BioWorld International Correspondent

Diamyd Medical AB lost around 40 percent of its value Monday on news that it had to jettison a Phase II/III clinical trial of Diamyd, a therapeutic vaccine in development for treating autoimmune diabetes.

A combination of poor trial design and poor execution has forced the Stockholm, Sweden-based company to invalidate the study, which had enrolled 160 volunteers with Latent Autoimmune Diabetes in Adults (LADA), a form of Type I diabetes that is slower in onset and more difficult to detect than the more typical manifestation of the condition.

The stock (OTC:DMYDF) closed Monday at SEK92.75 (US$13.20), down SEK62.25 or 40 percent from its previous close of SEK155. It continued to drop yesterday, hitting SEK81.75 by early afternoon.

The main problem was that the vaccine, which is based on a recombinant version of Glutamic Acid Decarboxylase-65 (GAD65), may have been confused with the placebo during the trial. "An independent audit of the central pharmacy that was handling the Investigational Product (Diamyd and placebo) concluded that it was impossible to guarantee [the] absolute identity of the contents of each vial of the Investigational Product administered to the patients," a company news release stated.

The audit was prompted by significant discrepancies in efficacy data between two 80-patient cohorts that had been enrolled at different times. It found breaches of clinical guidelines set by the International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH), Diamyd CEO Anders Essen-Moller told BioWorld International. "The auditor [made] two critical observations that had to do with color coding [of drug vials]," he said.

"It's extremely surprising - totally unexpected," Per Benhult, analyst at Stockholm-based equity analysis firm Stockpicker AB, told BioWorld International. "Of course it comes at a very bad time. The company is negotiating with pharmaceutical companies, and this setback might weaken their negotiating power somewhat, depending on exactly what is included in ongoing negotiations."

An additional, confounding factor was the fact that the trial, which was conducted at 15 centers in Sweden, did not measure levels of meal-stimulated C-peptide. It focused instead on levels of glycosylated hemoglobin (HbA1c), a parameter that provides a measure of average, historic blood sugar levels over several preceding months. However, LADA patients who are receiving insulin sensitizing drugs may, if they respond well to treatment, have near-normal HbA1c levels. Therefore, the action of the drug on the autoimmune component of the condition may not be captured via this measure.

"When we started the study, meal-stimulated C-peptide was not allowed as an endpoint by the FDA," Essen-Moller said. However, it is now regarded as the best means of measuring pancreatic beta cell function in Type I diabetes patients, and not including the parameter in the trial design was "a mistake," he said.

Diamyd's therapeutic strategy is based on achieving tolerance to GAD65, a major autoantigen in Type I diabetes. The antigen is injected subcutaneously, along with the adjuvant alum, and is taken up by antigen presenting dendritic cells in the skin. That is thought to trigger a T-cell suppressor response, which dampens down the autoimmune response to GAD65.

No adverse events were reported during the trial, and the company said that it will continue its analysis of the study in order to build its safety database. But its main focus now will shift to a parallel program involving the use of Diamyd in Type I diabetes. A Phase II clinical trial involving 70 recently diagnosed patients indicated that the vaccine induced an immune response and stimulated insulin levels.

The company hopes to commence a Phase III clinical trial of Diamyd in the same indication in the U.S. later this year. Negotiations with the FDA are ongoing, and Essen-Moller said he "hopes" the current setback will not prejudice these discussions.

Preliminary contact with prospective partners indicates that they may not be deterred by the latest news. "We hope not. We are talking to big pharmaceutical companies whose main interest is Type I diabetes," Essen-Moller said.

The study cost Diamyd SEK30 million, Essen-Moller said, and the company currently has about SEK80 million on its balance sheet. It has not yet considered litigation against the pharmacy group as route for recouping its costs.