine using the aerosol delivery method for treatment of respiratory diseases such as asthma, chronic obstructive pulmonary disease, rhinitis and severe acute respiratory syndrome, with Phase II trials expected to start in asthmatics in the first quarter of next year.

But "if you look at pulmonary delivery in general, insulin is the big one," Thompson said. "All of our other pulmonary products are early clinical stage."

The full-rights deal with Novo not only quashes doubt about that pharmaceutical firm's commitment and adds funding to Aradigm without dilution, he said, but also opens the ability for Aradigm to pursue other opportunities - such as its Intraject needle-free delivery technology.

Next year, the company plans to start bioequivalence studies with the Intraject version of an undisclosed drug.

"We'll be doing both [AERx and Intraject work], and I think we'll be about 50/50," Thompson said, adding that efforts in more indications with AERx will be disclosed in 2005.

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