NeoTherapeutics Inc. reported that its lead drug, Neotrofin, failed to meet its primary 12-week endpoints in a pivotal Phase III trial in Alzheimer’s disease.

The company’s stock (NASDAQ:NEOT) plummeted 63.6 percent Monday, or $1.40, to close at 80 cents.

CEO Alvin Glasky said in a conference call that he was “disappointed” by the fact that Neotrofin showed improvement in the primary endpoints of ADAS-Cog scores and clinical global change ratings, but the improvement was not statistically significant when compared to placebo.

“We believe that this experience we’ve reported today represents a bump in the road as it relates to the progress of the company,” Glasky said.

“Alzheimer’s is a terrible disease. Based on the biological activity we have seen with Neotrofin in animal models, we thought it was worth the effort. We know that there are other larger pharmaceutical companies that see the potential we do.”

Glasky also said NeoTherapeutics would not conduct additional studies of Neotrofin in Alzheimer’s disease unless it found a pharmaceutical company with which to partner.

There were 521 patients with probable Alzheimer’s disease. The trial was 12 weeks, with 50 percent of the patients on placebo and 50 percent on the drug. For the second 12 weeks, those on placebo were given 12 weeks of drug. Of those who took drug the first 12 weeks, 39 went from drug to placebo, and the rest remained on the drug for an additional 12 weeks.

Neotrofin is designed to induce cells in the nervous system to produce certain proteins called “neurotrophic factors.” Those proteins are growth factors, which stimulate nerve cells to make new connections.

NeoTherapeutics will continue its Phase II studies of Neotrofin in Parkinson’s disease, spinal cord injury and chemotherapy-induced neuropathy. The company said it expects to complete all of the Parkinson’s and spinal cord studies by year’s end. There are two studies in chemotherapy-induced neuropathy that were initiated in January. Results of those trials are expected in 2003.

In addition to Neotrofin, NeoTherapeutics is now turning its attention to its anticancer drug, satraplatin, which it in-licensed from Johnson Mathey plc, of London, in September.

“The focus of our clinical team has been directed to satraplatin in prostate cancer,” Glasky said.

NeoTherapeutics plans to launch a Phase III trial by its oncology subsidiary, NeoOncoRx Inc., of satraplatin in the third quarter in prostate cancer. Vice President of Medical Affairs Jacob Huff said the company requested a meeting with the FDA to discuss an acceptable design for the trial. He also said that satraplatin had demonstrated efficacy in Phase III studies of prostate cancer completed by Bristol-Myers Squibb Co., of New York, which in January transferred the IND to NeoTherapeutics.

Glasky said NeoTherapeutics is pursuing a dual strategy of continuing the studies launched by Bristol-Myers and launching its own studies in gastric, bladder and refractory ovarian cancers, pending discussions with the FDA about a dual registration strategy.

The second priority behind completing the Phase III in satraplatin is completing Phase II with Neotrofin in neuropathic pain, President and Chief Operating Officer Rajesh Shrotriya said.

“We now have two protocols [for neuropathic pain], one for prevention and one for treatment,” he said.

The pipeline includes promising candidates other than Neotrofin and satraplatin, the company said.

NeoTherapeutics also has NEO339, which has shown efficacy in cognitive impairment, and elsamitrucin, which the company will test in refractory non-Hodgkin’s lymphoma, Shrotriya said. It also has Neoquin, which is in a Phase I/II trial for the treatment of bladder cancer.

“Those other candidates have been on a fast track for development and that will continue,” Glasky said.

The company also has “several additional novel compounds” for pain and psychiatric disorders, although all now are in preclinical studies, Shrotriya said.

“Our plan is to obtain partners before we proceed with any of these drugs,” he said.

Glasky said the anti-psychotic platform is “particularly interesting because it addresses a $6 billion market,” compared to the smaller market for drugs to treat Alzheimer’s.

“The preclinical models for these diseases are predictive and our drugs have performed well,” Glasky said, adding that they exhibited preclinical characteristics “that are superior to major marketed products that are available today.”

“All of these represent assets of the company that can be utilized to generate cash as we go forward,” he said.

NeoTherapeutics reported $7.2 million in cash and equivalents on Dec. 31. Its net loss for 2001 was $27.8 million. The company had about 24 million shares outstanding. Glasky said the company’s ability to raise money remains strong.

“Over the past years since our inception, we have raised in excess of $160 million and remain confident in our ability to raise cash,” he said. “In the long haul, we have preserved shareholder value, and we think our ability to raise money continues.”

He said the company’s strategic partnership discussions continue, regarding NEO339 and the anti-psychotic platform.

Glasky noted during the call that NeoTherapeutics had hired Shrotriya about a year and a half ago specifically for the purpose of broadening the company’s pipeline, and he acknowledged the company had been criticized for that.

“We did not do it because we thought Neotrofin would fail; we did it because we thought it would make us a better company,” Glasky said, noting that Neotrofin’s apparent failure in Alzheimer’s disease suggests that was the correct strategy.

Dan Stauder, managing director of EHS Securities LLC in Lake Forest, Ill., said, “My view of it is that the oncology franchise has been overshadowed for some time by Neotrofin. I don’t think the markets have really focused on what they have.”

Stauder said the company has four products between Phase I and Phase III that “seem to have fairly good prospects,” but it will take the market awhile to recognize the value of those products.

Until then, he said, the stock “may tread water.”