(FORTUNE Magazine) – THE BRAIN HAS a built-in guardian that keeps hostile substances from reaching it through the bloodstream. That biological obstacle is a mixed blessing, because it also bars the path to drugs that could treat some of the most devastating diseases that afflict the brain -- Alzheimer's, Parkinson's, inoperable tumors, and AIDS, which can cause severe dementia. Now scientists are beginning to find pathways through this so-called blood-brain barrier. Companies from pharmaceutical giants to tiny medical startups have launched research that could open exciting new horizons for treating diseases and abnormalities of the body's most complex and critical organ. The blood-brain barrier is not a monolithic Berlin Wall. Rather, like insulation sheathing a hot-water pipe, it surrounds every bit of the roughly 400 miles of hair-thin capillaries that spread throughout the brain, delivering oxygen and other nutrients to it. Nature put the barrier there for a good reason: to guard the brain against a sudden influx of substances made elsewhere in the body that might suddenly trigger unwanted electrical and chemical activity, leading to convulsions or worse. Even so simple an act as standing up produces a rush of neurotransmitters called catecholamines into the bloodstream from nerves elsewhere in the body. If those neurotransmitters flooded the brain, they would send people into paroxysms. But anyone who has inhaled cigarette smoke or imbibed a glass of Chardonnay has experienced another crucial fact about the blood-brain barrier: It is selective. The barrier does not prevent certain molecules -- nicotine, alcohol, and heroin, for example -- from getting into the brain and acting on it quickly and powerfully. For researchers trying to design drugs to treat brain disease, the problem is that many of the strongest potential remedies can't make it across the barrier in their natural states. It's possible to treat tumors by drilling through the skull and injecting drugs or radioactive substances directly into the brain, but such crude techniques have limited effectiveness. What drug designers would like to do instead is start sending across the barrier existing drugs that are effective elsewhere in the body, along with a new wave of wonder drugs that influence everything from thirst to the sex drive. Perhaps most audacious of all, work is already in progress on laboratory animals to devise ways to ferry complete, functioning genes into the brains of people who suffer from such genetic diseases as Tay-Sachs, helping arrest mental retardation and prevent early death. The humanitarian as well as economic importance of vaulting the blood-brain barrier is hard to overstate. The world's population is aging rapidly, increasing the ranks of sufferers from neurodegenerative diseases like Alzheimer's and Parkinson's, and straining health facilities. In the U.S. alone, the number of people diagnosed as having Alzheimer's has soared from only about 500,000 in 1975 to some 2.5 million this year; it is expected to reach four million by the year 2000. On top of all that now comes AIDS, which in many cases goes to the brain early in the course of the disease, raising the horrifying specter that the virus could hide out of treatment's reach and destroy the brain even if drugs are developed to defeat it elsewhere in the body. It's now becoming clear that unless anti-AIDS medicines can attack the deadly virus in the brain, researchers could win only a partial victory against what some scientists are calling the new plague. Because of the manifold promise of efforts to open the blood-brain barrier, Stanley I. Rapoport, 55, a noted neurophysiologist at the National Institute on Aging in Bethesda, Maryland, calls the work an assault on ''one of medicine's last frontiers.'' Right at the edge of that frontier are small companies working in collaboration with university and even government researchers. Rapoport, for instance, teams up with Athena Neurosciences Inc., of San Carlos, California, a Silicon Valley company established a year and a half ago to make drugs for diagnosis and treatment of neurodegenerative diseases such as Alzheimer's and Parkinson's. Athena devotes nearly half its effort to crossing the blood-brain barrier; Rapoport will soon have three or four scientists on his staff whose salaries will be paid for by Athena. The company is taking advantage of new federal rules that allow private companies to take part in and underwrite research in federal labs. In Cambridge, Massachusetts, Alkermes Inc. -- the name is Arabic for ''magic potion'' -- is about to open its doors; the company will be devoted solely to devising mechanisms for sneaking medications across the blood-brain barrier. (For a look at some possible techniques, see diagram.) Alkermes will become a neighbor of two-year-old Cambridge NeuroScience Research Inc., a company that is developing drugs to treat brain-related diseases and is already exploring new ways to penetrate the blood-brain barrier. Two other new companies in the field are Neurogenetic Inc. of Paramus, New Jersey, and Cephalon Inc. of Malvern, Pennsylvania. THE BLOOD-BRAIN barrier business is so new that the granddaddy of companies in it, Pharmatec