By Lisa Seachrist

Washington Editor

Axonyx Inc. and the Ares-Serono Group have teamed up to develop a set of therapeutic peptides to battle Alzheimer¿s disease and a number of prion-based conditions such as mad cow disease.

The collaboration, which could net New York-based Axonyx $22.5 million, is the company¿s first major pharmaceutical deal. Axonyx has completed preclinical studies showing its patented peptides can halt the neurodegenerative disease process in animal models. Geneva, Switzerland-based Ares-Serono will continue the preclinical and clinical development of the peptides.

¿We are very excited about this collaboration,¿ said Linda Strascina, director of corporate communications and investor relations for Axonyx. ¿Our strength is that we have some amazing science.¿

Under the terms of the agreement, Ares-Serono has made an initial payment of $250,000 to Axonyx. The pharmaceutical company will fund all of the costs associated with developing the therapeutic peptides at the Serono Pharmaceutical Research Institute in Geneva. Ares-Serono will have the right to license any of the peptides after one year of development and again after two years of development. Licensing the peptides could result in payment to Axonyx of up to $22.5 million in addition to royalties on drug sales.

Underpinning the agreement is work by former New York University School of Medicine researcher Claudio Soto, who has been hired by Ares-Serono to oversee the development of the peptides. He originally identified the peptides.

In Alzheimer¿s disease, the major pathologic change is nerve death in the regions of memory and cognition associated with deposits of a protein called b-amyloid, which is derived from a larger protein known as amyloid precursor protein. For most people, b-amyloid is a soluble protein. But for patients with Alzheimer¿s, the b-amyloid protein changes conformation, becomes insoluble and aggregates in fibrils. Many researchers speculate that this deposition of b-amyloid ¿ often called plaques or tangles ¿ causes nerve death.

For prion diseases such as bovine spongiform encephalopathy (mad cow disease), Creutzfeldt-Jakob disease and scrapie, an infectious, misshapen prion protein wraps itself around a normal prion protein and causes the normal protein to change conformation. The misshapen prion proteins are resistant to degradation and have the tendency to aggregate into plaques.

Soto discovered that specially designed peptides could interrupt the changes in protein conformation that are associated with toxicity. He developed Amyloid Inhibiting Peptides (AIPs) and Prion Inhibiting Peptides (PIPs) to interrupt the disease processes in both of these diseases.

¿The basis for this research is that a defective protein with an abnormal conformation results in toxicity,¿ Soto said. ¿We knew the normal conformation and the abnormal conformation. What we have done is designed peptides that would prevent the normal proteins from assuming the abnormal conformation and convert the abnormal peptides into the normal conformation.¿

Soto said they created peptides with homology to the various proteins and added in amino acids that would force the proteins into the desired 3-dimensional conformation. For the b-amyloid protein, the abnormal conformation is a flat sheet of protein known as beta-sheet. The AIPs restore that protein to a more random structure.

Because peptides aren¿t normally soluble and can often degrade, Soto said that much of the work at Ares-Serono is focused on solving those problems, as well as ensuring that the peptides can cross the blood-brain barrier. In addition to Alzheimer¿s disease, Soto noted the AIP technology might be applicable to other diseases that result in amyloid deposition in organs. For example, patients with renal failure on dialysis often suffer from amyloid deposition in the kidneys.

In addition to its potential in Alzheimer¿s disease, Soto said the AIP technology might answer an important scientific question.

¿We still don¿t know for sure whether amyloid deposition in the brain causes Alzheimer¿s disease or is the result of the disorder,¿ Soto said. ¿We don¿t currently have a way to prove that the amyloid plaques are intimately involved with the disease. With the inhibitors, we can test in the animal models whether the amyloid deposits cause the disease.¿

Axonyx was started as a private company in September 1996. On April 1, 1997, the company entered into a strategic partnership with NYU that developed the AIPs and PIPs. At the end of 1998, Axonyx became a public entity when it merged with Ionosphere Inc., of Las Vegas. The company has 12.2 million shares of common stock outstanding.

¿We intend to hit small-cap status toward the end of 1999,¿ Strascina said. ¿Our market cap is very high, but our trading volume is very low.¿

Axonyx¿ stock (OTC:AXYX) closed unchanged Thursday at $11.