The bad news is that Xoma Corp. said its interleukin-1 beta (IL-1 beta) antibody gevokizumab failed to offer compelling enough data in a phase II study in erosive osteoarthritis (EOA) to warrant phase III investment in that indication, sending the company’s shares down 23 percent Wednesday.

The good news is that the drug continued its streak of solid safety data, and the company still expects positive results from a pivotal trial in Behçet’s uveitis, anticipated this June, and recently disclosed plans to advance another pivotal program in rare skin disease pyoderma gangrenosum (PG).

Xoma’s stock (NASDAQ:XOMA) closed at $6.82, down $2.62, after hitting a 52-week high of $9.44 Tuesday, having run up in recent weeks “in anticipation of the blockbuster optionality implied in [the EOA] indication,” analyst Adnan Butt, of RBC Capital Markets, noted in a research report.

Gevokizumab had been tested in two separate EOA studies, one (Study 160) enrolling 85 patients with EOA who had high-sensitivity C-reactive protein (CRP) levels greater than or equal to 2.5 mg/L and the second (Study 162) recruiting 92 patients who met the criteria for the first study but did not have elevated levels of CRP, which is recognized as a biomarker for generalized inflammation. Both trials tested the drug, dosed subcutaneously once monthly, against placebo to determine improvements in pain, stiffness and physical function associated with EOA, as measured using the Australian/Canadian Osteoarthritis Hand Index scoring scale, at days 84 and 168.

Perhaps most frustrating is the fact that Study 160 showed a promising separation between gevokizumab and placebo scores at day 84, according to data reported in October, and indicating continuing improvement for patients on drug vs. placebo. That pattern suggested that results from the 168-day evaluation would demonstrate an even wider separation in gevokizumab’s favor.

But “this is not what we observed,” Paul Rubin, senior vice president of R&D and chief medical officer for Berkeley, Calif.-based Xoma, told investors during a late Tuesday conference call. In fact, he noted, patients in the placebo arm showed an even greater improvement than those on drug over the final three months.

“This placebo effect virtually eliminated the separation between placebo and actively treated patients seen at the day 84 time point,” he added.

As to why day 84 effects weren’t maintained through the six months of the trial, Rubin said he could offer only “opinion, conjecture and speculation.”

One possibility could be variability of the subjective endpoints. “This could be just bad luck,” he said. Investigators may have “caught patients at a time when they were getting a spontaneous effect or a placebo effect.” EOA also is a disease that tends to wax and wane in the intensity of its symptoms.

Rubin also mentioned the possibility of “redundant inflammatory pathways” in the body that are linked to EOA. Xoma has shown that IL-1 beta is elevated in EOA patients, but it may not be the cytokine “driving all the stimuli for inflammation in this particular disease.”

Both studies showed that gevokizumab statistically significantly affected CRP levels, so Xoma said it will conduct further analyses to determine a potential subset of patients who might benefit from the drug. It also is continuing a safety extension trial.

“We had a good basis to try an IL-1 beta modulator,” said CEO John Varian, who said the company obviously was disappointed in the data, mostly because there are no existing treatments for EOA of the hand, a disease caused by the breakdown of the body’s natural balance between cartilage formation and degradation, with patients suffering severe pain and morning stiffness.

Despite the data, Xoma has 240 patients who have opted to go into the safety extension study. “That’s how desperate these patients are,” he added.

‘PLAYING OUT AS PLANNED’

Because of IL-1 beta’s link to inflammation, Xoma has put up gevokizumab as a contender in multiple diseases, and EOA isn’t the first failure. In 2011, the firm, which had hoped the drug would prove efficacious in the lucrative type 2 diabetes market, reported disappointing phase IIb data, with gevokizumab failing to reduce glycosylated hemoglobin after six once-monthly treatments. (See BioWorld Today, March 24, 2011.)

But the company’s strategy has always been to cast a wide net in the drug’s development plan, Varian said. And while EOA seems out of the picture, at least for now, the company’s overall proof-of-concept program for gevokizumab is “playing out as planned,” he told investors.

“Each new piece of information informs our next decisions,” he said. “Knowing not to pursue EOA is just as important as knowing that pivotal development in pyoderma gangrenosum is warranted.”

According to Cortellis Clinical Trials Intelligence (CTI), nine additional gevokizumab studies are actively recruiting patients, including the three EYEGUARD studies. Of those, EYEGUARD B, a trial conducted by Xoma’s partner Servier, is expected to read out first.

That study is testing gevokizumab in Behçet’s uveitis patients whose disease is managed with corticosteroids. Patients are being randomized to receive drug or placebo, with steroid use tapering off, and the study endpoints are measuring time to first exacerbation. Servier has indicated that, based on current patient enrollment and progress, the primary endpoint will be reached in June, Varian said.

Xoma has been in contact with the FDA and, assuming positive data for EYEGUARD B, anticipates conducting a supplemental study to support a potential biologics license application filing in early 2015.

Under its deal with Servier, Xoma retains U.S. rights to the drug in Behçet’s, which is believed to affect about 3,000 to 7,000 patients in that country.

Meanwhile, the EYEGUARD A and C studies are testing gevokizumab in the larger non-infectious uveitis (NIU) space, but enrollment has been slower than expected. Last year, Xoma and Servier increased the number of sites to 140 total and has worked to bring in more patients. “These early decisions have helped but not fully overcome the enrollment challenges,” Varian acknowledged.

To report NIU data, the rate of enrollment would have to increase in the U.S. and “we would need a new bolus of patients” to enroll in sites outside the U.S., he said, adding that at this point “we still can’t specifically predict” when the 300-patient target will be reached for both studies.

THE NEXT OPPORTUNITY

Other studies listed in Cortellis CTI show that gevokizumab is being tested by Suresnes, France-based Servier in acute coronary syndrome patients and in atherosclerosis, by Xoma in rare condition Schnitzler syndrome and by the National Eye Institute in active scleritis. Last year, the company reported promising data in moderate to severe inflammatory acne from a phase II trial, though its plan is to focus on less prevalent but more severe indications that fall under neutrophilic dermatosis.

Its next pivotal opportunity, however, is PG, one of a cluster of diseases that comprise neutrophilic dermatosis that is characterized by the painful expanding of necrotic skin ulcers. A small pilot study yielded compelling data last year, Varian explained, and the company was granted an end-of-phase II meeting with the FDA this month, “so we’ll share the results [of that meeting] in April.”

Gevokizumab recently received orphan designation in PG. About 11,000 to 14,000 patients were treated for the disease in each of the last three years in the U.S.

Like Behçet’s, it’s an indication that Xoma could commercialize on its own in the U.S., and the firm holds full commercial rights for PG.

With potentially two pivotal programs under way in 2014, Xoma told investors to expect it to go through between $55 million and $60 million in cash this year. As of Dec. 31, the firm had about $121.6 million in the bank, including net proceeds of about $53.6 million from a December public offering. (See BioWorld Today, Dec. 16, 2013.)