NeoPharm Inc. is doing something new with a drug candidate it licensed away a long time ago.

The company is planning to begin clinical trials using a different formulation of a cancer drug for which development was halted by partner Pharmacia Corp. NeoPharm plans to further develop LEP (liposomal encapsulated paclitaxel) in combination with its NeoLipid formulation of LEP (LEP-ETU) for the treatment of cancer. But NeoPharm needed approval from Pharmacia, its partner dating back to a four-year-old licensing agreement, which had filed for arbitration in opposition to NeoPharm's November termination of the original accord.

The latest agreement allows Lake Forest, Ill.-based NeoPharm to reference Pharmacia's LEP investigational new drug application on file with the FDA.

"We appreciate that they have allowed us to do that," NeoPharm Chief Financial Officer Larry Kenyon told BioWorld Today. "But we're not using anything that Pharmacia did [after taking over LEP's development]. It was a complete waste of time."

The arbitration arose from NeoPharm's cancellation of a licensing agreement under which Pharmacia gained responsibility for developing LEP and LED (liposomal encapsulated doxorubicin). On Nov. 21, NeoPharm terminated the agreement due to what it termed indications that Pharmacia had stopped all development of LEP and LED.

"It was in Phase I when we licensed the drug to them, and they completed Phase I," Kenyon said. "They took it into Phase II after modifying the formulation, but we found out in January 2002 that their modification of the formulation was not working. They had never told us exactly what they had done; they treated it as a trade secret."

The Phase I trial in 31 patients with Class IV lung and breast cancer showed an efficacious response to LEP akin to paclitaxel. Pharmacia then began to develop a formulation of LEP that did not require sonication - the process by which a biologic material is disrupted using sound waves.

"They made what they thought was an improvement to the formulation but did not include us in that decision," Kenyon said. "We never had a chance to analyze what they had done - not that we were required to under the license agreement - but since it was our technology we could have saved them three years of wasting time had they just responded to our queries."

He said Pharmacia a year ago authorized NeoPharm to use its technology to develop an easy-to-use formulation that did not require sonication.

Pharmacia disputes the propriety of the termination, and has included NeoPharm's termination of the license agreement as part of the arbitration. A hearing on the arbitration is scheduled to begin May 28.

In the meantime, NeoPharm is working to start a Phase I/II bridging study of LEP-ETU during the first half of this year. Kenyon said the trial would begin with a dosage of LEP-ETU near the 175 mg/m2 dose determined in the Phase I study of LEP. The dose-escalating trial could include between 20 and 30 patients, he said.

"The study is to confirm the dose or to see if we can move it up a little bit," Kenyon said. "With this new technology, we wouldn't be surprised to see that we might be able to dose a little higher, which potentially could improve the outcome."

When the original agreement was signed in early 1999, NeoPharm seemingly had its back against a wall. The company finished its prior year with less than a million dollars in cash and cash equivalents.

But Pharmacia & Upjohn rode to the rescue in the form of a deal that could have garnered about $77 million for the struggling firm. Included in the total was a $17 million up-front payment, split into two parts. It included a $9 million license payment and $8 million in equity purchased at a double-digit premium, according to NeoPharm.

The deal also included $60 million in milestones that could be achieved over four years. Pharmacia also was to cover about $100 million in clinical trial costs. (See BioWorld Today, Feb. 23, 1999.)

In a move related to the arbitration, Pharmacia filed suit in Delaware Chancery Court seeking to have two of the three Pharmacia entities named in the arbitration claim removed. Specifically, Pharmacia is claiming that Pharmacia & Upjohn Inc., the parent of Pharmacia & Upjohn Co., and Peapack, N.J.-based Pharmacia Corp., the ultimate parent company, are not proper parties to the arbitration.

If Pharmacia were to prevail in its Delaware action to remove the parent entities from the arbitration, NeoPharm would be entitled to file its claims against the parent entities in court. There would be no effect upon the present arbitration against Pharmacia & Upjohn Co.

NeoPharm's liposome technology platform has produced a number of other candidates in Phase I/II development, including a lipsomal formulation of SN-38, the active metabolite of Campostar (irinotecan, from Pharmacia). Other products in comparable stages of development include a liposomal mitoxantrone and a liposomal c-raf antisense oligonucleotide.

Its latest-stage product, IL13-PE38, was developed outside of its liposome technology platform. The brain tumor-targeting toxin is expected to enter Phase III trials later this year.

The company's stock (NASDAQ:NEOL) fell 27 cents Friday to close at $10.80.