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<< Previous   of   Next >> Elizabeth Armstrong / Herald file photo  (click to enlarge) Aaron Molskness, director of engineering at the Nastech Pharmaceutical, checks monitor on a drug production line in March 2006. (click to enlarge) Steven Quay   ADVERTISEMENT   CONTACT THE HERALD Mike Benbow, Business Editor benbow@heraldnet.com   Published: Thursday, November 8, 2007 Nastech going solo The Bothell biotech says it will continue to work a key drug after Proctor & Gamble's decision to pull out of a partnership with the company. By Eric Fetters Herald Writer BOTHELL -- Nastech Pharmaceutical Co. lost its heavyweight partner for development of a spray to treat osteoporosis, but it now plans to pursue the potential product on its own. The company said Wednesday that Procter & Gamble Pharmaceuticals, a division of the consumer goods giant, had terminated its agreement to help Nastech develop and eventually market its parathyroid hormone nasal spray. Steven Quay, Nastech's chairman and chief executive officer, said he believes tests of the drug so far warrant further work. "Therefore, we plan to conduct a phase 2 clinical study in patients with osteoporosis to examine the effect of the (nasal spray) on bone mineral density," he said in a statement Wednesday. He added he hopes to have patients enrolled in that new test during the first quarter of 2008. Investors seemed less sure of the future of the drug, which is among Nastech's lead candidates. By the end of trading on the Nasdaq Stock Market on Wednesday, shares of Nastech trading under the symbol NSTK had lost $5.37, or 38 percent, to close at $8.62. That was noticeably below the stock's previous 52-week low of $9.50. The agreement with Procter & Gamble, forged in February 2006, had the potential to eventually bring more than $577 million to Nastech, assuming the drug made it through the federal regulatory process and to market. When Procter & Gamble signed on to the drug, the risks looked minimal, at least compared to other experimental drugs in the making. A published study in the New England Journal of Medicine suggested that doses of the naturally occurring hormone, known as PTH1-34, can actually reverse bone-density loss when taken in combination with another drug. The hormone already was available in an approved injectable form called Forteo from Eli Lilly and Co. That meant Nastech's spray form of PTH could be approved by the Food and Drug Administration under a shorter and less costly application process. And with a potential market of millions of Americans, Nastech said sales of the PTH spray could one day approach the blockbuster level of $1 billion a year. Even after delays late last year in the development of the PTH spray, Nastech said the data from human tests looked good. Quay said outside researchers who recently looked at studies of the PTH spray concluded the next step was to move forward. He seemed at a loss to explain Procter & Gamble's move, which will cost the big company an additional $5.5 million in payments to Nastech. "P&G has been a good partner, and our people had a good working relationship with them," Quay said in a conference call Wednesday. "Without speculating, major corporations make decisions for complex reasons, reflecting the concerns of various divisions within a corporation, as well as the impact of financial and timing issues." After the initial revenue boost from the termination of the agreement, Quay acknowledged that the company will have to reduce overall spending in future quarters. The company has about 150 employees. The past two years have brought a series of dramatic ups and downs for Nastech. A 2004 agreement with Merck & Co. to develop an anti-obesity nasal spray came to a sudden halt in March 2006 when an early study suggested the drug didn't work. That prompted Merck to terminate its involvement, which could have been worth more than $340 million to Nastech. Nastech is still officially pursuing development of that spray despite Merck's decision. A few months after that blow, the FDA rejected Nastech's application for another nasal spray aimed at treating osteoporosis. Wednesday's news led analyst Robert Uhl of Friedman, Billings, Ramsey & Co. to increase his predicted loss for Nastech in 2008. He added in a note to investors that after its recent track record, Nastech may have a harder time attracting future investors and partners. "We believe that the PTH termination will support further skepticism on the part of investors about whether or not a significant Nastech product can reach the market," Uhl said. Reporter Eric Fetters: 425-339-3453 or fetters@heraldnet.com

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