By Lisa Seachrist

Washington Editor

Interneuron Pharmaceuticals Inc. licensed worldwide rights to its anti-anxiety drug, pagoclone, to Warner-Lambert Co. in a deal worth up to $73.75 million in up-front and milestone payments.

Under the terms of the agreement, Warner-Lambert, of Morris Plains, N.J., will assume all clinical and regulatory development of the drug for the treatment of panic disorder and generalized anxiety disorder. Lexington, Mass.-based Interneuron will receive an up-front licensing payment of $13.75 million, plus milestone payments that could total $60 million.

Interneuron's stock (NASDAQ:IPIC) soared on the news of the deal, closing up 53 percent Monday at $6.875 up $2.375 a share.

"The fundamental thing about this deal is that it epitomizes Interneuron's business model," said William Boni, vice president of corporate communications at Interneuron. "We licensed the rights to a drug that was untested in the clinic, added value via clinical testing and outlicensed the drug to a large pharmaceutical company at the cusp of advanced clinical testing."

Should pagoclone be approved for sale, Interneuron will receive royalty payments, which the companies aren't disclosing. Boni, however, said the company "is very happy with the royalty payments we are getting."

Interneuron licensed worldwide rights to pagoclone in 1994 from Rhone-Poulenc Rorer (now Aventis since its merger with Hoechst Marion Roussel). Interneuron conducted preclinical and clinical tests of the drug, including a Phase II/III study of pagoclone in the treatment of panic disorder, which was completed in August 1998.

Panic disorder is a severe anxiety condition characterized by panic attacks - acute episodes of anxiety comprised of difficulty breathing, sweating, heart palpitations, feeling dizzy or faint, and fear of losing control. It is a severe form of generalized anxiety disorder, which is characterized by excessive anxiety, and worry, occurring more days than not for a period of at least six months, accompanied by restlessness, difficulty concentrating, fatigue, irritability, muscle tension and disturbed sleep. There are approximately 2.5 million people in the U.S. with panic disorder and more than 20 million with generalized anxiety disorder.

Because the generalized anxiety disorder is the most commonly diagnosed psychiatric disorder in the U.S. and is routinely diagnosed by both psychiatric specialists and primary care physicians, Interneuron concluded the company lacked the resources to see pagoclone through Phase III testing and marketing.

"To market a product like this you need a sales force the size of Warner-Lambert's," Boni said. "It became clear to us that we couldn't incur the cost of a Phase III study and build an adequate sales force. We decided it might be beneficial to find a marketing and development partner."

Warner-Lambert is expected to begin pivotal trials of pagoclone in 2000 in both the panic disorder and generalized anxiety disorder indications.

Anxiety disorders are thought to be caused by excessive neuronal activity in the brain as a result of a decrease in function of gamma amino butyric acid (GABA), a major inhibitory neurotransmitter. Pagoclone, a member of the cyclopyrrolone class of molecules, modulates GABA neurotransmission, normalizing the action of GABA in the brain and reducing excessive neuronal activity.