By Mary Welch

Neurocrine Biosciences Inc. sold the European and Asian commercialization rights to its altered peptide ligand (APL) for diabetes to Taisho Pharmaceutical Co. Ltd. in a deal worth $45 million in licensing and option fees and regulatory milestones, and reimbursement of half of worldwide development expenses.

Neurocrine, of San Diego, retains all the rights for the rest of the world, including North America. Neurocrine also will receive royalties on product sales in Europe and Japan.

"It's a phenomenal deal for us," said Paul Hawran, Neurocrine's senior vice president and chief financial officer. "There is an up-front payment of several millions dollars. We retain the North American rights, which gives us the option to enter into discussions with potential partners after we get some positive Phase II data. There's a very big potential upside later."

The deal also allows Neurocrine to focus on its core technology and its portfolio.

"Taisho has proven experience in diabetes and it is one of the focus areas of its research and development," he said. "Diabetes is not an area of focus for us in the same way as neuroscience is. It's a good way of being able to off-load the costs of development and putting the money into other internal programs."

Although Taisho, of Tokyo, and Neurocrine will form a steering committee to coordinate development of the product, called NBI-6024, Neurocrine still will be responsible for developing the drug. Currently it is in several Phase I trials in North America and Europe in diabetic patients, with the targeted indication being insulin-dependent diabetes mellitus (IDDM). All the trials should end by third quarter of this year, with Phase II slated to start immediately afterwards.

Any Japanese trials will be completely funded by Taisho, while the North American and European costs will be split evenly, Hawran said.

IDDM represents 5 percent to 10 percent of all diagnosed diabetes cases and is characterized by an immune-mediated destruction of the insulin-producing beta cells of the pancreatic islet.

A new drug application for the product is still a long ways out, perhaps as early as 2005, said Kevin Gorman, the company's senior director of corporate development.

NBI-6024 is based on Neurocrine's APL technology. In the case of IDDM, the beta-islet pancreatic cells, which are responsible for the production of insulin, are the targets. The company's approach to diabetes is to engineer one of the dominant pancreatic antigens so that it is still recognized by the pathogenic immune cell as being foreign; however, it serves to elicit a protective immune response by down-regulating the immune-mediated destructive process. As a result, the B-islet cell and its insulin-producing capability is preserved.

Separately, Neurocrine plans to initiate a dose-response, randomized, placebo-controlled, multicenter Phase II study of NBI-34060 in more than 500 subjects in the second quarter of this year in patients with chronic insomnia as well as other subgroups. It is designing a large pivotal Phase III program in more than 1,500 patients with transient insomnia.

In addition, Neurocrine has two other drugs in Phase II trials: NBI-3001 (IL-4 fusion toxin) for glioblastoma; and R121919, a corticotropin-releasing factor antagonist, for anxiety and depression.

Neurocrine's stock (NASDAQ:NBIX) closed Thursday at $22.875, down $1.375.