Clinical Trial Reversals Forcing Biotech Firms To Refine Strategy

Under pressure to reap return on investment, companies are seeking ways to ensure success in designing drug tests This past July, Synergen Inc. suspended clinical trials of its anti-inflammatory drug candidate, Antril--being tested to fight sepsis--for lack of efficacy. Faced with the setback to its $100 million-plus investment, the Boulder, Colo.-based biotech was forced to lay off more than half its work force and shut down two major manufacturing facilities. Soon after, the firm's stock price dropped almost 50 percent, and today, despite its reputation for solid research, industry analysts consider Synergen a prime takeover candidate. Synergen is not the only biotech firm that has suffered from such a debacle. In fact, since the beginning of this year, seven other such companies have been hammered by highly publicized clinical trial failures and seen dramatic drops in their stock prices as a result. With many biotechs under the gun to prove their commercial viability before returning to investors for another round of financing, industry participants and analysts report that some of the companies are cutting corners on the design of clinical trials--further undermining their products' chances of garnering Food and Drug Administration (FDA) approval. This Catch-22 situation underscores an urgent dilemma for the biotechnology industry, observers say. The competing forces of stockholder impatience for profitable products and the necessity of conducting exhaustively thorough testing (see accompanying story) are making their decisions about shepherding compounds to market more crucial than ever. The proper way to proceed is the subject of debate and second- guessing among corporate decision-makers and analysts. What is clear, however, is that hundreds of millions of dollars and even the future of some companies are riding on their decisions. "I find that biotech CEOs are fairly open to admitting that financial pressures are playing a role in how they run their companies," says Kenneth B. Lee, Jr., national director of New York-based accounting firm Ernst and Young's Life Sciences Practice, and coauthor of the company's prestigious annual report on the biotechnology industry. "These pressures do impact how clinical trials are approached," he adds, "and they're probably a negative factor." Analysts agree that these are tight times for biotechnology, an industry in which many companies have less than two years' cash on hand, according to Ernst and Young. The Medical Technology Stock Newsletter, published in Berkeley, Calif., recently reported that the Amex Biotech Index dropped nearly 50 percent during the first half of the year. And continuing failures in clinical trials have turned up the heat. Companies are trying a variety of strategies to face the challenge. Some are hiring contract research organizations to run clinical trials (see story on page 1); others are finding corporate partners to share the cost, risk, and potential reward of late-stage development. And some, evidently, are designing clinical trials that they hope will hasten the day that their product will be on pharmacy shelves. Nothing illegal or dishonest is occurring, experts are quick to reassure, and FDA regulations are in no way being compromised. Rather, it is in the design of the trials themselves--for example, how many extra patients to enroll to allow for natural attrition, or which indication to pursue approval for first--that some firms are trying to take shortcuts and, ironically, dooming their compounds to scientific failure. "Small, undercapitalized companies are doing this to save time and money," notes David Holveck, president and CEO of Centocor Inc., a biotech firm in Malvern, Pa. "There is no question about it." One way biotechs are trying to shave dollars and months from a project is by enrolling fewer patients in a study. Before a clinical trial begins, the company and FDA must agree on the parameters and design of the test: what clinical factors will be evaluated, and what percentage of patients showing a certain outcome will be considered statistically meaningful. But for a variety of reasons--ambiguous diagnosis, complicating symptoms, or death, for instance--some patients will always drop out of a study, so extra patients must be enrolled from the beginning. "You must empower the study with sufficient numbers if you hope to be able to answer the statistical question at the end," says Frank Martin, vice president and chief scientific officer for Liposome Technology Inc. in Menlo Park, Calif. He maintains that such a deficiency hurt Berkeley-based Xoma Corp.'s Phase III trial of the sepsis compound E5 last year. Biotechs are also trying to speed development time by enrolling patients from more sites, which would shorten the amount of time it takes to accrue a certain number of patients, and by designing hybrid Phase II/Phase III studies, rather than conducting them sequentially, according to Holveck. "Any time you compromise on numbers because of cost or time you are endangering your study," he warns. "You inject a higher degree of variable elements and heighten the risk that the trial will fail." Large drug companies will often conduct a number of Phase II studies to best determine which subpopulation of patients and what clinical endpoints to target, thus enabling them to design the full-scale Phase III trial with much less risk, Holveck says. Martin agrees, noting that a large company like Merck and Co. Inc., for instance, "would never consider skimping on the size of a trial, because [such a move] is fraught with danger. But this is where Wall Street enters