Shares of Aspreva Pharmaceuticals Corp. sank to a new 52-week low on Wednesday after the company disclosed that the induction portion of a Phase III clinical trial of CellCept (oral mycophenolate mofetil) in lupus nephritis missed its primary endpoint.

The 370-patient, 24-week, randomized, open-label study failed to prove that CellCept was superior to intravenous cyclophosphamide (IVC), a cancer drug used off-label in lupus nephritis and widely considered to be the current standard of care. Instead, the two drugs showed similar response rates, as defined by a decrease in proteinuria and the stabilization or improvement of serum creatinine, with 56.2 percent in the CellCept arm and 53 percent in the IVC arm.

On a conference call, Usman Azam, Aspreva's executive vice president and chief medical officer, said the company is "seeing patterns in the data" regarding secondary endpoints, such as remission, which indicate CellCept has a "numerical advantage" over IVC. He added that the CellCept arm had fewer adverse events, although the overall incidence was comparable between the two arms.

Moving forward, Aspreva has randomized 197 patients into the double-blind, three-year maintenance portion of the trial, which will compare CellCept to azathioprine in maintaining remission and renal function in lupus nephritis patients. Aspreva management emphasized that analyses are ongoing to determine whether the company will file for FDA approval based on the results of the induction portion of the trial.

But regardless of whether CellCept actually gains approval for lupus, Aspreva is generating healthy revenues from off-label use of the drug to treat lupus and other autoimmune diseases.

The arrangement stems from a 2003 deal in which Victoria, Canada-based Aspreva licensed CellCept rights in autoimmune disease applications from F. Hoffmann-La Roche Ltd., of Basel, Switzerland. So while Roche markets CellCept for the prevention of rejection in kidney, heart and liver transplants, Aspreva sits back and collects a royalty for off-label autoimmune prescriptions.

"Aspreva doesn't pay cost of goods, so it's been extremely profitable for them," said Liana Moussatos, analyst with Pacific Growth Equities LLC. Aspreva collected $215 million in royalty revenue from Roche in 2006 and $59.3 million in the first quarter of 2007. Those royalties drove net earnings of $36.4 million, or $1.03 per share, in the first quarter, which Aspreva ended with a healthy cash balance of $277.2 million.

Aspreva is guiding for full-year 2007 revenues of $245 million, which executive vice president and CFO Bruce Cousins did not change following the lupus nephritis failure. Cousins said Aspreva would update its guidance "when needed," adding that its revenues are "not linked to regulatory approval."

Those revenues helped temper investor reaction to Wednesday's news. Even though shares of Aspreva (NASDAQ:ASPV) dipped to a new low of $16.60 before closing at $17.13, the overall decline of 10 percent, or $1.90, was relatively minor for a biotech Phase III set-back.

Similarly, when CellCept failed a Phase III trial in the autoimmune indication of myasthenia gravis last fall, shares fell only 14 percent, even though Aspreva discontinued work in the indication. (See BioWorld Today, Oct. 30, 2006.)

Moussatos told BioWorld Today she expects Aspreva's off-label revenues from the use of CellCept in lupus nephritis to continue despite the drug's lack of superiority to IVC. She added that physicians prefer CellCept for some patients because it has not been associated with hair loss and sterility, as IVC has.

Even so, she downgraded the company to "neutral" from "buy" and lowered her fair price estimate to $18.86 from about $31 after removing management's guidance of 20 percent year-over-year royalty growth from her model.

Instead, she projected flat CellCept sales until the U.S. patent expiration in 2009. She also noted that the trial failure may inhibit a formal approval, and payers might push back on the $7,000 per year price of CellCept, compared to the $1,000 per year price of IVC.

Han Li, analyst with Stanford Group Co., maintained his "buy" rating, although he lowered his 12-month price target to $25 from $28. In a report, he called Wednesday's sell-off a "buying opportunity" and noted that the equivalent efficacy shown in the Phase III trial "will be sufficient to capture market share as [CellCept] has already been shown to be more tolerable than IVC."

Both analysts predicted that Aspreva may announce one to two additional licensing deals in 2007. Data from an ongoing Phase III trial in the autoimmune skin disease pemphigus vulgaris are expected next year.