NarHex IPO to fund Chinese HIV project

Facing a human and economic catastrophe, and with the Beijing Olympics less than four years away, the Chinese government has struck a unique deal with a small, Sydney-based company, NarHex Life Sciences, to fast-track clinical trials of one of the world's most promising new AIDS drugs.

NarHex has announced plans for an IPO and float on the Australian Stock Exchange, aimed at raising $8 million from the sale of 40 million shares, to fund its entry into China.

Officially, China has only 1 million HIV-AIDS patients. Unofficially, the true figure is closer to 10 million, and could exceed 30 million by decade's end, when the epidemic will be out of control and a dire threat to China's booming economy.

Drugs are available to rein in the epidemic, but few of China's millions of AIDS patients can afford the US$13,000 to $15,000 per-year cost of combination therapy life-saving nucleosides like AZT and protease inhibitors that block the virus' replication.

CEO John Majewski said the company would focus initially on China, but then planned to develop markets wherever AIDS was a problem, including other developing nations in Asia, and Africa.

Whether other AIDS drug manufacturers avoided these markets, because of low profit margins, Majewski said, "We're going to go after the virus, wherever the need is greatest."

Promising beginnings

NarHex's protease inhibitor came out of a project that Majewski and fellow investor Sueto Eguchi -- the company's two biggest private shareholders -- funded at the Fairfield Infectious Disease Laboratory in Melbourne in 1990, to screen molecules for protease-inhibiting activity in the HIV virus. The project was headed Fairfield's Dr Damian Grobelny, an expert in protease enzyme structure and function, who is now NarHex's chief scientist, identified two compounds, Nar DG 35 and Nar DG 43, with promising anti-HIV activity.

The former showed more promise in pre-clinical experiments, and Majewski and Eguchi founded NarHex in 1990 to commercialise it. Like other protease inhibitors, the prototype was not water-soluble, but Grobelny subsequently synthesised a hydrophilic version, Nar DG 35 VIII, by adding phosphates to its structure.

Nar DG 35 VIII is a pro-drug, which remains inactive and hydrophobic until it has been absorbed through the gut wall and transported via the bloodstream to the liver. Majewski said Nar DG 35 VIII is the world's first water-soluble protease inhibitor -- and that's just one of its desirable attributes.

In 1998, a Phase Ib/IIa clinical trial in 12 Brazilian men with advanced HIV infections provided proof of concept, and confirmed the drug's inherently low toxicity. It can be administered orally -- a big advantage for treating infected children -- and exhibits good tissue penetration. It also appears to penetrate the body's Great Wall, the blood-brain barrier, a crucial attribute for any AIDS drug, because HIV infection of the central nervous system causes AIDS-related dementia.

NarHex decided to go to Brazil -- a company with a huge number of HIV patients -- after 12 months of fruitless negotiations with Australian regulatory agencies, which insisted that volunteer AIDS patients receive nucleoside drugs as well as the new protease inhibitor. Majewski said the requirement would have made it impossible to determine whether the protease inhibitor delivered any therapeutic benefit.

The drug inhibits an enzyme that cleaves the virus' p55 protein to create three protein fragments that are incorporated into the virus' inner core, and core matrix. By preventing cleavage of p55, the new drug prevents new virions maturing as they bud from the cell membrane. The Brazilian trial showed that Nar DG 35 significantly inhibits virus replication, as indicated by reduced viral loads in the patients' blood, and an increased count of CD4 lymphocytes, the virus' natural host.

Even though one patient enrolled in the trial had serious liver damage, he suffered no ill effects, underscoring the drug's low toxicity and safety.

Inexpensive fast track

NarHex's drug involves a complex synthesis of nine steps -- but that contrasts with 22 steps for Merck's commercial protease inhibitor, Sequenavir, so the NarHex compound is cheaper to make.

NarHex has contracted US-European fine drug manufacturer Rhodia ChiRex, which has taken equity in NarHEx, to synthesise the drug.

Majewski said current protease inhibitors cost about US$5000 to $9000 for a 12-month course. NarHex hopes to price its drug at between $1300 and $1500 a year, or 20 per cent of this cost -- a price within the means of most urban Chinese HIV patients.

He said big pharma could not afford to cut the price of its protease inhibitors to HIV patients in China and other developing nations, because it would then be bound to reduce the price to patients in industrialised nations. With five pharmaceutical companies competing for a combined market in developed nations worth only $1.7 billion, the market would be uneconomic.

The Chinese market offers a potentially inexpensive fast track into the market in industrialised nations as well. "If we can meet our price target, we're confident we can reach a much wider market, outside China," Majewski said.

Majewski said the company tried to raise capital in the US market, but found it impossible because of the chaos in the biotech venture capital market in the wake of the September 11 terrorist attack on the World Trade Centre. "We would have needed about US$50 million to run the trial in the US, even if we ran it very tightly. In China, we can do it for far less than that," he said.

NarHex has signed an agreement with the giant Chinese government trading company CMC Shaanxi under which CMC will pay the costs of Phase III clinical trials, and registering the drug for clinical use in China. In return, NarHex will pay the costs of synthesising and supplying enough of the drug to run the trials, and will also pay the cost of creating the trials infrastructure.

NarHex will also register to base a local company in Shaanxi, ancient trading capital at the start of the Silk Route through Eurasia, and site of the major archaeological find of an army of terracotta warriors in the early 1990s.