CytRx hits home run with deal on Lou Gehrig disease drug.

Executives at CytRx Corp. have proved savvy negotiators in garnering a $24.5 million infusion to develop a drug for deadly Lou Gehrig's disease.

The Los Angeles-based biotech negotiated an unusual royalty agreement with the ALS Charitable Remainder Trust that will help fund development of the company's lead drug candidate, arimoclomol, without diluting any of the company's stock.

The deal involves the trust transferring stock holdings to CytRx that are worth $24.5 million, including shares of Tribune Co. and Berkshire Hathaway Inc. In return the trust will receive a 1 percent royalty payment from worldwide sales of the drug.

Not only is the funding source unusual--the trust benefits the Greater Los Angeles Chapter of the ALS Association--but the structure of the deal better protects the interests of existing share holders of CytRx, which has a modest $102 million market cap.

"This speaks volumes to the negotiating skills of CytRx management," said Rodman & Renshaw analyst Elemer Piros, noting that 1 percent is an extremely small royalty rate. "The trust's motivation is to find a cure, though if the drug could achieve $1 billion or more in sales, the royalty could be a meaningful number."

Chief Executive Steven Kriegsman noted in the Aug. 29 announcement that the company retains full control of clinical development and 99 percent of future revenues, while preserving the flexibility to negotiate corporate partnerships for ALS research. The company also plans to explore the drug's usefulness in treating Huntington's, Alzheimer's and Parkinson's diseases, as well as stroke and cystic fibrosis.

CytRx, whose lightly traded shares have rarely broken $3 in the past five years, surged more than 24 percent on heavy volume when news broke. The stock closed at $1.73 on Aug. 30.

Mid-stage clinical trials began last fall on a pill form of arimoclomol, one of three small molecule compounds under study by CytRx that appear to trigger certain proteins to repair or block other damaged proteins linked to a variety of diseases.

CytRx expects to report study results early in the fourth quarter. The drag already has received approval from the U.S. Food and Drug Administration to be "fast tracked," which can speed up the regulatory process by several months.