By Lisa Seachrist

Washington Editor

Cephalon Inc. said Schering-Plough Corp. has decided to terminate their six-year Alzheimer's disease drug development collaboration. The decision represents a loss in research funding of approximately $3 million a year.

Cephalon, of West Chester, Pa., and Shering-Plough entered into the agreement in 1991 to fund research at Cephalon to develop protease inhibitors as a treatment for Alzheimer's disease. During the first five years of the agreement, Shering-Plough, of Philadelphia, provided Cephalon with $20 million in research funding.

"The end of this collaboration shifts the financial burden of this research to Cephalon," said Jason Rubin, vice president of corporate communications at Cephalon. "We intend to explore financial options to continue to develop protease inhibitors as a potential therapy for Alzheimer's disease."

Over the past year, there has been increased interest in the role of beta-amyloid protein in the neuronal death characteristic of Alzheimer's disease. Beta-amyloid is a major component of the neuritic plaques that litter the brains of Alzheimer's patients. Many researchers believe that it is the accumulation of these plaques that cause neurons in the brain to die.

Protease inhibitors block the production and secretion of beta-amyloid. Cephalon is exploring their potential as a therapeutic to protect neurons by preventing beta-amyloid from accumulating in plaques. The protease inhibitors program is still in the early preclinical research stage.

"We intend to fund this program whether with current resources or with another partner," Rubin added.

He said that as far as the company understands, Schering-Plough pulled out of the collaboration because it decided to pursue all of itscentral nervous system preclinical development programs in-house. Nevertheless, both Cephalon and Schering-Plough retain rights to products developed under the agreement. Cephalon will either co-market or receive royalties from any product that is developed as a result of the collaboration.

In an unrelated move, Cephalon also announced it signed an agreement for a private placement of $30 million in senior convertible notes. The company plans to use the money for general purposes, which may include technology acquisitions.

In addition, Rubin told BioWorld Today Cephalon may use some of the money to buy its limited partnerships established in 1992 for the development of the company's amyotrophic lateral sclerosis drug, Myotrophin, which will be filed as a new drug application (NDA) with the FDA this quarter.

The convertible notes mature in January 1998 and bear interest at a rate of seven percent per year. The notes may be converted upon maturity to common stock of the company at a six percent discount from market price or exchanged for a 15-year debenture. The company has set a floor of $21 for the price of the stock at conversion.

"We don't expect notes to be exchanged for debentures," said Rubin. The company will register 1.43 million shares of common stock with the Securities and Exchange Commission in order to cover the convertible notes.

Peter Ginsberg, vice president and analyst at Vector Securities International Inc., of Deerfield, Ill., said that while Cephalon currently has a fair amount of cash, "It is reasonable that they would take this financial opportunity."

And while the loss of the collaboration with Schering-Plough is disappointing, Ginsberg expects the company will be searching for another partner for development of protease inhibitors.

"The field of protease inhibitors is an exciting route for the treatment of Alzheimer's, so they will likely find another collaborator," said Ginsberg. "But, this is only one of three Alzheimer's drug development programs and it is in the earliest development stage of the three."

Ginsberg noted that even though Cephalon is losing $3 million this year as a result of the end of the collaboration, the company is in very good financial shape and has begun to bring products to the FDA. In December, the company filed its first NDA for a narcolepsy drug , Provigil, and Ginsberg predicts that they will file for Myotrophin in either late January or early February. *