By Jim Shrine

Celtrix Pharmaceuticals Inc. and Elan Corp. plc established a joint venture that will push development of SomatoKine for osteoporosis, and that also pushed investors back into the stock.

Celtrix shares (NASDAQ:CTRX) gained 50 cents per share, or 52 percent, Tuesday to close at $1.47 on news the companies formed a joint venture and that Elan was purchasing up to $12.8 million in preferred Celtrix stock at a significant premium, $2.06 per share. Separately, Elan agreed to buy $2.5 million in Celtrix stock at an undisclosed premium price.

SomatoKine is the recombinant equivalent of insulin-like growth factor-1 and its major binding protein, BP-3. Elan¿s Medipad system, a patch-like microinfusion pump device that delivers through subcutaneous infusion, will be used to deliver SomatoKine in development going forward. The next trial is expected to be a large Phase II that follows up on a Phase IIa Celtrix completed in December.

Officials at San Jose, Calif.-based Celtrix said at the time they would seek partnerships for further development in several indications. The company has completed Phase II trials in diabetes and wasting from traumatic burns in addition to osteoporosis.

¿This deal was very encouraging and an important first step because it takes one indication and moves it forward,¿ said Don Huffman, vice president and chief financial officer at Celtrix. ¿We feel strongly that Elan adds a lot to taking it forward. It is a large, significant, fast-growing entity with delivery technology we absolutely need.¿

Elan, of Dublin, Ireland, initially gets a stake of 19.9 percent in the joint venture. It has the option to convert its $12.8 million investment into Celtrix common stock or to exchange a portion of that for a larger share in the joint venture.

Phase II Trial Slated To Start Later This Year

Celtrix President and CEO Andreas Sommer said, ¿We will immediately go ahead and design the details of this [Phase II] trial,¿ which he expected would get under way in the second half of this year.

¿This is a very important milestone for the company and could open the door to a good many things,¿ Sommer said. ¿It not only allows us to move the osteoporosis indication forward but also provides us time to fully explore the opportunities provided by the recently obtained clinical data from our diabetes and trauma trials. We need to make sure we maximize the value in each and every one of them rather than lumping them in a package that doesn¿t fully reward the technology.¿

The Elan deal appears to put Celtrix back on track. The company downsized in September from about 75 employees to seven, and finished the year with $1.78 million in cash and a significantly reduced burn rate. Celtrix estimated at that time its current cash would take it into the third quarter.

Sommer said Elan has six years to decide whether to convert its investment into Celtrix shares or increased ownership in the joint venture, though it probably will make that decision within two or three years, after trial data is available. Regardless, Celtrix will keep at least half of the worldwide rights to SomatoKine for osteoporosis.

Celtrix has about 24.6 million shares outstanding. If Elan converted the $12.8 million investment into common stock it would own about 20 percent of Celtrix.

Celtrix will use proceeds from the preferred stock sale to fund its share of the joint venture¿s capitalization and development costs. Elan will commit additional money to support its costs. The joint venture will pay Elan a license fee for the Medipad technology, while Celtrix will have an 80 percent share in any up-front fees, milestones or royalties received by the joint venture related to further development and commercialization of an osteoporosis product until it is paid $10 million. After that, the companies would share proceeds according to their ownership positions.

The completed Phase IIa study in osteoporosis involved 24 severely ospteoporotic hip fracture surgery patients who were given one of two doses of SomatoKine or placebo. Data showed benefit among treated patients in several measurements, including hip bone mass and functional ability.

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