By Debbie Strickland

Elevated levels of undisclosed liver enzymes prompted Neurogen Corp. to halt a Phase I trial of its most advanced product candidate, NGD 95-1, an oral obesity drug partnered with Pfizer Inc.

Although the affected patients were asymptomatic, the clinical trial news drove Neurogen's shares (NASDAQ:
NRGN) down to $13.625 Tuesday, a 33 percent decline from Monday's close of $20.375. The stock price regained $0.25 Wednesday, closing at $13.875.

"This was their most advanced and most visible compound," said analyst David Molowa, of Bear Searns Co., in New York, explaining the stock drop.

The company, however, is well supplied with related back-up compounds, he said, and the relationship with Pfizer is unlikely to be affected.

As for the fate of NGD 95-1, "it's too early to draw a definitive conclusion one way or another," Molowa said, though "odds are" the drug will eventually be discontinued.

Stephen Davis, the Branford, Conn.-based firm's chief financial officer, called investor response an "overreaction."

"The drug is not dead, despite the market's reaction to this news," he said.

Elevated liver enzymes were observed in none of the previous preclinical and clinical studies, the company noted.

Drug Aimed At Inhibiting Appetite

NGD 95-1 is an orally active small-molecule antagonist of neuropeptide Y receptors. NPY, a chemical messenger in the brain, is strongly linked to appetite and is thought to be the most potent known stimulator of eating in animals. In a variety of animal studies, Neurogen has demonstrated that NGD 95-1 and other NPY antagonists block NPY-induced feeding.

The Phase I study, conducted by Neurogen, was designed to determine the maximum tolerated dose of NGD 95-1 as a prelude to setting dosing parameters in Phase II tests of efficacy. No maximum tolerated dose had been achieved in previous single- and multiple-dose studies.

Researchers were to monitor the effects of multiple high doses of NGD 95-1 over the course of one month, but, due to the liver complication, the trial was halted after just over three weeks.

NGD 95-1 had been "at the point of transitioning from Phase I to Phase II," according to Davis.

The companies will take a breather for at least a quarter to determine whether the enzyme elevation is definitely a drug-related effect and, if so, to define the mechanism causing the effect.

If the compound is indeed responsible, he said, the companies may launch a new Phase I trial at a lower dose.

A key question, said Davis, is this: "Is the elevation in liver enzymes something we'll be seeing at any dose level or only at the higher levels?"

In the meantime, Neurogen has 11 programs, he said, including four at the Phase I level, and the collaboration with New York-based Pfizer remains solid.

"The collaboration is alive and well, and we're just as bullish about this mechanism and program as we've ever been, and that's the attitude at Pfizer as well," said Davis.

Neurogen and Pfizer have three separate collaborative agreements, with one compound in Phase I testing for anxiety. Additional collaborative products — to treat sleep disorders and enhance cognition — are expected to enter the clinic in 1998, said Davis. *

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