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The home-grown virtual company

By Rachel Morris

Thursday 5th January 2006

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Neuren's fast-tracking of US clinical trials on its lead product Glypromate has boosted its flagging share price and attracted widespread offshore media interest. But it's staying level-headed: Neuren's mantra is you can never be better than your science.


For Peter Gluckman, science has always been about making a difference. Back in the 1980s, Gluckman - a University of Auckland endocrinologist and one of New Zealand's most distinguished scientists - was exploring brain damage in newborn babies. He was among the first researchers to unlock a curious puzzle of the human brain: after a devastating event like a stroke or head injury, brain cells take hours, sometimes even days to die.

Gluckman became interested in developing a treatment that would act during this 'therapeutic window' to halt the slow march of dying cells. In this case, making a difference meant making enough money to shepherd a drug all the way through development and trials to an international market. Gluckman knew he needed to find a place for his science in the commercial world.

His pioneering research laid the intellectual foundation for one of New Zealand's most promising biotechnology companies, Neuren Pharmaceuticals. Neuren sports a portfolio of drugs aimed at exploiting the therapeutic window for acute events like stroke and head injury, but also chronic conditions like Alzheimers and Parkinson's disease.

But neuroprotection is one of the riskier games in biotech, analysts say, especially for applications like stroke or traumatic brain injury. The last 20 years have seen numerous drugs that work in lab rats but not people, drugs that might work provided you had the foresight to take them before an unpredictable event, and promising compounds squandered on flawed trials. What was once touted as the next lucrative pharmaceutical frontier is now strewn with expensive failures.

Neuren has responded to these financial and scientific challenges by transforming itself into an increasingly global entity. Its strategy has been to find partners in its target market who provide expertise, exposure, and shoulder costly parts of the development process. In fact, labelling Neuren as a 'New Zealand company' is almost missing the point. Neuren is Auckland-based, listed on the Australian stock exchange, with a big pharma shareholder, has offices in Sydney and Maryland, and consultants and research partners across the UK, Australia and the US. CEO David Clarke likes to call Neuren a "virtual company", because you'll rarely find his core team in the same country at the same time.

Neuren is still years from putting a product on shelves, but its strategy is yielding encouraging results. In April, Neuren sought approval to launch phase II clinical trials for its lead product, Glypromate. Instead, the US Food and Drug Administration announced that if Neuren successfully completed a small phase IIa trial, it could proceed straight to phase III, the final round of human trials. Neuren estimates the decision will save it two years and A$6 million (NZ$6,395,650). One month later, the US Army expanded a contract to undertake pre-clinical testing on Neuren's second compound, NNZ-2566. Not bad for a company with 18 employees. The trick, Clarke believes, is not to think narrowly as a 'New Zealand company', but to build the necessary bridges to take homegrown science to the world marketplace.

GPE becomes Glypromate
Neuren's scientific journey began with GPE, a small mole-cule derived from Insulin-like Growth Factor 1 (IGF-1), a naturally occurring protein that encourages cell growth. Gluckman became intrigued by GPE in the 1980s after Swedish researchers noticed that it seemed to exert positive influences on brain cells. Over the next decade, Gluckman set out to find just what GPE could do.

At the same time, Gluckman was searching for an entrepreneurial platform for his work. In 1995, he became the founding scientist of NeuronZ, a subsidiary of Uni-Services, the University of Auckland's commercial arm. (Later, in 2001, Gluckman's work on growth hormones launched EndocrinZ, another UniServices spin-off backed by Pharmacia and Upjohn, now Pfizer.) Over the next five years, NeuronZ became increasingly excited by GPE's ability to prevent cognitive decline in rats and sheep.

Coincidentally, Pharmacia owned the rights to GPE, but was not investigating its neuroprotective qualities. NeuronZ acquired the patent for GPE as a neuroprotective agent, and gave it the catchier name of Glypromate.

Gluckman and his team believed they were onto something good. For starters, Glypromate seemed to benefit more than one cell type: neurons and glial cells. Because IGF-1 exists naturally in the brain, Glypromate could be safely given in strong doses. But perhaps most importantly, Glypromate appeared to work for up to 11 hours after a brain injury occurs.

In 2004, NeuronZ and EndocrinZ merged to form Neuren. Clarke had a clear vision from the start: "start getting partnerships in the US as early as possible".

