Ebb & Flow

For the past few years, the major focus for investors in Neurobiological Technologies (NTII) has been on its Memantine, which is marketed in Europe for Alzheimer's disease and is awaiting U.S. approval for the same indication. But the compound failed last week in a Phase III trial in diabetic neuropathic pain, which is the indication where NTII had the most to gain.

While the company has 1% royalty for AD, NTII's lottery ticket was the diabetic neuropathic pain indication, where it stands to get 13%. "That's where we hope to make our money," said President and CEO Paul Freiman.

While NTII and partner Forest (FRX) are reviewing the data to determine their next step, investors may start to turn their attention to the other cans in NTII's cupboard. They won't find too much.

Next in line is Xerecept, a human corticotropin-releasing factor that has had very little visibility. After completing Phase II trials in the summer of 2000 in peritumoral brain edema, NTII backburned the program to conserve cash and focus on Memantine. After last week's setback, NTII plans to start two more Phase III trials of Xerecept this quarter. However, Freiman estimates it will take at least two years to reach an NDA filing, because peritumoral brain edema is an orphan indication and patient accrual will be slow.

NTII also has completed Phase II trials of Memantine in AIDS-related dementia.

The good news is NTII is frugal. It has only 10 employees, and posted an operating loss of $2.1 million for the nine months ended March 31, 2003, when it had $5.1 million in cash. Freiman said the company is spending

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