Based on the first cohort of a Phase IIb trial, Panacos Pharmaceuticals Inc. will re-examine the formulation of its bevirimat tablet for HIV, a move that pushed back any timeline investors were considering for approval and hurt the firm's stock.

But during a conference call after the market closed Tuesday, the company said the problem involves finding a way to deliver the drug consistently, and is not a matter of drug efficacy or safety.

The cohort in the bevirimat (PA-457) trial, which tested patients failing HIV therapy because of drug resistance, showed drug plasma concentrations were lower than expected, thereby weakening viral load reduction. The company hopes to continue dosing in a Phase IIb trial after talks with the FDA, but investors are more worried about pivotal trials and approval, and while "the delay in initiation of Phase III could be a quarter or less," said Graham Allaway, Panacos' president and chief operating officer, it also could be "nine to 12 months."

For those investors looking short term, that was unwelcome news, and the stock (NASDAQ:PANC) fell $1.75 Wednesday, or 30.7 percent, to close at $3.94.

Bevirimat is a maturation inhibitor, an oral product that targets a step in the HIV lifecycle. It is designed to be effective against a range of HIV, including those strains resistant to existing therapies. To date, the compound has undergone seven clinical studies and in more than 300 patients. But now a glitch has surfaced in Panacos' attempt to morph the oral solution into a tablet.

The history behind the first Phase IIb cohort starts in a Phase IIa study cohort of patients given 200-mg bevirimat solution. After 10 days of monotherapy, the patients achieved a median 1 log10 viral load reduction. A clinical bioavailability study had shown that the tablet formulation had about 60 percent oral bioavailability of the solution, so Panacos, of Watertown, Mass., chose a 400-mg tablet for the Phase IIb.

But bevirimat plasma levels in the first cohort of the Phase IIb study were about half what was expected, more similar to levels seen in patients on the 100-mg oral solution cohort dosed in the Phase IIa. The lower plasma concentrations meant lower antiviral responses, too: At day 15, the mean viral load reduction was 0.36 log10 in bevirimat-treated patients, compared to 0.02 log10 reduction for placebo.

Other data showed that three patients on bevirimat had greater than 1 log10 reduction in viral load and continued on to the extended dosing portion of the study, including two who achieved an undetectable level of virus (less than 400 viral copies/ml). One other patient who had a viral load change of just less than 1 log10 on day 15 was continued on therapy by special investigator request.

The drug was considered safe, and although one patient withdrew from the trial, it was not related to bevirimat.

Where does this leave Panacos? In the conference call, Allaway said that the company now "has seen more variability in the pharmacokinetics in this tablet, both between patients and between studies," which suggests that the pill "does not always deliver a full or predictable payload" of drug. While the company said it has "been working for some time" on new tablet formulations for late-stage trials and commercialization, for now it is submitting a proposal to the FDA for continuing bevirimat dose escalation in Phase IIb "as soon as possible" while developing an optimized formulation for commercialization.

An analyst on the call wondered if perhaps it might be best to "take a deep breath" and not move rapidly in both directions, but Panacos management disagreed.

There are other potential reasons for the variability seen in the Phase IIb, but Panacos shot most of them down during the conference call. It isn't because of a different patient population, Allaway said, nor can the disparity be blamed on the difference in tablets used in the bioavailability studies and in the Phase IIb. Concomitant HIV therapy is not the culprit either, he said.

All of the company's "results and the results of previous studies" point to "the current tablet formulation not delivering bevirimat effectively," Allaway said.

Following talks with FDA, Panacos will update The Street in the first quarter. But The Street, for its part, has not been kind to Panacos this week, stripping away more than $117 million in market cap. However, the company had cash of about $66 million as of Sept. 30, and CEO Peyton Marshall said the firm's financial plans for 2007 are "designed to keep our burn at approximately current rates," unless strong Phase IIb results kick the company into high gear as it approaches pivotal work.

Panacos lost about $7.9 million in the third quarter and will give guidance for 2007 in its February earnings call. It also has said it will file an investigational new drug application for a second-generation HIV maturation inhibitor by the end of 2006, and Tuesday's news does not change that. Lower in the pipeline, the firm has an HIV fusion inhibitor in preclinical work, and a third-generation HIV maturation inhibitor at the research level.