Neuren followed the expert prescription for small biotech companies isolated from major markets: exploit your science without shelling out on infrastructure. Neuren holds first rights to intellectual property from the University of Auckland's Liggins Institute, eliminating the need to build expensive labs or hire dozens of scientists. It already had one international stakeholder in Pfizer, for which it also performs contract research. Building on its researchers' academic networks, Neuren entered collaborations with the University of Texas Medical School in Houston, North Carolina's Duke University, and also with Metabolic Pharmaceuticals in Melbourne.

But perhaps one of Neuren's most crucial early steps was to open a US office headed by Larry Glass, an American scientist and former CEO of a company with research links to the US Army. Neuren set up shop in Bethesda, Maryland, near the FDA, the National Institutes of Health, and its most high-profile research partner, the Walter Reed Army Institute of Research (WRAIR).

The value of Neuren's partnership strategy can be glimpsed in a trip to WRAIR, an imposing brick complex nestled in a leafy Maryland neighbourhood near Washington, DC. Its prestige is almost palpable. Black-and-white photographs of quaintly moustachioed scientists who developed its famous malaria vaccine line the lobby walls; Eisenhower died in the stately main hospital several miles away.

WRAIR runs a programme on neuroprotective treatments for traumatic brain injury, an increasingly urgent concern for the army. The weapon of choice for America's adversaries in Iraq is explosives, explains Dr Frank Tortella, the head of WRAIR's applied neurobiology department. In previous conflicts, soldiers rarely survived close-range explosions. Now, sophisticated body armour protects them from dying, but not from the shock waves triggered by a blast. An army study found that two-thirds of soldiers returning from Iraq display the insidious symptoms of brain injury: abrupt mood swings, an inability to form coherent sentences, or debilitating depression.

Because WRAIR doesn't develop its own drugs, Tortella's mission is to 'cherry-pick' from the private sector. The arrangement gives WRAIR access to promising products, while its private partners benefit from sophisticated brain models developed by Tortella's team.

Tortella hadn't heard of Neuren until Glass approached him. He was impressed with Neuren's second compound, NNZ-2566, a more potent analogue of Glypromate. Under an agreement formed in May 2004 and expanded this July, Walter Reed will support half the pre-clinical trials for NNZ-2566, while Neuren retains commercial rights to its non-military uses (the US Army estimates that 1.5 million Americans suffer traumatic brain injuries each year). "It's a two-way street," says Tortella. "We need them and they need us."

Start with heart surgery
So far, so good. But in neuroprotection, even a strong product and a savvy business model only gets you so far. Neuren had to prevent Glypromate from becoming just another promising drug that founders in human trials.

Neuren decided not to start with stroke, once regarded as neuroprotection's Holy Grail (with an ageing population and no effective remedy in sight, it's easy to see why). Instead, following a suggestion from big pharma contacts, Neuren elected to test Glypromate in coronary artery bypass graft surgery (CABG). Depending on which study you read, between 20% and 60% of CABG patients suffer some form of brain impairment when pieces of matter lodge in the brain during surgery, interrupting oxygen supply and triggering the spread of cell death.

When it comes to clinical trials, stroke and CABG are worlds apart, says Dr Harry Tracy, president of Neuro-Investment Research. It's hard to pinpoint exactly when a stroke occurs, and impossible to determine the patient's previous cognitive state. Patients often harbour additional health conditions or take medicines that complicate results. In contrast, CABG is a planned procedure that can be precisely timed. Patients can be carefully chosen and evaluated before and after surgery. Demand is high - NeuroInvestment estimates the annual worldwide market for a neuroprotectant for CABG patients to be US$2-$3 billion.

Tracy cautions that CABG is no magic wand. It doesn't solve the problem of how to make a drug small enough to be delivered to the brain through the bloodstream, safe enough to be given in potent doses, and which acts during a timeframe that might work in the real world. Just last November, Tracy points out, a closely watched Phase IIa CABG trial by Pharmos produced less than stellar results; the compound later tanked completely in traumatic brain injury trials. Still, CABG offers the "best-case scenario" to assess a drug's true value, Tracy believes. In October, 2004, Neuren cleared the first hurdle, confirming Glypromate's safety in phase I trials. Next, it needed to raise enough money to prove that Glypromate actually worked.

