Guilford Pharmaceuticals Inc. is licensing an entire class of potential neurodegenerative disease drugs to Pfizer Inc. for $5 million up front in a deal that could become much more lucrative down the road.

In exchange for an exclusive license to develop Guilford's N-acetylated-alpha-linked-acidic-dipeptidase (NAALADase) inhibitors worldwide, Pfizer on Thursday agreed to pay $15 million, including the aforementioned $5 million upon signing and the remaining $10 million by next March 31, or earlier, if a lead compound is selected. Should Pfizer not make the $10 million payment within the prescribed time frame, all rights revert to Guilford, as well as data and other research information from Pfizer.

But products arising from the deal could augment Pfizer's already developed drugs in the field - Neurontin (gabapentin) and pregabalin.

"I think that quite clearly the firm that has the largest commercial franchise, certainly in the field of diabetic neuropathy and neuropathic pain, is Pfizer," Craig Smith, Guilford's chairman, president and CEO, told BioWorld Today. "We think they have exceptional clinical development capabilities in the fields. And as you can tell from the recently reported failure of Forest's memantine, it's a difficult area to work in."

In animal models of diabetic peripheral neuropathy and neuropathic pain, Guilford said NAALADase inhibitors normalized pain sensitivity, increased nerve conduction velocity and prevented or slowed peripheral nerve degeneration.

Pfizer, which Smith said booked $2 billion in Neurontin sales last year, will pay all research, development, manufacturing and commercialization costs. For compounds Pfizer chooses to move forward, the New York-based company will pay up to $42 million in milestone payments for each developed through commercialization. Such payments are based on standard development hurdles along the clinical pathway, Smith said. Guilford also would receive up to $20 million in milestones for an additional indication for the same compound.

NAALADase, a membrane-bound enzyme found primarily in the central and peripheral nervous systems, is believed to play a role in modulating the release of glutamate, which may increase during acute injury or chronic neurodegenerative disorders and lead to cell injury and death.

But given a range of therapies NAALADase inhibitors could address, Baltimore-based Guilford retains rights not under development by Pfizer for separate indications - prostate cancer and head and spinal cord injury, as well as drug addiction. Guilford said it has evaluated NAALADase inhibitors in other preclinical models of acute and chronic neurodegenerative disorders, including Lou Gehrig's disease, head and spinal cord trauma and stroke. Guilford said NAALADase is the same protein as prostate-specific membrane antigen.

"We wanted to keep certain areas to develop in parallel with their activities where we could take advantage of relationships that we have to provide substantial support in the areas of prostate cancer, drug abuse and IV formulations for head and spinal cord injury," Smith said. "On one hand, Guilford takes the risk and has to provide financial support, either directly or indirectly, for these three areas. On the other hand, Pfizer gets to focus on what it's most interested in, and later on has the opportunity to reacquire the rights to these three areas. If not, Guilford would be able to move forward."

In pursuing such indications, Guilford could begin at a clinical jumping-off point with its GPI 5693 compound, developed partly for diabetic neuropathy and neuropathic pain. Smith said the company completed several Phase I trials of the drug last year, but stopped short of Phase II in part because of finances tied up in two other Phase II programs, the discovery of more potent compounds than GPI 5693 in that indication and also because of licensing plans for the program.

"But now that we have completed the licensing agreement, we have a compound we know can be administered safely and produce therapeutic plasma levels - GPI 5693," Smith said. "For the indications we have retained, it may turn out to be a very good candidate to take forward in Phase II."

He said the National Institutes of Health in Bethesda, Md., is evaluating the compound, as are other funding agencies.

The immediate funding from Pfizer is expected to provide a near-term boost to Guilford's earnings, the latest of which it released Thursday as well. The company reported a first-quarter loss of $11.2 million, or 37 cents per share, for the period ended March 31. While the loss was down from last year's first-quarter loss of $13.5 million, or 45 cents per share, revenues were down as well.

Guilford attributed the lower revenue figures - $3.5 million this quarter vs. $6.2 million a year ago - to a later-than-expected expanded label for its flagship product, the Gliadel Wafer. It initially was approved as an adjunct to surgery in patients with recurrent glioblastoma multiforme, but a little more than two months ago the FDA widened its use as a first-line therapy for patients with high-grade malignant glioma. (See BioWorld Today, Feb. 27, 2003.)

The company continues to work toward a European application for expanded approval, with a French regulatory filing expected later this year.

For the year Guilford forecasts Gliadel sales to range between $20 million and $25 million, with other revenue between $10 million and $15 million to be generated by partnering or financing. Smith said the $5 million from Pfizer fits into the latter projection.

Cash, cash equivalents and short-term investment reserves totaled about $84.3 million, with the company projecting between $65 million and $70 million at the end of the year.

Among the clinical products going forward, Guilford expects to complete Phase II trials of Aquavan injection in cardiac surgery and another in colonoscopy patients this year. Smith said Guilford would discuss the cardiac surgery study results at the end of the third quarter or early fourth quarter, with results from one part of the colonoscopy trial - an uncontrolled, dose-ranging phase - expected in the third quarter as well. The second part, a double-blind comparison with midazolam, is expected to complete enrollment and produce results by the end of the year or early next year.

The company also expects to enroll 200 Parkinson's disease patients being treated with GPI 1485 by the end of this quarter and begin a similar-sized study in the third quarter in patients undergoing prostatectomy to study the compound's ability to prevent nerve damage that can result in erectile dysfunction.

Guilford's stock (NASDAQ:GLFD) gained 42 cents Thursday to close at $5.77.