Jim Shrine

Ergo Science Corp. cut about half its staff, following the FDA's recent rejection of the company's lead product, Ergoset, and the pullout of its partner.

Ergo, of Boston, laid off 20 employees, leaving 20 to 25, spokeswoman Lisa DeScenza said. The company had 65 or more employees in the summer.

The FDA sent Ergo a non-approvable letter in November, saying Ergoset had an unfavorable risk-benefit ratio in treating Type II diabetes. The company's partner, New Brunswick, N.J.-based Johnson & Johnson (J&J), last week terminated its collaboration on Ergoset. (See BioWorld Today, Nov. 24, 1998, p. 1, and Dec. 8, 1998, p. 1.)

Ergo officials have said they disagree with the FDA's judgment and are evaluating options, such as appealing the decision. Disclosing the staff cuts, the company said it is re-evaluating its research and development projects and, in general, its strategic options, but would not elaborate.

Felicia Reed, an analyst with SG Cowen Securities Corp., in Boston, said Ergo is unlikely to change the FDA's decision, at least not without conducting new trials.

"They are in a very difficult position," Reed said. "I don't think they could get approval without another large-scale Phase III trial. Now that they've lost [J&J], they would have to find another partner - or do it themselves. And if they do it themselves, they would have to raise money."

A financing now, if it could be done, would be exceptionally dilutive. The stock (NASDAQ:ERGO) fell 3 cents Wednesday, closing at $1 per share. It had been trading at more than $15 before falling 55 percent, upon an FDA advisory vote in May not to recommend approval. The FDA's formal rejection and the J&J pullout sent the stock to its current levels.

J&J formed a potential $40 million collaboration with Ergo in February. The deal included a $10 million license fee and $10 million equity investment.

Reed said Ergo's best hope rests with an ongoing double-blind placebo-controlled Phase II/III trial of Ergoset for obesity. Results from the 300-patient trial are expected in the first half of next year.

"If they get some positive data, they could pique the interest of another partner," Reed said. "They'd still have to do another Phase III trial, so it's still far away from a marketing standpoint, but some positive data could help the stock and put them in a better position for finding a partner. If the data are negative - that's it."

Ergo's Cash On Hand Should Last Through 1999

Ergoset is an oral formulation of bromocriptine, a dopamine-receptor antagonist used, in a different formulation, to treat Parkinson's disease. Development of the product was based on Ergo's Neuroendocrine Resetting Therapy approach to treating glucose and lipid metabolism disorders. That approach involves administering neurotransmitter-modulating agents at specific times of the day, in order to re-establish normal activity.

As of Sept. 30, Ergo had $37.2 million in cash and 14.3 million shares outstanding. The company said the cash should take it through 1999. *

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