CoCensys Inc., Ciba-Geigy Ltd., of Basel, Switzerland, and the CibaPharmaceuticals division of its U.S. subsidiary, Ciba-Geigy Corp.USA, have entered into an agreement that breaks new ground in termsof financing drug development. The agreement allows CoCensys tomarket four of Ciba's drugs in the U.S. and to use part of the revenuefrom the sales to support joint development of CoCensys' new drug,Acea 1021.The deal is worth, potentially, $35 million in revenues to CoCensysand an additional $64 million in cost savings through shared researchand development expenses."This is quite creative," said Kevin Wilson, a managing director withS. G. Warburg Securities in New York. "CoCensys is bootstrappingitself from being an early stage company to being a much more maturecompany. It's an interesting way of managing risk and it plays to thestrengths of management at CoCensys."Acea 1021 is a novel compound for the treatment of cerebral ischemicevents such as stroke and head trauma. It is a glycine antagonist thathas a high binding affinity for the glycine receptor. Glycine antagonists(called Glystasins) are developed by CoCensys' affiliate, AceaPharmaceuticals, and have been found to inhibit nerve cell death inanimal models of stroke. The drug is still in pre-clinical development.However, Irvine, California-based CoCensys hopes to fileinvestigational new drug applications (IND) for stroke and head traumawithin the year."Ciba has a great interest in neuroprotection. We have developed anarrangement with CoCensys that meets the strategic objectives of bothcompanies and complements Ciba's research. We feel they have apromising compound and we are anxious to take it forward to theclinical stage," said Ron Califre, senior vice president of drugdevelopment with Summit, N.J.-based Ciba Pharmaceuticals.According to Daniel Korpolinski, CoCensys' president and CEO, thedeal "uses the intrinsic value of currently marketed products to fund thedevelopment of Acea 1021. It's a really innovative way to decrease ourburn rate and to protect our research and development budget as muchas possible."Under the agreement, according to Korpolinski and Califre:y Ciba purchased $2 million worth of equity in CoCensys when theagreement was signed;y Ciba will purchase an additional $5 million shares of CoCensys whenan IND application is filed. Per-share prices in both cases will be basedon the average market price during the previous 20 days;y Ciba will pay between $13 and $15 million in milestone payments, aportion of this to be credited against future royalty payments;y CoCensys will have the right to market four of Ciba's drugs fordisorders of the central nervous system to physicians in the U.S., whileCiba will focus on sales to managed health care organizations.Korpolinski said he expects CoCensys to receive $13 million inrevenues from these sales;y Outside the U.S., Ciba will have development and marketing rights;CoCensys will receive a royalty on these sales;y Ciba and CoCensys will share equally in the cost of developing Acea1021 through filing of a new drug application (NDA) for both strokeand head trauma. Korpolinski estimates this could save CoCensys some$64 million in development costs.CoCensys is currently hiring a sales force to market Ciba's drugs andultimately Acea 1021."The sale of these four drugs _ Anafranil, Tofranil, Tofranil-PM, andLudiomil _ and the revenues we receive will give us enough money tocover our research and development, as well as the expenses of thesales force and marketing," said Korpolinski. "We are effectivelygetting the sales force free."Califre said the marketing agreement will help Ciba's sales of theseproducts, which have not been an important focus of his company'ssales strategy. CoCensys will receive only the revenues on incrementalsales above base sales of the drugs. "We believe there's a sizablecustomer base that can be reached through CoCensys," said Califre."In the future, only novel new compounds that address unmet medicalneeds will sell in terms of what third-party payers will reimburse for,"Califre said. "You need novel compounds and compounds that aredifferentiated in the market place. We view this agreement as aninnovation in the area of drug discovery."A joint board representing both CoCensys (NASDAQ:COCN) andCiba will guide the clinical development and international marketingrights of Acea 1021 for cerebral ischemia. The companies will worktogether to design and execute the clinical studies. CoCensys will leadmost of the initial Phase I and early Phase II development. However,Ciba with its expertise in clinical studies and established network ofclinical investigators will guide the Phase III studies.CoCensys will exercise its option to buy Acea as a fully-ownedsubsidiary. CoCensys stock closed Tuesday at $4.63, down 63 cents.

-- Philippa Maister

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