By Brady Huggett

The news of disappointing Phase III results for human recombinant relaxin for scleroderma sent Connetics Corp.'s stock plummeting 79 percent Monday, a drop the company said is unwarranted.

"We're disappointed in the results," said Thomas Wiggans, president and CEO of Connetics. "We are disappointed for the physicians and we are extremely disappointed for the patients that have [scleroderma]. But we have a strong balance sheet. It does not change our mission, it does not change our direction."

Connetics' stock (NASDAQ:CNCT) closed Monday at $5.312, down $20.187, in trading of more than 20 million shares, 46 times the normal volume.

Palo Alto, Calif.-based Connetic's Phase III trial on relaxin for the treatment of diffuse systemic sclerosis, or scleroderma, did not meet its primary endpoint. The 24-week trial involved 239 patients with stable, moderate-to-severe diffuse scleroderma of less than five years duration. Patients were divided into three groups: placebo, 10 micrograms per kilogram per day of relaxin by continuous subcutaneous infusion, and 25 micrograms per kilogram per day.

Using the Modified Rodnan Skin Score, patients receiving placebo had a mean reduction in skin score of 4.9. Patients receiving 10 micrograms of relaxin had a mean reduction of 4.3 and those receiving 25 micrograms had a mean reduction of 5.2.

Based on those numbers, Connetics said it will not file a biologics license application for relaxin in the treatment of scleroderma. While not good news, Wiggans said the reaction on the stock market is knee-jerk.

"We think it is grossly overblown," Wiggans said. "We are extremely surprised at the [stock drop]."

Others had a similar sentiment.

"The stock is simply overacting today," said Rachel Leheny, an analyst with Lehman Brothers who covers Connetics. "Their stock has a $10 value in dermatology alone. The market is reacting to the bad news. [Connetics] isn't going to go under; they're a good company."

Relaxin (formerly called ConXn, and licensed from Genentech Inc.) is a naturally occurring protein in the human body and has three major biological effects. It acts as an antifibrotic, decreasing connective tissue formation; promotes blood vessel formation; and dilates blood vessels. The Phase III trial for scleroderma didn't give results Connetics wanted, but it did highlight the angiogenic and vasodilatory effects of relaxin, Wiggans said.

"What we saw in the trial did not surprise us," Wiggans said. "We had programs following those directions already in place."

Connetics has a Phase II clinical study in peripheral arterial disease to evaluate the safety and efficacy of relaxin in adults with peripheral arterial disease who recently underwent surgical revascularization of a lower extremity, and who have at least one unhealed lower extremity wound or an unhealed operative wound. The company also is developing a Phase II clinical study protocol designed to examine the ability of relaxin to increase the embryonic implantation rate and successful pregnancy outcome in infertile women undergoing in vitro fertilization or intracytoplasmic sperm injection.

The company already has two products that have gained FDA approval.

Wiggans said the company will launch Olux, a super-high-potency corticosteroid in a topical foam form, in a few weeks. The FDA approved the product in May for short-term topical treatment of the inflammatory and puritic manifestations of moderate-to-severe corticosteroid-responsiveness scalp dermatoses. Luxiq (betamethasone valerate) foam, 0.12 percent - a mid-potency corticosteroid - was approved in February 1999 for the treatment of corticosteroid-responsive dermatoses of the scalp, or moderate psoriasis.

Connetics also has in development an antibiotic foam and retinoid Liquipatch, both for acne, and a Minoxidil foam for hair loss. Wiggans said the company has $80 million in cash and marketable securities and expects to spend $15 million in the next year, putting it in a solid position financially.

"Clearly, relaxin for scleroderma was important to us," Wiggans said. "But we have a strong pipeline, we have [Olux] that we are going to launch. The company is financially strong and is going to continue to grow."

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