Targeted Genetics Corp.'s stock plummeted 35 percent Thursday following the company's decision to discontinue development of its lead cystic fibrosis drug.

A Phase IIb study of tgAAVCF in patients with mild to moderate CF missed its primary endpoint of a statistically significant improvement in lung function. While a smaller Phase IIa study showed quite the opposite in mid-2003, with a "p" value of 0.05, the results did not translate to the larger Phase IIb, which had a "p" value greater than 0.1.

"Obviously, we're pretty disappointed with these results," said H. Stewart Parker, president and CEO of the Seattle-based company. "But as disappointed as we are that the study did not achieve its primary endpoint, we do think our efforts to develop tgAAVCF have enabled us to learn a great deal about AAV-based delivery technologies, and to establish an advanced AAV manufacturing capability."

The company's stock (NASDAQ:TGEN) fell 45 cents Thursday, or 35.4 percent, to close at 82 cents.

While the Phase IIa trial involved only 36 patients, the Phase IIb trial included 102 patients more than the age of 12 who were equally split between the treatment and placebo groups. The top-line results evaluated the improvement in FEV1 lung function at 30 days following the administration of tgAAVCF compared to placebo. The trial also evaluated safety and tolerability, as well as lung function improvement at day 90, or 60 days following the administration of a second dose. Patients received the doses of tgAAVCF or placebo via a nebulizer and were evaluated every two weeks over the 90-day period. The product was designed to deliver a functional copy of the cystic fibrosis transmembrane regulator gene to the lung epithelium.

Data from the 90-day endpoint are still being analyzed, but Parker said it is unlikely that it will reach statistical significance. Targeted Genetics intends to collect safety data through the end of the study, and it will present the complete data in a peer-reviewed forum later this year.

Parker said the company will try to find out why results from the Phase IIa did not carry over to the Phase IIb trial, but she does not believe it had anything to do with the use of adeno-associated virus (AAV).

"We feel absolutely confident that the results we saw today were not from the fact that it was an AAV vector," she said. "I think you can draw no conclusions from this result in terms of the viability of AAV."

Targeted Genetics has significantly expanded its AAV-related development capabilities and infrastructure through the development of tgAAVCF. Parker said the knowledge will be leveraged into the company's other clinical programs.

Its vaccine candidate designed to protect against AIDS, tgAAC09, met its primary safety endpoint and was well tolerated in a recently completed Phase I trial. The product is being developed in collaboration with the International Aids Vaccine Initiative and researchers at Columbus Children's Research Institute. Targeted Genetics recently expanded the program into India and is preparing to evaluate a higher dose of the product.

Another product in development, tgAAC94, entered a double-blind, placebo-controlled, dose-escalating Phase I trial last year for inflammatory arthritis. The study is ongoing at eight sites in the U.S. and Canada, and results are expected in the middle of this year.

In January, Targeted Genetics established two collaborations using its AAV-delivery platform for preclinical programs. The first was formed with Celladon Corp., of La Jolla, Calif., to develop gene therapies in congestive heart failure, while the second was established with Boulder, Colo.-based Sirna Therapeutics Inc. to develop a therapy to treat Huntington's disease.

"All in all, despite the news today, we feel we have a strong product portfolio with significant commercial opportunity," Parker said, "and our task now will be to double our efforts to move these programs along expeditiously."

Going forward, the discontinuation of the tgAAVCF development program will have little impact on the company's expected burn rate of $22 million to $24 million in 2005. Cystic Fibrosis Foundation Therapeutics Inc. paid for the Phase II trials of the product, and the money the company expected to spend for clinical supply manufacturing now will go to other products.

"What we'll likely do now is dedicate those resources to manufacturing on some of the other programs," said Todd Simpson, the company's vice president of finance and administration, and chief financial officer. "So it won't so much eliminate burn, it will just reallocate things."

As of Dec. 31, Targeted Genetics had $34.1 million in cash and cash equivalents. The company raised $25.5 million in a public offering last year. (See BioWorld Today, Feb. 3, 2004.)