Editor

"A spoonful of sugar makes the medicine go down," sang Mary Poppins in the 1964 children's movie about a nanny who floated from the sky clutching an open umbrella, but nothing helped investors swallow last week's bitter news from the FDA regarding two companies that had their late-stage parades rained on.

In both cases, the problem was dosing.

Neurocrine Biosciences Inc. watched its stock value tumble 62 percent the day word hit Wall Street that the FDA delayed approving an immediate-release version of the sleep drug indiplon and rejected a modified-release formulation. The agency declared 5-mg and 10-mg capsules of immediate-release indiplon approvable (though they might require more work) and rejected without comment the 15-mg modified-release tablets.

In a separate case, Dyax Corp. was hit less hard by disclosure of news that the FDA likely wants more clinical data on DX-88, Dyax's kallikrein inhibitor for hereditary angioedema (HAE), which could require a dose-ranging study to gain marketing clearance. The company's stock fell more than 16 percent.

Neurocrine, which said meetings with the FDA should clarify the agency's position shortly, began filing for approval of immediate-release indiplon about a year and a half ago and submitted a separate new drug application for the modified-release formulation shortly after. Indiplon's Phase III program included no fewer than 16 trials.

Partnered with Pfizer Inc., the non-benzodiazapine agent was the focus of an agreement signed in late 2002 worth up to $400 million, with Neurocrine getting $100 million up front. Another $30 million milestone payment was due if the immediate-release capsules had been approved and a $75 million milestone payment would come for the modified-release tablets' clearance.

Bret Holley, analyst with CIBC World Markets, downgraded Neurocrine from "sector outperform" to "sector perform" and removed his $77 price target. (The company was trading around $19, after a 52-week high of $73.13.) Neurocrine and Pfizer, Holley noted in a research report, do not plan to launch the 5-mg or 10-mg version without approval of the 15-mg form. He called launch timelines "difficult to assess" given the scanty current information, but said 2008 might be a better guess than Neurocrine's mid-2007 estimate.

The indiplon action had ripples. DOV Pharmaceuticals Inc., which in-licensed the drug from Wyeth, gets a 3.5 percent royalty on worldwide sales through an arrangement with Neurocrine. But DOV was already hurting from the failure in top-line Phase III data of bicifadine, the analgesic for chronic low back pain.

"Indiplon's delay removes [DOV's] most important near-term catalyst," Holley wrote in a report, downgrading DOV's stock to "market perform" as well, and recommending that investors hold the stock until more is known about the fate of the Neurocrine compound.

Dyax's situation is different, said Katherine Xu, analyst with Pacific Growth Equities.

"This is not something like Neurocrine, where they didn't study the dose well enough," she said. "In Dyax's case, they had a pretty strong study, the dose-ranging study" with an intravenous version of DX-88, although the version for which the company seeks approval is given subcutaneously.

"Technically, they did not do a dose-ranging study with the [subcutaneous drug]," Xu allowed, but called the IV study "theoretically equivalent" and pointed out that the FDA's Center for Biologics Evaluation and Research (CBER) division had no problem with the approach.

But another part of the agency did - the Center for Drug Evaluation and Research (CDER), to which DX-88 was transferred as part of the FDA's consolidation plan. As Dyax's Phase III study with 30 mg of subcutaneous DX-88 goes on, CDER is asking questions about the rationale for the dosing, though (as in the case of Neurocrine) not much is known about the details.

Dyax said a dose-ranging study of DX-88 might be needed to gain marketing clearance, but the finish date for an ongoing EDEMA3 trial is still set for this year.

The company is hardly alone in the HAE space. Jerini AG has randomized the last patient in its Phase III trial with Icatibant, a synthetic peptidomimetic, for the condition, and Jerini said it expects to offer top-line data from two Phase III studies in the third quarter. Specialty pharma firm Kos Life Sciences Inc. last year paid €22 million (then about US$27 million) for rights to develop, market and distribute the bradykinin B2 receptor antagonist.

"Jerini did a dose-ranging study, and they [tested] eight patients," said Xu, who was perplexed by CDER's concern. "If that's the case, Dyax could finish such a study in a couple of weeks. But what can you learn from an eight-patient study?"

Xu was optimistic about DX-88 in the market race with Jerini's compound, predicting they will reach the market within a few months of each other. Both have orphan drug status but could coexist on the market because of differing mechanisms of action.

"In terms of top-line data releases, they are similar," she allowed, and Jerini "will file a new drug application before the end of the year. Dyax can probably not do that."

But Xu pointed to Dyax's marketing partner, Genzyme Corp., as a strong advantage.

"Nobody has more experience [than Genzyme] in marketing orphan drugs and getting reimbursements," she said, adding that "Dyax has a dominant mind-share in the [physician] community, and it's an easier battle for them in the U.S." Jerini is marketing in Europe by itself, she noted.

Lev Pharmaceuticals Inc. kicked off a Phase III trial with its C1-esterase inhibitor for HAE in the first quarter of last year, and the drug, like DX-88, has been designated fast-track by the FDA.

Also, Pharming Group a year ago reported positive results from Phase II/III studies with its C1 inhibitor against HAE, and in February entered a $30 million partnership with affiliates of Paul Royalty Fund in return for a share of the lead product's eventual sales.

But many eyes are on the Dyax race with Jerini. Xu predicted the future HAE market will have those two companies' drugs, and an intravenous C1-esterase inhibitor, with Dyax taking $200 million of the $500 million market, Jerini taking $100 million, and the C1-esterase product getting the rest.

"I think it works out," she said, adding that Dyax might later conduct a head-to-head trial with Jerini's compound to help in marketing.

In the meantime, "Dyax may fall behind, but would that be serious? Would the stock be justified at this level? No." She said the worst-case scenario for Dyax is a six-month delay, and she called that "very unlikely."

After the DX-88 news, Dyax was trading at $2.90, down 57 cents, well under the 52-week low of $3.51, which Xu said was "a steal for longer-term investors - not just [those aboard for] the next four months but for the next year."