Sensing forward momentum, Zonagen Inc.’s board has decided to end the efforts of Deutsche Banc Alex. Brown to look for business opportunities for the company to either expand or be acquired.

Deutsche Banc was retained about a year and a half ago to look for strategic alternatives for the company, which was facing an extended period with little or no shareholder value due to its lead drug candidate being stalled by the FDA.

“I think you have to go back to the decision to retain Deutsche Banc,” President and CEO Joseph Podolski told BioWorld Today. “At the time, we had a year in front of us where we wouldn’t have had movement in the stock.”

Podolski said the company was looking to “go either way,” i.e., grow by an acquisition or return value to the shareholders by being acquired.

“We never really got what we felt would make sense to our shareholders,” Podolski said, noting that at the time the stock was trading at under cash value.

“Right now, we think the best value is to stay in our kitchen,” he said.

The company began to falter in August 1999 when the FDA put a clinical hold on its phentalomine-based drugs, Vasomax and Vasofem, based on a preliminary analysis of a two-year rat study. Vasomax is being developed for erectile dysfunction in men and Vasofem is for sexual dysfunction in women. Preliminary results from the study showed male rats receiving Vasomax had a higher incidence of proliferation of brown fat tissue than control rats. After the FDA’s hold was announced, Zonagen’s stock fell 30 percent. It also cut its staff by nearly one-third. (See BioWorld Today, Aug. 11, 1999, and Sept. 15, 1999.)

Today, it has about 10 employees, and Vasomax is on partial clinical hold in the United States, Podolski said. The company was encouraged when, in December, Schering-Plough Corp. submitted a response to questions on the marketing authorization application for Vasomax in the UK. The questions were posed in 1999 as a result of the original submission. Schering-Plough, of Madison, N.J., is the exclusive licensee worldwide for commercialization of Vasomax.

Podolski said it is possible that it could get approval for Vasomax in the UK this year.

Schering’s action came after the UK lifted its clinical hold over a year ago.

In the United States, the partial clinical hold is contingent on determining whether Vasomax causes brown fat proliferation in mice, Podolski said.

In December, Zonagen released preliminary interim results from studies from the gross necropsies of both old and young rats exposed to phentalomine in various doses, which suggested that it did not contribute to brown fat proliferation. The drug was administered to the animals over one year.

With these results, Zonagen hopes to convince the FDA to lift the partial clinical hold, and plans to submit the final study results to the FDA in mid-2002.

The company has about $30 million in cash, and the annual burn rate is about $3.6 million, Podolski said. “We have plenty of cash to do what we want to do,” he said.

In mid-2000, Zonagen was awarded a Phase I Small Business Innovation Research grant to study a new class of compounds, called Selective Progesterone Receptor Modulators, from the National Institutes of Health. In animal studies, these compounds blocked progesterone, which could make them applicable for treating endometriosis and uterine fibroids, he said. Zonagen licensed worldwide rights to the technology from the NIH in 1999.

“Today, certainly there are acceptable treatments, but they are not as good as they could be,” Podolski said, noting that it could create a new product opportunity.

Zonagen research estimated there are 5 million women in the United States with endometriosis, and more than $1 billion is spent annually to remove fibroids.

“We have selected a lead compound, and we think this compound could be very successful,” he said.

Zonagen’s stock (NASDAQ:ZONA) fell 14 cents on Wednesday to close at $6.81.