Senior Staff Writer

Investors in Valentis Inc. took a devastating blow Tuesday, when the company reported lead drug VLTS 934 failed to show a statistically significant difference from placebo in a Phase IIb peripheral arterial disease study.

The stock (NASDAQ:VLTS) plummeted 79.1 percent, or $2.63, to end the day at 69 cents. As a result of the top-line data, Burlingame, Calif.-based Valentis is considering the sale or merger of the business.

"We have no plans for further development of this product," said Benjamin McGraw, the company's chairman, president and CEO, during a conference call.

Valentis began patient dosing in the Phase IIb trial in the spring of 2005. The primary endpoint was improvement in exercise tolerance on an escalating grade treadmill after 90 days. VLTS 934, a non-ionic, block copolymer known as poloxamer, seemed to produce a therapeutic benefit in ischemic tissue, and the company launched the Phase IIb trial in 157 patients with the intermittent claudication form of PAD based on promising results in a previous Phase IIa trial that had a "virtually identical protocol" as well as preclinical data indicating a viable mechanism of action, McGraw said.

The Phase IIa results, reported in December 2004 at the American Heart Association meeting in New Orleans, showed that both groups treated with the company's Deltavasc (Del-1 angiogenesis gene plus VLTS 934) and VLTS 934 candidates demonstrated statistically significant improvement in both exercise tolerance and ankle brachial index compared to baseline. At the 90-day assessment, the VLTS 934 group of 51 patients had a significant increase in exercise tolerance from baseline of 34 percent and the Deltavasc group of 49 patients had a significant increase in exercise tolerance from baseline of 32 percent. Further analyses pushed the VLTS 934 group's figure up to 37 percent.

"When we actually ended up with virtually identical results between the gene arm and the VLTS 934 arm, we went forward with 934," Joe Markey, Valentis' vice president of finance and administration, told BioWorld Today.

In contrast, the Phase IIb study failed to show a statistically significant change in exercise in the 78 patients receiving VLTS 934 vs. the 79 patients receiving placebo in the Phase IIb trial. There was no significant difference in any of the secondary endpoints of exercise tolerance at 30 days, ankle-brachial index at 30 and 90 days, total work capacity at 30 and 90 days and quality of life at 90 days.

"That's the most frustrating thing to us," McGraw said. "We can't understand why there was such a difference between the two trials."

The company looked at discrepancies in the "investigative makeup," in the PAD patients, in the subgroup analyses, he said, but could find nothing significantly different between the Phase IIa and the Phase IIb trials.

"The bottom line is we don't know," he said.

While the Phase IIb's change in exercise in the placebo group was close to Valentis' assumption, the drug group results were well below the Phase IIa trial results. Specific details of the data will be presented at a scientific meeting.

The failure leaves Valentis with two assumptions as to what happened. One is that the biology is not reproducible, but McGraw said, "I don't think anybody wants to believe that."

The other assumption is that PAD trials are difficult because the primary endpoint relies on a non-objective measure of pain that translates to time on a treadmill.

"That time is governed by the patient's perception of pain," McGraw said, later adding that "even if you have an active drug, you may have failures in certain trials."

VLTS 934 is the "fourth PAD drug to fail in mid- to late-stage trials in the last year," he said. One of those failures occurred in March when Toronto-based Vasogen Inc. reported Celacade missed its primary endpoint in improving patients' walking distance over placebo. (See BioWorld Today, March 14, 2006.)

Valentis now is assessing its options, which include selling or merging the business. As of June 30, it had between $4 million and $5 million in cash, Markey said.

The company's assets, aside from VLTS 934, include the developmentally regulated endothelial cell locus-1 (Del-1) gene and protein. The Del-1 gene was the basis of the Deltavasc drug that was part of the Phase IIa trial with VLTS 934. Valentis also has the Del-1 antibody, which is targeted for oncology applications.

"What the antibody does is it actually inhibits the development of blood vessels to cut off the blood supply to the tumor," Markey said, adding that it is similar to South San Francisco-based Genentech Inc.'s Avastin.

Other company assets include intellectual property for GeneSwitch, a technology for gene delivery and regulation; the LipoMASC delivery technology; a manufacturing business; and 10 licensee products that use Valentis' technology.

Founded in 1992, Valentis went public in 1997 and currently has 20 employees and about 17.1 million shares outstanding.