Inc. of Alachua, Florida, is all of six years old; it is also the only public company so far. Revenues came to $1.2 million in 1986, and the stock recently traded over the counter at $7 a share. Venture capitalists everywhere are vying to start new companies and sign up university neuroscientists as employees and consultants. Kevin J. Kinsella, 42, who founded Athena Neurosciences and is managing general partner of Avalon Ventures of La Jolla, California, says the new activity reminds him of the heyday of genetic engineering startups. Kinsella estimates that venture capitalists have already committed at least $50 million, with more to come. Big drug companies, too, are awakening to the possibilities. Neuroscience is becoming one of the industry's hottest new fields. Merck, for instance, has spent $35 million to establish what it calls the world's largest corporate neuroscience laboratory, near London, where it works on transporting drugs across the blood-brain barrier. Says a Merck official: ''We definitely see it as the science of the future.'' Searle recently set up a special unit to deal with drug penetration of the barrier. Last year Squibb undertook a long-term, $32 million agreement with Oxford University under which Squibb will endow a neuroscience research center and sponsor work on potential treatments for brain disease. Upjohn, SmithKline, Pfizer, and other giants are expanding research in the area. The realization is setting in everywhere that, as William M. Pardridge, 41, a pioneering researcher at UCLA and scientific adviser to Alkermes, puts it: ''Drugs of the 21st century to treat neurological diseases, and even to optimize normal human performance, are not going to go anywhere until you solve the blood-brain barrier problem. So any company that wants to get into the neurology market has to understand the blood-brain barrier.'' Until the last few years, however, there wasn't much anyone could do about trying to transport medications into the brain because so little was known about the barrier. Says Pardridge: ''It was looked upon as no man's land.'' It has been only by chemical chance that some drugs have penetrated the barrier. While penicillin, for instance, hardly gets through it, another, less versatile antibiotic called chloramphenicol does so easily; unfortunately, it's toxic and risky to use. Only two relatively ineffective anticancer drugs can reach the brain through the bloodstream. The existence of the blood-brain barrier has been known for more than 100 years, but its exact nature remained elusive until the advent of electron microscopy and molecular biology in the past two decades. Physically it consists of the cell walls of microscopic capillaries, a network so extensive that if all the tiny blood vessels were flattened and spread out, they would cover an area 20 feet by 50 feet -- the size of a backyard swimming pool. Unlike the walls of capillaries elsewhere in the body, those in the brain are only selectively permeable, and their cells are cemented together by overlapping tight junctions that keep blood components from passing through. The milestone achievement came in 1969 when Milton W. Brightman and Thomas S. Reese, neurobiologists at the National Institutes of Health, established the anatomical basis of the barrier. Later other scientists discovered a chemical barrier to further penetration of the brain: enzymes that take apart undesirable substances. One researcher, William H. Oldendorf of UCLA, likens the barrier to a moat guarding a castle. Think of the enzymes as sharks in the water between the walls of the moat, determined to stop any unauthorized swimmers from getting through the interior of the cell and the cell membrane that adjoins the brain. The only swimmers that do get through in quantity have an affinity for dissolving in fat. Because the capillary wall membranes are made of fatlike, waxy lipid substances, lipid-soluble molecules like oxygen, alcohol, and nicotine diffuse through the barrier easily and rapidly. WATER-SOLUBLE substances ordinarily have difficulty penetrating the barrier. Nevertheless, remarkable specialized transport mechanisms ferry across the barrier water-soluble molecules the brain needs, including hormones and vitamins. The details are hazy, but glucose, for instance, which the brain uses as fuel, appears to be let in selectively through channels, or pores, in the capillary membranes. Insulin molecules, which regulate transmission of signals between neurons, first attach to receptors that stick out periscope- fashion on the blood side of the capillary walls; then they are engulfed into tiny protective sacs and relayed through the wall and into the brain. AIDS virus particles may get across the barrier by linking up with one of those helpful receptors. Using the great new tools of molecular biology, scientists stand on the verge of pinpointing the genes and their defective products that are widely believed to cause Alzheimer's, Parkinson's, Huntington's chorea, and many other conditions. That knowledge, in turn, is expected to speed along the emergence of new medications. Furthermore, because it is the body's control center, the brain offers a gigantic new arena for new medications