Shares of Kalobios Pharmaceuticals Inc. fell by as much as one-third Thursday morning, to a 52-week low of $3.15, after the company disclosed following Wednesday’s market close that its Phase II study of KB003 missed the primary endpoint of improving FEV1 in patients with severe asthma, compared to placebo. Although the randomized, double-blind study showed the anti-GM-CSF monoclonal antibody (MAb) was generally safe and well tolerated, the South San Francisco-based company said it will halt the asthma program and confer with outside experts to determine the next steps, if any, in developing KB003.

The Phase II miss surprised Leerink Partners LLC analyst Joseph Schwartz, who surmised in a research note that the Phase II study might have failed to attain statistical significance on FEV1 due to the recruitment of a broader patient population. “In the very promising albeit small Phase I, KBIO screened for sputum eosinophils, but the large 150-patient Phase II was not able to put in place such an academic inclusion requirement,” he wrote.

The Phase II study of KB003 evaluated 160 patients randomized 1:1 between current standard of care plus either KB003 or placebo. Eligible patients were identified as severe asthma patients with at least two exacerbations in the preceding 24 months. Eligible patients also were required to be diagnosed as reversible at the time of enrollment, defined as patients whose FEV1 improved by 12 percent or more following treatment with a bronchodilator. The primary endpoint of the 24-week study was change in FEV1 from baseline, with the study powered at 80 percent to detect a 6.7 percent improvement in FEV1 compared to placebo.

On a conference call late Wednesday, Kalobios executives insisted the Phase II trial was executed as planned, noting that patients were slightly more severe than during the Phase I but otherwise met baseline criteria.

The company evaluated improvement in FEV1 compared to placebo in pre-specified subgroup analyses, showing that the Phase II study replicated Phase I/II effect among eosinophilic patients, with baseline blood eosinophils >/= 0.3 GI/L, and in patients showing high reversibility (>20 percent) at baseline, who had statistically significant improvement compared to placebo. However, other subgroups, including atopic or non-atopic patients, did not demonstrate statistically significant improvement.

Key secondary endpoints in the trial also fell short, showing no meaningful reduction in the asthma exacerbation rate among patients receiving KB003 in the overall population or in any material subgroup, compared to placebo, and no statistically significant improvement in asthma control questionnaire scores.

“The study confirmed our earlier work,” David Pritchard, president and CEO of Kalobios, told BioWorld Today. “But in the broader study, you’re looking for more breadth of activity, and we didn’t see that.”

Pritchard characterized severe asthma as a relatively large and “fairly heterogeneous” disease and said the company is examining the data for potential applications in smaller indications.

“We’ll continue to look for biomarkers that help guide us to those pockets of activity and identify patients who might benefit from a drug like this,” he said. “The whole science community is learning more about these various subgroups of asthmatics, and someone else’s work might point to reasons why certain patients responded and others didn’t. But that will take time to tease out.”

Kalobios plans to submit the full results to a scientific meeting or journal for future publication, but revisiting KB003 is not a top priority for the company. Instead, Kalobios will turn its attention to its other assets.

“One of the beauties of having a portfolio is that you accept that this program didn’t work and you move on to the next one,” Pritchard said.

‘MOST THINGS DON'T WORK’

The company has KB001-A, an anti-PcrV MAb fragment targeted against Pseudomonas aeruginosa infections, which it partnered with Sanofi Pasteur, of Paris, in 2010 in a potential $290 million deal. (See BioWorld Today, Jan. 12, 2010.)

Kalobios retained rights to the drug in cystic fibrosis (CF), an indication where it is conducting a 180-patient Phase II study in chronic P. aeruginosa lung infection in the U.S., with orphan drug designation both from the FDA and the European Medicines Agency. Meanwhile, Sanofi is pursuing a ventilator-associated pneumonia prevention indication in the intensive care setting, an indication that received FDA fast-track designation.

Pritchard called KB001-A the company’s top near-term priority, explaining that more than 80 percent of CF patients develop chronic P. aeruginosa lung infections by age 18, robbing them of 2 percent to 3 percent of their lung function each year and causing death within two decades.

Unlike standard-of-care antibiotics, which can cause resistance over time, KB001-A uses the company’s Humaneered, high-affinity, pegylated antibody, designed to attached the “killing mechanism” of P. aeruginosa and prevent the bacteria from harming host cells while preserving immune and lung epithelial cell function. “Basically, the concept is to de-toxify the Pseudomonas,” Pritchard said. “In the case of CF patients, that could be a huge benefit.”

Top-line Phase II data are expected to report in the fourth quarter.

Kalobios also has KB004, a MAb that targets the EphA3 receptor, which appears to be expressed on hematologic and solid tumor cells but not normal cells. The company completed a dose-escalation Phase I study in hematologic cancers and, in December 2013, reported a good safety profile and initial indication of efficacy at the American Society of Hematology meeting in New Orleans. The next step is to initiate a Phase II expansion in acute myeloid leukemia and myelodysplastic syndrome, expected to begin this quarter.

Dropping the KB003 program frees up approximately $10 million in R&D spend this year, Pritchard said, so the company may look at additional indications for its pipeline products. Also in the wings is early stage asset KB005, which targets and selectively depletes eosinophils and has potential applications in subsets of severe allergic asthma, chronic rhinosinusitis, eosinophilic esophagitis, COPD, inflammatory bowel disease and hypereosinophilic syndrome, according to a company SEC filing. Kalobios could use some funding to move KB005 forward this year, according to Pritchard.

The firm is committed to remaining flexible, recognizing that “most things don’t work,” he added. “Our business model prepares for that and can adapt to that.”

On Thursday, the company’s shares (NASDAQ:KBIO) lost $1.32, closing at $3.33. The high-water mark of $8.25 for the stock was reached exactly a year ago, when Kalobios completed its initial public offering. (See BioWorld Today, Feb. 1, 2013.)