By Jim Shrine

Neurocrine Biosciences Inc. turned a $4.2 million acquisition into a potential $78 million deal in less than a year, as it agreed to collaborate on development of excitatory amino acid transporters (EAATs) with Wyeth-Ayerst Laboratories.

Neurocrine, of San Diego, in March 1998 acquired Northwest Neurologic Inc., of Portland, Ore., which already had an exploratory collaboration in place with Wyeth-Ayerst. Neurocrine is expected to make all that back and then some in first-year research and milestone payments related to the deal targeting neurodegenerative and psychiatric diseases.

Separately, Neurocrine said its neurosteroid, dehydroepiandrosterone (DHEA), failed to beat placebo in a Phase II/III trial in Alzheimer¿s disease, effectively ending development of that product. The effect on Neurocrine, however, is minimal, since it was being developed by a subsidiary that got most of its funding from Canadian institutional investors, and it was a product for which little was expected.

The dual news items are a ¿net positive,¿ said Jay Silverman, senior analyst at BancBoston Robertson Stephens Inc. in New York. ¿DHEA was a wild card, if it [had] worked,¿ he said. ¿It¿s no big deal that it didn¿t. It wasn¿t one of the reasons you own this company.¿

But the EAAT technology is one of the reasons, he said, adding that DHEA was viewed by many as an overhang that¿s better off behind the company.

Silverman said the EAAT deal is a positive signal that American Home Products Corp., the Madison, N.J., parent of Wyeth-Ayerst, is pleased with what it¿s seen from the program in the past few years. ¿Now they¿re going forward and putting some significant resources behind it,¿ he said. ¿For Neurocrine, turning a $4.2 million stock purchase into a $78 million deal ¿ regardless of how the up-front and milestone payments are structured ¿ is pretty phenomenal leverage.¿

Gary Lyons, Neurocrine¿s president and CEO, said the deal entails research funding of $3 million to $5 million per year for three to five years, enough to cover all expenses. In lieu of a license fee, Neurocrine opted for milestone payments in the first year of $2 million to $4 million, making the deal¿s value $5 million to $8 million in the first year, he said. The bulk of the deal¿s potential is in later-stage milestones.

Neurocrine also retained co-promotion rights in the U.S. and would get ¿low double-digit royalties¿ on sales of resulting products, Lyons said.

Transporters Represent Unique Target

EAATs are a family of five membrane proteins, structurally similar to transporters such as those for the neurotransmitters serotonin, dopamine and GABA. Glutamate is the major excitatory neurotransmitter. Too much glutamate can occur during cerebral ischemia, as in stroke, or as a result from a high rate of neuronal firing, as in epilepsy. Too little glutamate might cause cognitive deficits, such as in Alzheimer¿s disease, or the psychosis underlying schizophrenia.

Alan Foster, Neurocrine¿s director of neuroscience, said many companies are working in the area, but nearly all are seeking antagonists for glutamate receptors. ¿We¿re targeting the transporters for glutamate receptors, trying to elevate or reduce glutamate,¿ he said. ¿By targeting a transporter, you have a much better way to modulate the system. That¿s the advantage we see in this approach.¿

Foster pointed out the deal with Wyeth-Ayerst covers only two versions, EEAT-2 and EEAT-3, of the transporter¿s five.

¿We have some early lead compounds,¿ he said, adding that identification of advanced compounds that show in vivo activity is expected to take another 12 to 18 months.

The technology initially was licensed by Northwest Neurologic from the Oregon Health Sciences University, in Portland, where company co-founder Susan Amara was the first to clone human forms of EAATs. Through the purchase of Northwest Neurologic, Neurocrine also brought in some technologies in the area of melanocortin receptors. (See BioWorld Today, March 12, 1998, p. 1.)

¿It was a wonderful deal,¿ Lyons said. ¿We got into two new areas, which complement our neuroscience focus beautifully. Then, we took a small piece of that and parlayed it into a major deal with a major company.¿

Neurocrine has demonstrated an ability to get programs to pay off. The company, with four significant collaborations and five products in the clinic ¿ three of which are unpartnered ¿ has lost only $17 million in five years. This will be the first year in the past three in which it will lose money, Lyons said. One company goal this year is to add another pharmaceutical company collaboration to the fold, he said, and possibly to bring in a partner for Europe and/or Japan, for products currently in the clinic.

Failure Of DHEA Not Entirely Negative

Lyons agreed with Silverman¿s assessment of DHEA: that there was some upside and little downside to the product, and that the company might be better off now that it¿s finished.

¿Some investors expressed relief that this is out of the way,¿ Lyons said. ¿We told investors this is not the reason to invest in the company. The focus is on the core programs.¿

Lyons said DHEA was a controlled substance when Neurocrine licensed it in 1996 from the Beckman Research Institute of the City of Hope, in Duarte, Calif., but now the nutritional supplement-type product can be purchased off the shelf in various retail outlets.

Neurocrine had sheltered itself from most of the risk by establishing a Canadian affiliate, Neuroscience Pharma Inc., for DHEA and discovery research in the area of neurogenomics. Canadian institutional investors had put about $10 million in that company, and the Canadian government added a few million more. The affiliate will continue funding neurogenomics work.

Neurocrine¿s stock (NASDAQ:NBIX) lost 25 cents Wednesday to close at $5.125. n