Knopp Neurosciences is selling global licensing rights to its Lou Gehrig's disease drug to Biogen Idec, a deal that could provide up to $345 million in funding to the South Side biopharmaceutical development company and bolster the region's biotechnology aspirations.

Wednesday's announcement also marks a big payoff for two local tech investors who backed the South Side company: Innovation Works and LaunchCyte LLC.

Knopp will receive an initial investment of $80 million from Biogen Idec -- a payment of $20 million and a $60 million investment in Knopp stock. The small company could receive another $265 million from its Massachusetts-based partner, depending on the drug's ability to get regulatory approval and how well it sells.

Those payments do not include the double-digit royalties Knopp will receive if the drug makes it to market.

Under the terms of the agreement, Biogen Idec will cover the costs of a final round of testing before the drug is submitted for approval to the U.S. Food and Drug Administration and to regulators in other countries.

Knopp's investors have funded two rounds of earlier tests that demonstrated the drug can slow the pace of the fatal disease by as much as 50 percent, said Michael Bozik, the company's president and CEO.

Dr. Bozik calls Lou Gehrig's disease, also know as amyotrophic lateral sclerosis or ALS, "an incredibly malignant disease." It attacks the muscles of its victims, depriving them of the ability to walk, talk, breath and eat. It is named after former New York Yankees slugger Lou Gehrig, who died from the disease.

In exchange for the investment, Knopp will provide development support and help Biogen Idec commercialize the drug in the U.S. market.

Biogen Idec had 2009 revenue of $4.4 billion. Its drugs include Tysabri and Avonex, which are used to treat multiple sclerosis. The stock purchase will make it a minority investor in the company, Knopp executive vice president Tom Petzinger said.

Knopp was founded in 2004 and has 16 employees. It specializes in the development of drugs to treat ALS and other neurological disorders. In addition to Innovation Works and LaunchCyte, the company has been financed by Saturn Capital of Boston and Kramer Capital Partners of Stamford, Conn.

Innovation Works, which invested $300,000 in Knopp, provides seed capital to fledgling companies that need cash to get their ideas out of the starting gate, said president and CEO Rich Lunak. He said other tech startups in the region have received more than $75 million in funding from venture capitalists and other investors since mid-June.

"Knopp is really a poster child for what we try to do," Mr. Lunak said, adding that Biogen Idec's investment in the company could be a catalyst for cultivating a pharmaceutical industry in the region.

Dr. Bozik said Knopp will use the investment from Biogen Idec to conduct research on whether the compound in the ALS drug can be used to combat Alzheimer's, Parkinson's and other diseases. It will also be used to support further testing for the drug and to develop a sales force that would market it, he said.

Knopp's ALS drug is known as dexpramipexole or KNS-760704. The six-digit name refers to what Knopp hopes will be Independence Day for ALS victims. After success in two phases of trial studies, dexpramipexole faces an expensive hurdle in conducting a third round of trials that, if successful, would lead the company to seek FDA approval to market the drug.

Dr. Bozik estimated that the third round of trials could cost as much as $175 million if the FDA requires the two rounds of tests that drug hopefuls typically must clear. The agency sometimes only requires one round of testing in the case of particularly malignant diseases, he said. Biogen Idec will pay for the trials under the terms of the licensing agreement.

The first round of tests will begin in the first half of next year and could be completed in 2012, Dr. Bozik said. If required, a second round would begin in 2012 and be completed two years later, he said.

If all goes well, the earliest Knopp would seek FDA approval for dexpramipexole is 2013, Dr. Bozik said.

He said the FDA has only given approval to one other ALS drug since 1995, when it approved Rilutek. The drug was made by Rhone-Poulenc Rorer, which is now part of Paris-based Sanofi-Aventis. Dr. Bozik said Rilutek has had limited impact on extending the life of ALS victims.

At least two other companies are developing ALS drugs. Cytokinetics, based in San Francisco, is conducting a phase two trial on a drug. And Los Angeles-based CytRx announced in December it had received FDA approval to resume testing on its experimental drug.

Both companies, as well as Knopp, have received orphan drug status from the FDA.

That refers to provisions designed to promote the development of drugs for rare diseases in which the limited market for the treatment makes it more difficult to recover the cost of developing the drug.

The designation gives companies that receive it regulatory and marketing advantages, Dr. Bozik said.

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