By Kim Coghill

Washington Editor

Genelabs Technologies Inc.¿s stock took a nosedive for the second time in two months due to ¿disappointing¿ news about its fast-track orphan drug candidate known as Aslera.

The stock started on a downward spiral after the Redwood City, Calif.-based company said Tuesday it had received a ¿not approvable¿ letter from the FDA citing ¿various issues¿ related to Aslera (prasterone). The drug is used to treat women with mild to moderate systemic lupus erythematosus (SLE, or lupus). If approved, Aslera will be the first new treatment for SLE in 40 years leading analysts to believe the product could sell up to $75 million at its peak.

¿I would say this is disappointing, but it is a normal part of the review process,¿ James A.D. Smith, Genelabs¿ president told BioWorld Today. ¿I can¿t think of [a new drug application] that hasn¿t been found to be deficient in one way or another through the review process and in need of a supplement. That¿s where we are and we will continue to work with the agency.¿

Genelabs¿ stock (NASDAQ:GNLB) closed Wednesday at $1.95, down $1.52 or 43.8 percent. In the last year, it has traded between $1.34 and $8.875. The stock hit a low on April 18 when an FDA review led investors to believe trial data did not support approval of Aslera. The following day, the FDA¿s Arthritis Advisory Committee heard arguments for Aslera, but was not asked by the FDA to recommend approval of the product. (See BioWorld Today, April 20, 2001.)

Genelabs, a small-molecule drug developer, licensed marketing rights of Aslera in North America to Watson Pharmaceuticals Inc., of Corona, Calif. Watson¿s stock (NYSE:WPI) closed Wednesday at $62, up 77 cents or 1.26 percent.

When asked about details of the FDA¿s letter, Smith said, ¿I would say the issues were largely the same issues that the agency brought forward in the advisory committee on April 19. It was our sense that the committee gave some very positive and constructive feedback to the agency at that time. [The committee] did not vote whether it would recommend approval or not, but it did vote on a number of other issues, such as certain interpretations of the data, in fact some of the same things that were raised in this non-approval letter.¿

Elliot Wilbur, a research analyst with CIBC World Markets in New York, said the drug appears to have a modest efficacy, ¿but I don¿t know what was in the letter. Obviously, this is a difficult patient population to begin with, and there¿s no established trial design.¿

He said Aslera appeared to show efficacy when patients were separated into certain subgroups. ¿If the panel had voted, they would have voted to recommend,¿ Wilbur said.

Genelabs¿ next step, Smith said, is to meet with the FDA and discuss the issues raised to determine how the company can move toward an approvable NDA.

¿Principally, the issues are related to interpretation of the data as it relates to efficacy and safety in the product,¿ Smith said, adding that he has no indication of when Genelabs and the FDA will meet.

¿Our intention would be to meet with them promptly, but it will depend on availability among other things,¿ Smith said. ¿We still very strongly believe in the product, as does Watson.¿

According to its agreement with Watson, Genelabs will be paid fees and milestones up to $55 million, including a $10 million nonrefundable initial license fee with milestones payable upon FDA approval of Aslera. Genelabs also is scheduled to receive royalties on net sales of Aslera and retains future co-marketing rights. (See BioWorld Today, Nov. 14, 2000.)

The collaboration deal also called for Watson to purchase 3 million unregistered shares of Genelabs common stock for an aggregate purchase price of about $6.85 per share, or $205 million. Watson has a five-year warrant to purchase 500,000 additional Genelabs common stock exercisable at $6.86 per share.

Aslera is an orally administered, highly purified prasterone, which is the synthetic equivalent of dehydroepiandrosterone, or DHEA, a naturally occurring hormone. In late October, Genelabs was notified that Aslera had received FDA priority-review designation.

In double-blind, placebo-controlled Phase III trials, Aslera showed the ability to improve SLE and reduce steroid requirements in women with lupus. (See BioWorld Today, Sept. 22, 1999; Nov. 23, 1999; and July 12, 2000.)

SLE is an autoimmune disease affecting about 1 million people worldwide. It causes severe fatigue, arthritis, facial rash and unusual sensitivity to sunlight. It can lead to serious inflammation of the lungs, heart and brain, as well as kidney failure.

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