By Mary Welch

Three years to the day after the two companies formed a strategic alliance, Diatide Inc. said it received notification that Nycomed Imaging AS will terminate the option and development agreement, pulling the plug on some $3 million due the company if the agreement had continued.

London-based Nycomed — known as Nycomed Amersham plc, after its merger with Amersham International plc last year — still must make another $1 million research and development payment to Diatide, of Londonderry, N.H., for the period through January 1999.

"In the short term, it's bad news, but in the intermediate and long term, it's good news for Diatide," said Richard Dean, Diatide's CEO.

Entered in 1995, the original deal called for the two companies to co-promote in the U.S. all of Diatide's Techtides medical imaging products; for Nycomed to be the licensee of those technologies in Europe, as well as in South Africa and parts of the Middle East; and for Nycomed to have an option to develop further products.

"The first two parts of that agreement still stand," Dean said. "The third part — the option to develop — was terminated. But the good news for Diatide is that Nycomed loses the U.S. rights to several compounds early in our pipeline for which we have not filed an NDA [new drug application]. The upside is the opportunity it gives us to enter into other partnerships."

Dean said he has been contacted by a "prominent medical imaging company," executives of which are interested in talking.

"I think it's much easier to want to partner with a company that has two products on the market, like we should have next year, than to partner with a company who hasn't had the success," Dean said.

Nycomed Has Options For Phase II Products

In a prepared statement, Nycomed said it might later decide to option additional products in the pipeline. Those technologies are P748, for pulmonary embolism imaging; P483H for infection imaging; and P773 for atherosclerotic plaque (blockage of the artery) imaging. All three are in Phase II trials and are expected enter Phase III studies by next year, Dean said.

"I view this as an ending of our research and development phase but also the beginning of our marketing phase — which, of course, is where all the money is made," Dean said.

The two companies will co-promote AcuTect and P829 in the U.S., pending FDA approval. The FDA, which designated AcuTect a fast track drug, should rule on its approval by Sept. 16, with possible market readiness by the end of this year. AcuTect is a diagnostic test for finding acute venous thrombosis in the lower extremities. Analysts have predicted an eventual market of around $100 million worldwide.

Designed to detect venous thrombosis, a clot that forms inside the blood vessels of extremities, AcuTect couples the radioisotope technetium to a small-peptide targeting agent to detect glycoprotein IIb/IIIa, which is only available when platelets become activated.

P829, a small molecule, synthetic peptide combined with technetium-99m, is an imaging agent for malignant tumors in the lung. It received priority status in June, which means the FDA is likely to rule on it by December.

Both products will be promoted to group purchasing organizations, hospital pharmacies and hospital-based physicians.

In Europe, South Africa and parts of the Middle East, Nycomed will have exclusive distribution and licensing rights, must pay royalties to Diatide on net sales, and must purchase peptide kits under a supply arrangement.

At the time of the 1995 agreement, Nycomed made a $10 million equity investment in Diatide, which represents about 12 percent ownership. It also has paid more than $9 million in development and milestone payments, as well as marketing option fees. Diatide anticipates receiving about $6 million more in milestone payments over the next 12 months. The company recorded $2 million from the Nycomed deal in June, when it filed the NDA for P829.

Diatide's stock (NASDAQ:DITI) closed Tuesday at $6.50, down $1.25. *

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