By Lisa Seachrist

Washington Editor

AutoImmune Inc.'s stock fell 74 percent on the news that its lead drug candidate, Colloral, for the treatment of rheumatoid arthritis failed to provide benefit greater than placebo in a pivotal Phase III study.

The company's stock (NASDAQ:AIMM) fell $2.50 to close at 87.5 cents per share. The company has about $15 million cash on hand.

"We are highly disappointed," said Robert Bishop, CEO and chairman of the board at AutoImmune. "As I look back on this trial, I think we did all the right things, it just didn't work out. I am very proud of this company and the job it did. This is now a difficult thing to do."

Just two years ago, the Lexington, Mass.-based company slashed its work force by 31 percent in the wake of the Phase III failure of its multiple sclerosis drug, Myloral (see BioWorld Today, June 16, 1997, p. 1). AutoImmune will be cutting its work force from 27 to eight over the next few days and liquidating its hard assets to conserve cash while the company's management decides how to proceed.

"Their future doesn't look promising," said Carl Gordon, an analyst with OrbiMed Advisors LLC in New York. "That's two times up to bat and two failures. That's pretty hard to recover from."

The company has ongoing Phase II trials testing AI-401, an oral recombinant form of human insulin, for Type I diabetes. That program was partnered with Eli Lilly and Co., of Indianapolis, until Lilly dropped out in April. AutoImmune also has a pilot study of AI-502 in transplant rejection. And the company's AI-401 is part of a large National Institutes of Health study testing if small doses of oral insulin can prevent the onset of Type I diabetes. Bishop noted all the trials are fully funded.

AutoImmune also is in a deal with Jerusalem-based Teva Pharmaceuticals Industries Ltd. to develop an oral formulation of Teva's multiple sclerosis drug, Copaxone, and to develop a therapy for myasthenia gravis. AutoImmune could receive up to $20 million in milestone payments from that collaboration. (See BioWorld Today, Feb. 24, 1999, p. 1.)

"There are several potential opportunities for us," Bishop said. "We could combine with another company or wait for results from the new-onset diabetes trial, which could provide us with another opportunity."

AutoImmune was founded to develop "oral tolerance" drugs. The technology is based upon the body's ability to take in foreign proteins and not trigger a broad immune attack against those proteins. In very selective doses, the proteins are processed in the gut and trigger production of regulatory T cells, which then move through the body to suppress autoimmune attacks against self proteins.

Colloral is a natural source of Type II collagen taken from the breastbone of a chicken. The premise of the drug was to allow patients to develop tolerance to collagen and turn off the immune attack against the collagen in joints.

The Phase III study failed to show that Colloral reduced the signs and symptoms of rheumatoid arthritis any better than placebo.

"In this study we saw a placebo effect two times greater than we had seen in any other study of this drug," Bishop said. "We had consistently beaten placebo in all of our other studies of the drug. The only thing I can say is the placebo effect is real biology and can be quite powerful."

Colloral will never become a pharmaceutical product; however, Bishop indicated the company was considering marketing the product as a "nutraceutical," or dietary supplement.

Because there are no current means to measure whether a drug or protein has triggered an immune response in a patient, Bishop noted it was extremely difficult to test the drug. In addition, he said the oral route of delivery may not be the most effective and that the company was testing nasal delivery as a means of stimulating the mucosal immunity needed for tolerance.

"We may have just been premature in our efforts," Bishop said. "I believe in the long term there will be developments in the state of the art to the point [immune tolerance] will be developed as a therapy for human disease."