Nastech Pharmaceutical Co. Inc. is regaining all rights to a sexual dysfunction product developed for the past year in partnership with Pharmacia Corp., a breakup of sorts brought on by government concerns over a merger between the latter and Pfizer Inc., the maker of Viagra.

Nastech entered a divestiture agreement with Pharmacia under which Nastech will reacquire all development and marketing rights to intranasal apomorphine for the treatment of erectile dysfunction and female sexual dysfunction. The divestiture results from a Federal Trade Commission investigation of the pending merger between Pfizer and Pharmacia. Nastech said it would have continued with the collaboration otherwise. But the divestiture is intended to address concerns that the merger could inhibit innovation and competition in the sexual dysfunction marketplace.

While the original deal could have resulted in up to $56.4 million for Nastech, its freedom to repartner the compound could generate additional positives for the Bothell, Wash.-based company. Nastech said it would seek a new development and marketing partner for the nasal dosage form of apomorphine, a potent dopamine agonist that promotes erectile function by stimulating the D1/D2 class of dopamine receptors in the brain responsible for beginning an erectile response. Nastech said the product produces peak blood level within 15 minutes, quicker than orally administered erectile dysfunction drugs that can take between 60 and 90 minutes to act.

Upon completion of the divestiture, Nastech will receive $13.5 million from Peapack, N.J.-based Pharmacia, comprised of a divestiture payment, development funds and reimbursement of fees and expenses. Also, Nastech and Pharmacia plan to enlist a clinical research organization to pursue ongoing clinical development of the product until the merger is completed.

"Pharmacia has spent almost $30 million in milestone payments to Nastech," Steven Quay, Nastech's chairman, president and CEO, told BioWorld Today. "The product has moved along in its development, and there's no [residual rights] to Pfizer and Pharmacia when we find a new partner."

The financial terms are effective upon signing the agreement, which will become fully effective upon completion of Pharmacia's merger with New York-based Pfizer.

After the merger, Nastech will regain all product and intellectual property rights from Pharmacia. Nastech will have an exclusive license to exploit, for human sexual dysfunction, any Pharmacia patents and know-how that relate to the current intranasal apomorphine product. Pharmacia and Pfizer also agreed to stay away from the courtroom.

"We secured a covenant not to be sued by Pfizer for this product and for any product that contains apomorphine for erectile dysfunction," Quay said. "That's a valuable asset for finding a new partner - a statement that we won't be interfered with in the marketplace."

Pharmacia will transfer to Nastech all development and commercialization, marketing research and other marketing information related to the product. Also, the combined Pharmacia and Pfizer entity will divest its Nastech common stock holdings within an agreed upon timeframe and process.

Pharmacia had purchased 250,000 Nastech shares for $5 million as part of the agreement signed last year. Among other terms, Pharmacia was responsible for all ongoing development of the product, including Phase II trials in female sexual dysfunction and planned Phase III trials in erectile dysfunction, as well as future regulatory filing duties. Pharmacia also gained exclusive worldwide marketing rights.

For Nastech, the deal resulted in a $3 million signing payment. The company also held onto rights to apomorphine for indications outside sexual dysfunction, including Parkinson's disease. (See BioWorld Today, Feb. 5, 2002.)

"We don't know the full dollar amount Pharmacia spent in development, but it's significantly higher than [the $30 million in milestone payments]," Quay said. "We're the manufacturer of record for this, so during the process with Pharmacia, we did an extensive amount of work on our manufacturing of this product and getting all of that in line. All of the work on the CMC section of our new drug application has moved along very aggressively."

Nastech most recently reported erectile dysfunction data on the product in December 2001, when it released results from a 184-patient Phase II trial. Results showed that the formulation demonstrated clinically significant efficacy. In three dosage groups (0.25 mg, 0.50 mg and 1.00 mg), 69 percent, 73 percent and 82 percent, respectively, reported success with respect to erections sufficient for vaginal penetration compared to 35 percent in the placebo group (1.00 mg vs. placebo, p<0.0001).

The drug also was shown to be well tolerated with minimal side effects.

Nastech continues to advance a number of other candidates through clinical trials. A morphine gluconate product is in Phase II studies to treat pain, while Phase I programs are under way for an interferon alpha product to treat cancer and hepatitis, interferon beta to treat multiple sclerosis, somatropin to treat growth failure and triptan to treat migraines.

Nastech's stock (NASDAQ:NSTK) rose $1.08 Monday, or 14.6 percent, to close at $8.50.