LONDON - Neurosearch A/S plans to spin out a new company, Ns Gene A/S, to work on cell transplants for the treatment of central nervous system diseases, including Parkinson's and Alzheimer's diseases.

Jorgen Buus Lassen, President and CEO of the Ballerup, Denmark-based company, told BioWorld International the company was close to raising DKK 55 million (US$8 million) of institutional and venture funding. Neurosearch is taking DKK 5 million in equity, and, in addition, a government loan of DKK 46 million from a fund that supports new industries and projects has been negotiated.

"This will provide sufficient funding for three years, in which time we hope to bring one or two candidates into the clinic," he said.

Neurosearch will own 30 percent of NsGene, which will operate from the parent company's premises. Fourteen staff will be transferred, along with the cell and gene therapy program, intellectual property and an exclusive contract with Anders Bjorklund at the University of Lund, Sweden, who has pioneered the use of fetal cell transplants in the treatment of Parkinson's disease.

Buus Lassen said breakthroughs in the CNS gene therapy program justified a significant expansion of the work. Among the other findings was the discovery of a new neurotrophic factor, neublastin, which has a protective and growth-promoting effect on degenerating cells in the brains of Parkinson's patients.

"We decided to create a new company because cell transplants and gene therapy are somewhat outside Neurosearch's focus on small-molecule drugs for treating CNS diseases," Buus Lassen said. "NsGene has the opportunity to collaborate with the best specialist and we decided it needed its own focus and management."

Teit Johansen, currently head of Molecular Biology at Neurosearch, will be CEO of NsGene.

Bjorklund has shown benefit in 60 percent of the patients who have received transplants, but the technique is controversial because of the use of fetal tissue, which also is in short supply. Buus Larsen said, "The aim will be to develop cell lines for transplantation, avoiding the use of human fetal tissue."

Spinning out NsGene will not significantly reduce Neurosearch's cash burn, but without setting up a separately financed entity it could not have afforded to increase investment in the transplantation technology.

The company currently has five compounds in clinical trials, but earlier this year two of its pharmaceutical partners pulled out following trial results.

Pharmacia and Upjohn terminated an agreement for NS2710 for the treatment of generalized anxiety disorder after five of 118 patients in a U.S. Phase II trial developed a skin rash. Neurosearch has since established that this was not an allergic reaction and is in discussions to find a new partner.

"Now we have established the skin rash was not caused by IgE, we hope to find a new partner within six months," Buus Lassen said. "The [investigational new drug application] is still open and we now have backup candidates. We also have animal data to support efficacy of NS2710 in the treatment of complex partial seizures, a form of epilepsy for which there is no current drug treatment."

There was an even bigger blow when Bristol-Myers Squibb Co. (BMS) ended the collaboration for Brasofensine, a dopamine reuptake inhibitor for the treatment of Parkinson's disease, after Phase II. Brasofensine exists as two isomers, E and Z. Both have similar biological activity but Neurosearch developed the E form because it was easier to formulate. However, after administration a partial conversion to the Z form occurs, and in patient trials this occurred at a greater rate than in animal studies. Neurosearch, therefore, concluded that it needed to go back and do further toxicological studies on the Z form, a decision that prompted BMS to withdraw.

Buus Lassen said Neurosearch has a meeting with the FDA this month to see if the additional toxicology program is acceptable. "We are in discussion with potential partners, but won't settle anything until after this meeting."

He said the company also plans to develop the drug first as a treatment for Parkinson's patients who are suffering from dyskinesia, the involuntary muscle movements that are a side effect of the existing drug treatment, L-dopa.