Alliance Pharmaceutical Corp. has spent more than $200 million developing its intravascular oxygen carrier, Oxygent. But now facing a revised development plan that it cannot afford, Alliance cut 40 percent of its work force and warned PFC Therapeutics LLC, the joint venture set up to commercialize the product, that if funds don't materialize, the Oxygent license agreement will be terminated and the joint venture dissolved.

PFC Therapeutics was established as an equally owned joint venture between Alliance, of San Diego, and Baxter Healthcare Corp., of Deerfield, Ill. Alliance granted it Oxygent rights in North America and Europe in May 2000. At the time, Alliance and PFC agreed that PFC would develop Oxygent in those regions using a specified plan and funds of about $42 million. But things have changed due to a clinical setback.

"When the PFC joint venture was set up, it was done so using different assumptions," said Gwen Rosenberg, vice president, corporate communications at Alliance. "Therefore, with changes that have occurred over the past year, [PFC] created a new plan. In order to implement that plan, Alliance needs additional resources, other than what was assumed."

Oxygent (perflubron emulsion) is designed to carry oxygen to tissues through the bloodstream. It has not had a trouble-free development path. A Phase III trial in general surgery patients was concluded successfully, but a Phase III trial in cardiac surgery patients was suspended in January 2001 due to an imbalance in adverse events between the treated group and controls. However, it was determined that the problem was related to the trial's construction, not Oxygent, and the trial was terminated without reaching its conclusion. Alliance would like to file for regulatory approval in the general surgery indication first, but that still requires a second successful Phase III trial. A cardiac surgery indication would be pursued only after approval in the general indication, Rosenberg said. (See BioWorld Today, Jan. 10, 2001.)

Alliance had $7 million in cash at the end of March, with a net loss for that quarter of $6.2 million. It has met with regulatory authorities in Europe, where the first patients were to be enrolled under the new Phase III protocol, but due to lack of funds, the commercialization of Oxygent cannot continue.

"What we have done is we put PFC on notice that we intend to terminate the license unless the resources can be made available," Rosenberg told BioWorld Today. "There is a 90-day period in which we could work something out. If not, at the end of the 90 days, the license agreement would be terminated and we would regain the rights."

When the joint venture was formed, the companies sketched a financial plan that included Baxter buying $20 million in equity from Alliance and making two $15 million stock purchases, in March 2001 and September 2001. The combined $30 million stock purchases were later changed to $30 million worth of milestone payments, at the request of Baxter. Rosenberg said to date, Alliance has received about $40 million from Baxter, including the $20 equity purchase.

But Baxter might have to pay more, if it wants to see Oxygent development continue under the joint venture. Baxter has advised Alliance that it wishes to adhere to the old guidelines and said it will not give further financial assistance beyond milestones, Alliance said. Left with the option in the joint venture of shouldering a financial burden it is unable to carry, Alliance might be charting a new development path for Oxygent.

"The two options are: The resources become available through PFC, or we regain the [North American and European] rights and look for additional funding through investors or a new partner," Rosenberg said.

Either way, Oxygent goes to the shelf - at least for now. Whether it comes back down through new PFC funding or attached to a new partner might not be clear for at least 90 days, but Alliance is laying off 55 employees associated with Oxygent, or about 40 percent of its overall work force, regardless.

"We have about 80 employees left," Rosenberg said. "[The restructuring] is effective immediately. However, we certainly hope to retain a good relationship with everyone and if we can bring them back in a quick period of time, it would be wonderful. We just felt to be fiscally responsible, we can't pay employees who are waiting for clinical trials to start. And we don't think it would be responsible for us to start a study without the resources to finish it."

With Oxygent in a holding pattern, Alliance's Imagent, an ultrasound imaging agent approved to provide anatomical information about the heart not obtainable using echocardiography alone, has Alliance's full attention.

"We're excited about getting it on the market," Rosenberg said. "The process of hiring and training sales people and medical specialists has started." She said the company expects to give guidance on the product's revenue after it has been selling for a quarter.

Beyond revenue, Imagent could help Alliance add to its financing efforts.

"We are looking at raising cash specific to our Imagent product, which is being launched with [partner] Cardinal Health [Inc.]," Rosenberg said. "There are opportunities for raising cash with Imagent."

Alliance's stock (NASDAQ:ALLP) fell 8 cents Thursday, or 16.7 percent, to close 40 cents.