BioWorld International Correspondent

In its first foray into the capital markets in five years, NeuroSearch aims to raise DKK350 million (US$60.1 million) to DKK 400 million in a rights issue to support its planned acquisition of A. Carlsson Research AB in a combined cash and shares deal valued at up to SEK875 million (US$121.2 million).

The acquisition is dependent on completion of the fund raising, for which NeuroSearch will seek shareholder approval at an extraordinary general meeting on Sept. 8. Assuming the Copenhagen, Denmark-based company receives a green light from its investors, the transaction should close before the year end.

Under the terms of the agreement, investors in Gothenburg, Sweden-based Carlsson Research would receive an up-front payment of SEK250 million, comprising SEK166 million in cash and SEK84 million in NeuroSearch shares.

They also would receive up to SEK625 million in seven separate milestones, spread across four drug development programs. NeuroSearch has an option of paying those either in cash or in shares.

"The transaction for sure looks very good for NeuroSearch. It's a very good match," Michael Novod, analyst at Handelsbanken Capital Markets in Copenhagen, told BioWorld International. "The deal looks very low-risk. All the remaining payments are attached to certain milestones."

"I like the deal," said analyst Peter Bertram Andersen, at Jyske Bank in Silkeborg, Denmark. "There's value added in the deal."

Carlsson Research's most advanced drug development candidate, ACR16, is in development for Huntington's disease, a genetically inherited neurodegenerative condition that affects about 30,000 people in the U.S. and a similar number in Europe. It has completed a Phase II trial involving 58 patients and is due to enter a pivotal Phase III trial next year.

The compound, a dopamine D2 receptor antagonist, increases levels of the neurotransmitter glutamate in the brain. In patients with Huntington's disease it appears to have a positive effect on motor, psychiatric and cognitive functions, NeuroSearch CEO Flemming Pedersen told BioWorld International.

NeuroSearch hopes to launch the product in 2009. At present, the market in Europe and the U.S. is valued at $700 million to $800 million. "Today, the market consists of a combination of anti-Parkinson's drugs and anti-psychotics," Pedersen said.

The same compound has been licensed to Astellas Pharma Inc., of Tokyo, for schizophrenia. Under the original deal, Carlsson would receive €84 million (US$107.5 million) as an up-front payment and total milestones on commercialization in that indication, plus low double-digit royalties on sales. So far, it has booked just €10 million of the total, Pedersen said.

In addition, Carlsson Research has two other drug candidates that are nearing the clinic. ACR325, in development for psychosis and manic depression, is due to commence a Phase I trial before the year end, while ACR343, which is in development for Parkinson's disease, is at an earlier stage of preclinical development.

Carlsson Research was established in 1998 to commercialize research coming from the lab of Arvid Carlsson, of Gothenburg University, who received a Nobel Prize in 2000 for his discovery of the role of dopamine as a neurotransmitter and for the development of L-dopa as a treatment for Parkinson's disease.

The company had raised an undisclosed level of venture capital but still was an unlikely IPO candidate, Novod said. "You had a company here that was not in a very good negotiating position. I think NeuroSearch took advantage of that."

NeuroSearch will retain Carlsson Research's 30-strong staff and will maintain its research activity at Gothenburg, although it will consolidate all drug development in Copenhagen.

The acquisition will add about DKK35 million to its annual cash burn.

NeuroSearch reported cash holdings of around DKK350 million at June 30. On completing the upcoming rights issue and the acquisition, it would have sufficient cash to fund its operations to the end of 2008, without any additional revenues from new partnering deals. "We have a long track record of making income from alliances," Pedersen said.

The NeuroSearch share price dropped DKK5.50 to close at DKK192 last Thursday, when the deal was disclosed. Both Novod and Andersen have buy recommendations on the stock.