into the equation. Wall Street doesn't want to wait for more people, because in this game, time is money." Clinical drug development has always been an arduous venture. Statistics from the Pharmaceutical Manufacturers Association show that it takes, on average, 12 years for a compound to move from preclinical testing through the three phases of FDA-regulated clinical trials, costing an average $359 million along the way. Moreover, the association estimates that for every 5,000 compounds originally evaluated in the laboratory, only one approved drug will result. Failure of a clinical trial can carry a big price tag. When Synergen stopped the Phase III trial of Antril, the $100 million the company had invested in the drug was exclusive of manufacturing costs, which included construction of what the firm billed at the time as "the largest pharmaceutical protein manufacturing plant in the world." The Antril failure forced Synergen to terminate 375 jobs--60 percent of its work force--and close down both its manufacturing plant and its Japan office. Synergen's stock plummeted 49 percent the day of the restructuring announcement. At the time Synergen was not criticized for the design of the Antril trialsQsufficient numbers of patients were enrolled, and the company was performing the trials in a targeted subpopulation of patients who appeared to most benefit from the drug. But some industry watchers suggest that the company should have pursued Antril's effectiveness in rheumatoid arthritis first, before tackling the complex and ill-understood syndrome of sepsis. "Companies are going after targets that are less understood in terms of basic pathophysiology, because those indications offer a higher potential payoff," observes Herbert Loveless, vice president for clinical development at Tanox Biosystems in Houston. Indeed, sepsis is responsible for an estimated 100,000 deaths in U.S. hospitals each year, and generates more than $10 billion a year in U.S. hospital bills--so it represents a lucrative target for the first company to get a therapeutic approved for use against it. "What has been missing," Loveless adds, "is a lot of the fundamental risk-assessment analysis. That is why a lot of people have lost a lot of money. If you pursue a smaller indication first, it gives you credentials--the company gains an approval, the experience of going through the approval process, and a revenue stream," notes Lee. "It's not a grand-slam home run, but it is a solid approach to building a business." Another factor exacerbating the financial losses of trial failures is that many small companies, such as Synergen, are developing expensive infrastructure--regulatory departments; clinical-trial design groups; manufacturing, marketing, and production operations--to support a single lead compound. "For Synergen it wasn't so much the failure per se," says John Groom, president and CEO of San Carlos, Calif.-based Athena Neurosciences Inc. "It was the accompanying developments built on the assumption that Antril would succeed. If they had waited to do all of the rest until after they had Phase III approval, then they would not have been burning $20 million per quarter." But developing these capabilities in sequence rather than simultaneously, according to Robert Thompson, executive vice president for research and clinical affairs at Synergen, would have added two years of development to the time between Antril's approval and when the drug reached patients. This would not only have delayed income, he points out, but also "would have been an unconscionable position for us [in treating] a life-threatening disease." Some observers maintain that negative results are inherent in the process. "It's the nature of drug development: You get bad news before good news," says James McCamant, editor of the Medical Technology Stock Newsletter. "It's just that the industry is still young. It hasn't developed a history of successes along with the failures yet, so people overreact." "Everyone knows that only one in 10 candidates make it from preclinical testing to a new drug application," acknowledges John Steuart, chief financial officer of Alafi Capital Co., an Emeryville, Calif.-based investment firm. "The problem is that naive investors are losing a lot of money because they overpaid for the stock. And many industry insiders say the concerns of anxious investors on the outside do play a role in scientific decisions, especially when the high-cost stages of advanced clinical trials are reached. "Science and business interests can be in conflict as I weigh whether to go forward with a project," Athena Neurosciences' Groom acknowledges. Clinical trial design requires a CEO to juggle several factors, including cost, potential market, and scientific potential, he says. The balance between these factors can shift in a tight economic environment. "There is no question that pressure from Wall Street enters into decisions on when to file for approval of a compound, or what calculated risks to take [in the design of a trial]," Martin points out. "I've seen it personally. In a meeting to set the time line for a trial, for example, the medical person will lay out the time frame in a best-case scenario." Companies are learning, however, that measures that offer savings may also increase the risk that a compound will not pass testing. "Rushing [clinical trials] is very shortsighted," says Larry Kurz, vice president of communications for Emeryville-based Chiron Corp. "It's almost suicidal." Susan L-J Dickinson is a freelance writer based in Philadelphia.

Clinical Trial Reversals Forcing Biotech Firms To Refine Strategy

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