SOUTHERN CALIFORNIA ENTERPRISE : Firm Seeking a Diabetes Breakthrough : Medicine: Irvine company attracts investors with attempt to develop implant.

IRVINE —  Dr. David Scharp figures he just got the chance of a lifetime.

For two decades, the noted St. Louis surgeon has been working on new treatments for diabetics. He joined Neocrin Inc. recently and found himself in the thick of a race to develop a new method for attacking diabetes.

The small research firm is on the cutting edge of technology as it experiments with an implant that can act like a pancreas and eliminate the need for insulin injections.

“This is the assault on the summit!” says 49-year-old Scharp, the company’s new chief scientific officer, as he escorts a visitor through Neocrin’s spotless laboratory. “This is the chance to realize a 20-year dream.”

Scharp’s appointment at the Irvine company comes just after Neocrin secured $12.5 million in fresh venture capital in February to continue its studies on mammals like dogs and baboons.

Indeed, investors share Scharp’s enthusiasm, having poured $28.5 million into Neocrin since it was formed three years ago.

“The potential could be staggering,” said Dr. Philip Noguchi, a federal Food and Drug Administration official, “but that’s only if it works, of course.”

With more than a million diabetics in the United States and Europe spending billions of dollars on insulin, needles and related items, the market for something that can replace the drug is huge. If all goes well, Neocrin believes its device eventually could generate more than $1 billion a year in revenue.

To be sure, other companies are working on new treatments, and the race to develop an artificial pancreas is difficult, with major clinical hurdles ahead.

Neocrin is one of the front-runners with plans to begin clinical trials with human beings next year. Before it does, the privately held company plans to go public to raise the cash it needs for what will likely be four more years of testing.

Neocrin wants to perfect an artificial pancreas, containing insulin-producing islet cells that would better control a diabetic’s insulin requirements than injections. Islets are a cluster of cells in the normal pancreas that produce the insulin the body needs.

Company researchers say they believe that among its other benefits, the implantable device could help prevent blindness, amputations and other severe complications that often debilitate diabetics later in life.

Neocrin’s competitors are taking separate tracks:

* Three small research firms are developing injectable tiny capsules for encasing islets. BioHybrid Technologies Inc. in Shrewsbury, Mass., hopes to start human trials next year. Vivorx Inc. in Santa Monica recently received $5 million from a large pharmaceutical company to develop capsule technology. Metabolex in Hayward won’t predict when it might begin human trials.

* W.R. Grace & Co. in Boca Raton, Fla., is working on an islet-filled device that could be grafted onto a patient’s circulatory system. The giant chemical and health care company, which has invested millions in its device, plans to begin human trials this year.

* BetaGene Inc., a small Dallas firm, hopes to insert human genes into rodent cells to engineer a line of human-insulin-producing cells. The company has financial support from a privately held corporation but won’t predict when it might be ready for human trials.

Even competitor Thomas Glaze, president of Metabolex, said Neocrin has a “good shot” at succeeding with its device.

Neocrin’s prototype isn’t impressive to the naked eye.

“Like a stay for a shirt collar?” Scharp suggested as he picked up a thin, two-inch bit of white polymer that could be part of the final product. But that tiny item could contain the cells that the diabetics need to produce insulin in the body.

Like scientists elsewhere, Neocrin’s researchers are experimenting with the idea of implanting islets from pigs in human diabetics. Though pig insulin long has been used as an effective treatment for human diabetes, researchers must find a way to protect pig islets from being rejected by the human immune system.

Merely staying in the race remains costly. Neocrin, though, has loyal investors.

The company was formed three years ago as a partnership between Baxter and a small Santa Ana company called TranCel Corp. TranCel contributed its technology for isolating insulin-producing pig islets, and Baxter added its membrane technology. Each invested $5 million.

The following year, Neocrin hired Greg Dane, former general manager of Baxter’s European research and development unit, as Neocrin’s chief executive. Neocrin’s backers contributed $6 million for continuing research, and the company brought in another corporate investor, CytoTherapeutics Inc. in Providence, R.I. CytoTherapeutics received a small stake in return for contributing additional pig-islet technology and its scientific advisers, including Scharp and Lacy.

Outsiders won’t predict whether Neocrin’s strengths will add up to success eventually. But James McCamant, editor of the Medical Technologies Stock Letter in Berkeley, said Neocrin has “good people and great corporate sponsorship, which improves the odds.”