By Randall Osborne

Facing a proxy contest with its largest stockholder, and the stockholders' meeting slated for Friday, Cortech Inc. plans to establish a new venture in Germany based on the company's protease inhibitor technology — a move that will split Cortech's platform and could draw more funding for the troubled company.

"We have about $12 million in the bank right now," said Diarmuid Boran, chief operating officer of Denver-based Cortech, which has gone from a stock price of about $18 per share five years ago and a market cap of $300 million to a Wednesday closing price (OTC Bulletin Board:CRTQ) of $0.45, up $0.03, and a market cap of $9 million.

"The plan would be to transfer our [protease inhibitor] technology into the new venture," Boran told BioWorld Today. "Capital would come from groups in Germany or Europe. We would have to contribute very little capital — probably some seed capital to get it started — and we would retain a substantial equity stake."

Cortech's protease inhibitor technology is based on chemistry that allows for inhibiting a broad array of serine and cysteine proteases that are believed to be important in a number of conditions, including pulmonary, viral and vascular diseases.

In late March of last year, London-based SmithKline Beecham plc quit development of Bradycor, Cortech's bradykinin antagonist, after disappointing Phase II clinical trials. Three years earlier, Bradycor had failed — like many other drugs — as a treatment for sepsis. (See BioWorld Today, April 25, 1997, p. 1.)

Under the new venture plan, Cortech would keep control of the bradykinin program, and seek partners for it.

In December 1997, Cortech disclosed its intent to merge with BioStar Inc., of Boulder, Colo., but that deal fell through in May of this year. (See BioWorld Today, December 31, 1997, p. 1, and May 11, 1998, p. 1.)

John Cheronis, founding scientist of Cortech, said the venture idea has been in the works for some time.

"While this was never public disclosure regarding BioStar, our interest in doing something like this had always been a part of our plan," Cheronis said. "It's not an alternative [to the merger] we picked up. It had the understanding of the folks at BioStar and was tacitly blessed."

With the German venture, Cortech expects to capitalize on its relationships with protease research groups at the University of Munich and Germany's Max Planck Institute, by locating near them and working with scientists there.

"It goes beyond the issue of financing opportunities," Cheronis said.

Ono Developing Cortech Inhibitor In Far East

Neutrophil elastase inhibitor compounds using the protease inhibitor technology were developed as part of a research collaboration with Ono Pharmaceutical Ltd., of Osaka, Japan. Ono has chosen a compound for further evaluation.

"From a scientific standpoint, they've done a bang-up job of moving it forward," Cheronis said." They've picked up the ball and run with it nicely, and we derived the benefit."

Ono has rights to elastase inhibitors in Japan, Korea, Taiwan and China, with Cortech keeping rights elsewhere.

Splitting the bradykinin antagonist portfolio from the protease inhibitor technology makes sense in more than one way, Cheronis said.

The former is "a collection of products. They don't really form a platform technology that is generative in nature," he said. By contrast, the latter has lead compounds, such as the elastase inhibitor in the Ono agreement, but also contains "very early-stage, research type opportunities," Cheronis said.

"It's a different type of investment," he added, about the protease inhibitor platform. "You can parcel it out in a number of ways."

Cortech's largest shareholder, Asset Value Fund LP, of Bedminster, N.J., which opposed the BioStar merger, has sued Cortech and wants to increase the company's board to seven members, electing AVF's own four nominees in opposition to management.

Paul Koether, manager of AVF, said last month he was "astounded" at Cortech's losses, given that the company said it was performing no research and development. Boran said the company's staff has been cut to seven, and Cortech has pledged to keep cash depletions of between $1 million and $1.5 million per year.

Cortech has "reason to be optimistic," Boran said. "We're poised to go down a variety of different paths." *