https://www.sfgate.com/business/article/When-clinical-trial-results-just-say-no-2570771.php
When clinical trial results just say 'no' / Biotech companies often are able to bounce back from seeming disaster, thanks to deep reserves and partnerships
Bernadette Tansey, Chronicle Staff Writer
Published 4:00 am PDT, Sunday, March 11, 2007
{filename .} Ted W. Love, M.D., Chairman and C.E.O. of Nuvelo stands beneath the biotech company logo at its headquarters in San Carlos, California. Photographed March 3, 2007. Chris Stewart / The Chronicle Ted W. Love, Nuvelo Ran on: 03-11-2007 Nuvelo CEO Ted Love stands beneath the company logo at Nuvelo's San Carlos headquarters. Nuvelo is trying to recover from tough clinical trial results involving the drug alfimeprase. Ran on: 03-10-2007 less
{filename .} Ted W. Love, M.D., Chairman and C.E.O. of Nuvelo stands beneath the biotech company logo at its headquarters in San Carlos, California. Photographed March 3, 2007. Chris Stewart / The Chronicle ... more
Photo: Chris Stewart
Nuvelo Inc. CEO Ted Love remembers hearing the bad news over the phone in December and thinking it must be a joke.
Love was convinced that his San Carlos biotech company's experimental drug alfimeprase would prove effective against dangerous blood clots. He reeled when he was told that data from two big clinical trials showed otherwise.
"Your first reaction is, 'This doesn't make any sense,' " Love said.
Such crushing news is hardly unusual in biotechnology.
In the past year, four other Bay area companies -- Telik Inc. of Palo Alto, Renovis Inc. of South San Francisco, Berkeley's Dynavax Technologies Corp. and Threshold Pharmaceuticals in Redwood City -- have watched a once-promising lead experimental drug fall flat in the final stages of clinical trials.
That's a devastating development for a biotech company that sees its best hope for a revenue-generating product disappear. Nuvelo's shares fell 79 percent after it reported the trial results Dec. 11, a few days after Love first heard the news by phone. The other companies saw similar plunges in their stock prices.
But biotech companies often manage to reinvent themselves, even after the bleakest news. Because major setbacks are so common in medical technology, experienced executives and financiers have developed ways to get companies back on track.
"Generally, biotech companies don't go out of business," said Gary Patou, an executive partner at MPM Capital in South San Francisco. "There's generally a sort of rising of the phoenix."
What the future holds -- and what a company's next steps should be -- is often not clear. All kinds of problems can arise, including shareholder lawsuits, departures of key staff, the loss of development partners and a much tougher climate for financing.
Still, companies often have other assets they can draw on apart from their failed lead drug candidate, including cash, intellectual property, unique expertise and other drugs in the pipeline.
For those reasons, biotech has a lower rate of business failure than information technology, said Jonathan MacQuitty, a partner in the health care investment firm Abingworth Management Inc. in Menlo Park.
"We tend to have less of the absolute wipeouts the dot-com guys seem to have experienced," MacQuitty said.
On its face, that might seem puzzling. After all, biotech companies invest substantial amounts of cash and spend a decade or more to develop an experimental drug whose value can suddenly crash to zero if trial results are bad. By contrast, an information technology company can start relatively cheaply with a prototype and gather quick feedback from potential customers, MacQuitty noted.
But biotech companies often find trap-door strategies to survive. They can conduct new clinical trials if they conclude that the failed study didn't reflect the real potential of their drug. They can take an entirely new tack in drug discovery. Or they can look for a merger partner or buyer that might find value in the company.
Often, biotech companies have a cushion in the form of large cash reserves. It's natural for them to have accumulated a large cash hoard to cover the cost of conducting clinical trials, shepherding the drug candidate through Food and Drug Administration approval, and preparing for commercial sale of the product.
Nuvelo is a case in point. It has $153 million in the bank, which gives it time to regroup while it works on several early stage drug candidates. Among them is rNAPc2, a recombinant protein that could be useful in both circulatory system conditions and cancer.
In its Feb. 27 earnings report, the company estimated operating expenses of up to $35 million during the first half of 2007.