Neuren approached this task characteristically: staying local by thinking global. The logical move might have been to migrate to the US to seek funding and later a Nasdaq listing. Instead, Neuren decided to seek A$15 million on the ASX, eyeing Australia's comparatively mature biotech sector, which by late 2004 had 73 listed companies to New Zealand's four. Neuren's landing on the ASX was somewhat bumpy. In October, a participant on the Sharetrader chatroom, known only as "labslave", posted lengthy diatribes claiming that Neuren was duping investors with "outdated cast-offs", referring to the original European work on GPE, and the fact that Pharmacia declined to test the molecule itself. Tracy says Neuren acquired its GPE patent when big pharma was pulling away from neuroprotection; like other analysts, he describes Neuren's work on Glypromate as "good science". Labslave also predicted that the IPO was simply an opportunity for major stakeholders like Pfizer and UniServices to dump shares on unsuspecting punters. (UniServices and Pfizer retain holdings of 12.35% and 8.1% respectively.) Neuren says that labslave was a disgruntled former University of Auckland employee.

Despite pulling "24-hour-days", Neuren was unable to complete work for its IPO by December 2004 as planned, says Clarke. By the time it listed in February, Australian biotech stocks had sagged after several high-profile firms missed targets or reported disappointing trial results. For months, Neuren traded well below its list price of A$0.40 per share.

All this changed when the FDA put Glypromate on the fast track to phase III. Immediately, Neuren's share price leapt 25%, and has been more or less climbing since. In September, Australian publication BioShares named Neuren "Stock of the Month", and BRW magazine rated Neuren sixth in a list of "10 hot stocks under $1". The media attention illustrates the usefulness of Neuren's partnership strategy: collaborators that first helped advance Neuren's science could now leverage investment value. To analysts weighing Neuren's worth, institutions like Walter Reed and Pfizer act as something of a counterweight to the inherent risks of neuroprotection.

But it's worth remembering a saying that seems to be Neuren's mantra: you can never be better than your science. Southern Cross Equities analyst Stuart Roberts devoted a May issue of his Biotechnology Buzz news-letter to Neuren, warmly praising its science, management, and pipeline, but concluding that Neuren's future hinges on Glypromate's performance in the CABG trials. If the trials fail, Robert doubts Neuren could undertake another Australian funding round to further mine its pipeline. If the trials succeed, he expects Neuren to become "Australia's outstanding biotech stock to own".

What's next?
Clarke's five-year plan goes something like this: Glypromate on the market for heart surgery, NNZ-2566 in clinical trials for traumatic brain injury, perhaps a joint venture for stroke, and treatments in development for Alzheimers and Parkinson's disease. Phase IIa trials for Glypromate are already underway among 30 patients in five sites here and in Australia, and should be completed by Christmas, says Clarke. If all goes well, Neuren plans to launch phase III next year with around 500 patients in the same sites, plus additional venues in the UK and US.

To give Glypromate the best shot at success, Neuren has formed new relationships to hone its trials and help navigate the FDA. It's consulting with neuropsychologist Stanton Newman, who leads the Brain and Cardiac Surgery Group at University College London. And Clarke reckons he's acquired "100 years of clinical trial experience" in the form of recruits with big pharma backgrounds, including a former senior vice president of Boehringer Ingelheim USA.

As always in drug development, "success is expensive; failure is quite cheap", observes Neuren's chairman, Robin Congreve. As Neuren advances, the costs climb. In the first half of 2005, Neuren reported $11 million in cash and a $4 million net loss. The IPO cost almost $2 million; Clarke notes that his recruiting drive has been "expensive". While the shortcut to phase III ultimately saves money, Neuren will need to spend $1.8 million earlier than planned. Neuren also anticipates less contract work from Pfizer, which is scaling back on outsourcing. And although its phase III proposal is a comparative bargain at $8-10 million (mostly because of the lower cost of CABG surgery in Australasia) Neuren will need more capital to fund the trials.

Glass has already embarked on the next stage of Neuren's strategy: shifting its partnership focus from research to investment. In recent months, Neuren has attracted unsolicited interest from US investment banks and is in talks with "half the major pharma on the planet", says Glass. If Glypromate does succeed, Clarke believes it's possible that Neuren could ultimately enter a partnership to market the drug, rather than selling Neuren outright or shifting its entire operations stateside. "The reality is that the science is from here," he says, "and so you have to find creative ways to get that science through a jurisdiction like Australia and then to the US. It's really just another way of being proud of your science."

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