that could allow novel treatment of behavioral disorders, elevate moods, introduce new means of birth control (since the brain regulates the release of sex hormones), and regulate blood pressure along with myriad other body functions. These new medications would be patterned after mood- and mind-influencing substances made in the brain: norepinephrine, which reduces anxiety, for instance, and endorphins, painkillers thought to be released by exercise. Pardridge of UCLA notes that the vast promise of these substances as neuropharmaceuticals has not been realized so far. When the brain does not produce enough of them, they are hard to introduce from outside; being mostly water-soluble, they are blocked by the blood-brain barrier. Scientists are trying a whole bag of different tricks to get both new and existing drugs across the barrier. Edward A. Neuwelt, 39, a neurosurgeon at the Oregon Health Sciences University in Portland, is taking the most daring and direct approach. Neuwelt treats patients with brain cancer by injecting a sugar-rich solution into an artery. When the solution reaches the brain capillaries, it acts as a kind of crowbar, temporarily opening the tight junctions in the brain capillary walls. Into the breach Neuwelt then injects anticancer drugs. The barrier stays open for about 30 minutes. Once the effect of the solution wears off, the tight junctions are restored. Neuwelt's success rate has been impressive. In one type of brain cancer, a primary lymphoma, his preliminary results show that he should be getting complete remission -- defined as no tumors reappearing for at least five years -- in 40% of his patients. This would be a cure rate more than ten times better than that with most conventional radiation and chemotherapy. In all, Neuwelt has already performed about 1,000 barrier openings in more than 100 patients; one has had his blood-brain barrier opened 48 times. Most of the patients have experienced no permanent side effects. Many of the new company-university collaborations are trying to get drugs into the brain without resorting to Neuwelt's rather drastic procedure. All aim to capitalize on natural transport mechanisms. One chemical method involves hitching a drug molecule to a natural molecule that is known to go through the barrier; another uses a drug molecule chemically modified to make it ''look'' like a fat-soluble molecule to the capillary barrier cell. Some investigators are searching for small lipid-soluble molecules with therapeutic properties. For example, Cambridge NeuroScience is screening spider venom for components that cross the blood-brain barrier easily and could be used to treat strokes. Merck, which is pursuing a similar strategy, reports that its experimental drug MK-801 appears to reduce damage from strokes in lab animals. Perhaps the subtlest approach to barrier breaching is under way at Athena Neurosciences, among other places. Here the goal is to get drug molecules across the tight junctions with a chemical signaling system. The white blood cells that get into the brain are believed to carry a chemical ''key'' that temporarily opens the junctions. The most advanced and elegant work so far has been done by Nicholas S. Bodor, 49, vice president for research at Pharmatec and also a research professor at the University of Florida. Taking advantage of the capillary walls' affinity for fatty molecules, Bodor's technique links a common fat- soluble carrier molecule with a drug molecule that it ferries across the blood-brain barrier. Once in the brain, two enzymes naturally present there act on the combined molecule. One changes the electrostatic charge, making it impossible for the molecule to exit through the barrier back into the blood. The molecule is thus trapped in the brain. Then the second enzyme goes to work, cleaving the drug slowly from the carrier and setting off a sustained release of the drug in the brain that can last as long as 30 days. This process also makes the drug molecule water-soluble, so it can't escape quickly through the barrier back into the bloodstream. The carrier, however, is expelled through the barrier back into the capillaries and eliminated from the body. ALL TOLD, over the past few years Pharmatec has synthesized about 20 carrier-drug combinations and showed that they work in laboratory animals. For more efficient distribution of its technology, Pharmatec works with larger pharmaceutical companies. With Burroughs Wellcome, for instance, it has investigated a carrier designed to take into the brain AZT, or azidothymidine, the only relatively effective anti-AIDS drug in use so far. Pharmatec has also licensed Nova Pharmaceutical of Baltimore to link to the same carrier antibrain-tumor drugs and steroidal anti-inflammatory products. Security analysts see carrier-drug combinations capturing an annual market amounting to more than $100 million by 1995. In all these ways, the brainpower of 20th-century science promises to improve the functioning of the organ that makes science possible in the first place. And with those formidable new medications like the brain-produced painkillers that UCLA's Pardridge calls ''21st-century aspirin,'' it might just eliminate a headache or two as well.