Love, the chief executive, said Nuvelo is looking for a possible deal to license another company's experimental drug close to marketing approval, a move that could generate revenue in the medium term. It will also look for partners in the development of rNAPc2, a longer-term prospect.
Nuvelo hasn't decided whether to resume studies of alfimeprase. Love said the company's scrutiny of its failed trials suggests the compound might work better if administered differently to clear blood clots in the leg or, if given at a higher dose, to break up clots that gum up catheters used for drug delivery.
Meanwhile, the company is cutting some big-ticket expenses, but it hasn't reduced its workforce of 140. In fact, Love instituted a monthly lunch of Chinese takeout or pizza in the company cafeteria to boost morale and give employees a chance to chat with senior leaders.
While the companies often live on, investors generally lose big when catastrophe hits. That's happened at Nuvelo. Its shares have slid from nearly $20 to its current level around $3.
What's more, the company's drug development partner, Bayer Healthcare, could decide to bow out of the alfimeprase project. Bayer contributed $50 million and covered 40 percent of the development costs, for a total of about $80 million to date. Nuvelo is also a defendant in shareholder actions that claim the company misled investors about alfimeprase.
A biotech setback can be an expert investor's opportunity. A depressed share price may attract shareholders and venture capital firms willing to take big risks in return for substantial gains if a turnaround succeeds, MPM executive partner Patou said.
But companies that need to raise funds after a clinical trial fails usually need to sell additional shares at a steep discount. Such new money dilutes the stake of shareholders who invested before the crash.
MPM Capital makes a specialty of investing in companies that have stumbled. The firm not only supplies cash in exchange for equity stakes, but also shares its expertise in areas such as clinical trial design and commercialization strategies, Patou said.
One survival tactic is to find a merger partner or a buyer.
"Sometimes the right thing is to take the remaining cash, go find another company that has a (potential) product and not much cash, and blend yourself into them," MacQuitty said.
Investment bankers are often the matchmakers for such marriages of convenience, which can meld the complementary assets of two needy partners. A biotech company whose leading product failed, but whose early stage research showed promise, can merge with a company that is close to marketing a drug but has a dry pipeline. The combined company has a better balance of risks and an improved chance of steady growth.
In 2005, Corgentech of South San Francisco lost half its market value and a partnership with Bristol-Myers Squibb after its lead drug candidate failed to preserve functioning in coronary bypass grafts. Late that year, Corgentech merged with the private New Jersey company AlgoRx Pharmaceuticals. The new publicly traded entity, Anesiva Inc., is developing AlgoRx's experimental pain medications.
Although Abingworth doesn't specialize in turnarounds, it has helped some of its portfolio companies find new life through mergers. MacQuitty said distressed companies sometimes hold a key bargaining chip in talks with potential partners simply by being listed on a U.S. stock exchange.
CancerVax of Carlsbad (San Diego County), which saw its melanoma vaccine tank in a Phase 3 trial in late 2005, quickly agreed to a takeover by the German company Micromet AG, a developer of antibody treatments for cancer. Micromet adopted CancerVax's Nasdaq listing and created a new Nasdaq ticker symbol, MITI. That gave the German company access to U.S. capital markets.
At Nuvelo, Love is eager to move beyond the setbacks for alfimeprase.
"There are only two kinds of biotech companies -- those that have had disappointments and those that will have disappointments in the future," Love said. "The successful ones are those that work through their disappointments."
ROUGH AND TUMBLE
Five Bay Area biotech companies saw their stocks tumble in recent
months after once-promising experimental drugs yielded disappointing results in
clinical trials.     Source: Chronicle research
Company             Lead drug     Indication           Date   Share
Headquarters        candidate     (Disease):          of news  drop
Renovis Inc
South San Francisco   NXY-059        stroke            10/26/06   76%
Nuvelo Inc.
San Carlos            alfimeprase    blood clots       12/11/06   79
Telik Inc.                           lung,
Palo Alto             Telcyta        ovarian cancer    12/26/06   71
DynavaxTechnologies
Berkeley              Tolamba        ragweed allergy     1/8/07   30
Threshold Pharmaceuticals
Redwood City          glufosfamide   pancreatic cancer  2/26/07   57