Washington Editor

Neurogen Corp.'s stock gained 64 percent Monday on news that it entered an exclusive worldwide alliance with Merck & Co. Inc. to discover and develop pain medications that target the vanilloid receptor, a key integrator of pain signals in the nervous system.

Neurogen's stock (NASDAQ:NRGN) closed at $10.47, up $4.09 after trading as high as $11.91.

On closing the deal, Merck, through a subsidiary, will make a $15 million license fee payment to Neurogen and purchase $15 million of Neurogen common stock at the average market price per share for the 25 trading days before the closing.

During the first two years of the deal, Merck, of Whitehouse Station, N.J., will pay Neurogen $12 million in research funding and license maintenance payments. Neurogen will be eligible for research, development and approval milestones totaling up to $118 million for the successful commercialization in a single therapeutic indication. Neurogen would receive milestones and royalty payments on additional indications.

The work will center on candidates that target vanilloid receptors (VR1) in a broad range of inflammatory pain, particularly pain derived from osteoarthritis, surgical pain and possibly neuropathic pain. VR1 also is believed to have a role in other conditions such as urinary incontinence, an indication the companies may pursue.

Each company brings a wealth of VR1 drug research to the collaboration, officials at Neurogen, of Branford, Conn., told BioWorld Today. Indeed, Neurogen already has a candidate that could enter the clinic as early as next year.

And over the past several years, Neurogen has developed a portfolio of chemical matter and the biology pieces that go along with having the sequence of the receptor, William Koster, Neurogen's president and CEO, told BioWorld Today. "We believe we have one of the predominant human polymorphisms of the receptor, and that's an issued patent. We also have patent applications pending for the use of antagonists in the area of pain.

"With our technology platform, we can continue to create very valuable material and a variety of targets, particularly around the seven membrane-spanning receptors and ion channels," Koster said. "We have been able to find chemical matter in areas that traditionally have been very difficult for other companies, and that's because we have an extensive deck of about 1.4 million compounds that we biased in these areas and we use our informatics technology to be able to mine that deck in a very unique way."

As for Merck's interest in the program, Janet Skidmore, company spokeswoman, told BioWorld Today, "We believe the alliance with Neurogen will help us do what we have done for a very long time, and that is bring breakthrough new medicines to people. We feel very strongly that this alliance has the potential to help us bring forward new medicines for a lot of inflammatory pain states, and that's something that is greatly needed by patients."

Neurogen declined to specify the number of candidates the companies will pursue. However, Steve Davis, Neurogen's executive vice president and chief business officer, told BioWorld Today the objective is to bring multiple candidates forward. "There is a high attrition rate in drug development in the early stages, so you want to make sure you have multiple shots on goals, so to speak," he said.

Merck will have exclusive responsibility for commercialization of products developed out of the alliance, and will have the right to extend the program up to three years following the initial two.

In other collaborations, Neurogen and Pfizer Inc., of New York, are developing an insomnia candidate, and Aventis Pharma SA, of Frankfurt, Germany, is working with Neurogen on a depression drug.

Neurogen's in-house products include two C5a antagonists, one for rheumatoid arthritis and the other for asthma, currently in Phase II trials. The company has other earlier-stage candidates for diabetes and obesity.