By Frances Bishopp

Staff Writer

With four products moving down the pipeline and one on the market, Connetics Corp. appears to have hit its first bump in the road with the report of disappointing Phase III clinical trial results of gamma interferon for the treatment of atopic dermatitis.

Connetics' stock (NASDAQ:CNCT) dropped 45 percent on the news and closed Wednesday at $5.062.

The Palo Alto, Calif.-based company said it has suspended plans for submitting a biological license application (BLA) to the FDA based on the results of the 555- patient, placebo-controlled, double-blind study, which failed to show an acceptable therapeutic response with respect to the endpoint: a composite clinical severity index based upon erythema (redness of skin), papulation (swelling) and excoriation (scratch marks).

Connetics licensed gamma interferon, a protein involved in the regulation of the immune system, from Genentech Corp., of South San Francisco, in December 1995. Gamma interferon has other activities, such as down-regulating collagen, and currently is in another Phase II clinical trial for keloids, with results expected by the end of the year.

"We have had a string of good successes, and this is the first bump, but we are proud of our business strategy," Thomas Wiggans, president and CEO at Connetics, told BioWorld Today.

Connetics, formerly Connective Therapeutics Inc., pursues a "short-time-to-market" strategy by in-licensing promising or approved drugs from other companies. The company ideally tries to acquire products that are approved or either have completed or are ready to begin Phase II trials.

Wiggans said Connetics determined that the top-line data from the Phase III trial of gamma interferon for atopic dermatitis clearly did not indicate a BLA filing. Specific details of the trial were not disclosed; however, at this point, Wiggans said, the company has no plans to pursue the development of gamma interferon for atopic dermatitis.

"It is not our style, it is not our philosophy and it is not consistent with our pipeline to say the trial didn't work, but there are other subgroups where it has worked, etc.," Wiggans said. "We have plenty of other things in the pipeline and we are going to move on."

The company plans to file a new drug application (NDA) in early 1998 for betamethasone mousse for all steroid-responsive dermatoses, including skin diseases such as psoriasis. Betamethasone, a mousse formulation of betamethasone 17—alpha-valerate, was acquired from Soltec Research Ltd., of Melbourne, Australia, in June 1996. A Phase III trial of the product for scalp psoriasis demonstrating positive results was completed earlier this month.

Connetics' ConXn (recombinant human relaxin H2), which was licensed from Genentech in 1993, recently concluded Phase II clinical trials demonstrating positive results in the treatment of scleroderma, a life-threatening connective tissue disorder for which there is currently no treatment. Connetics plans to meet with the FDA before the end of the year to discuss the next trial, Wiggans said.

Connetics already has Ridaura (a gold salt) on the market for rheumatoid arthritis, with sales of $3.1 million for the first half of this year. Ridaura was launched by SmithKline plc., of London, 10 years ago and was purchased last year by Connetics.

Connetics' TCR vaccines (small peptides which are a segment of the T cell receptor) currently are in Phase I/II clinical trials for multiple sclerosis, with data expected by the end of the year. Also, Connetics plans to initiate another clinical trial for this product for rheumatoid arthritis in the near future, Wiggans said.

Analyst Mary Ann Gray, of Dillon, Read & Co., of New York, said despite this disappointment, Connetics remains fundamentally strong. "This is not a one-product company," Gray said. "Management has outlined a solid business plan and in doing so has built a unique portfolio revolving around products to treat rheumatologic and severe dermatologic diseases."

Connetics had approximately $20 million in cash on hand as of mid-year, Wiggans said. *