By Lisa Seachrist

Preliminary results show that Genentech Inc.¿s pivotal Phase III trial testing recombinant human nerve growth factor (rhNGF) as a treatment for diabetic neuropathy has failed to show a statistically significant benefit for patients.

In a separate development, disclosed at the same time, South San Francisco-based Genentech said it was proposing a guilty plea ¿ and payment of a $50 million fine ¿ related to the criminal charge that the company inappropriately promoted human growth hormone (HGH) during the late 1980s and early 1990s.

Wall Street took the news in stride. Genentech¿s stock (NYSE:GNE) closed Friday at $84.812, down $0.687, or less than 1 percent.

As a result of the Phase III study¿s failure, Genentech said it will not file a biologics license application for the product, and is assessing whether to continue to develop the drug.

¿Obviously, we¿re disappointed,¿ said Michelle Truelson, media spokesperson for Genentech. ¿We are currently in the process of conducting a full data analysis, and should know over the next few weeks what we will do.¿

Genentech was developing rhNGF as treatment to reverse the nerve damage that results from chronically high blood pressure, known as diabetic peripheral neuropathy. The condition often causes pain, an inability to sense hot or cold, and disability.

The company tested the drug in a Phase III multicenter study of 1,019 patients in the U.S. with either Type I or Type II diabetes with diabetic neuropathy. Patients were randomized to receive either rhNGF or a placebo.

The researchers evaluated the patients after 12 months of therapy to determine nerve function improvements using a quantitative neurological exam, the Neuropathy Impairment Score of the Lower Limbs. Patients receiving rhNGF did not show any more improvement in these scores than patients who received the placebo.

The company has only conducted its preliminary analysis on the primary endpoint, and will examine the drug¿s effect in secondary endpoints within the next few weeks. Truelson noted that there were no safety concerns with the drug.

Regarding the HGH claims, Genentech said it is negotiating a deal with the U.S. Attorney for the Northern District of California.

Under the terms of the negotiation, which has not yet been concluded, Genentech would plead guilty to the charges and pay $50 million in a criminal fine and restitution. The court still needs to approve any settlement of the charges.

¿Rather than taking this matter to trial, we want to settle the charges so that we can really focus on the future,¿ said company spokeswoman Laura Leber.

The criminal charges stem from off-label promotional practices by Genentech and its sales force from 1985 to 1994, in the promotion of its rHGH products Protropin, for growth-hormone deficiency in children, and Nutropin and Nutropin AQ, for growth-hormone deficiency in children and adults, as well as growth failure associated with chronic renal insufficiency, and short stature associated with Turner syndrome.

The FDA claimed that the company was promoting the drug for non-approved uses.

In 1994, Genentech took a number of actions to address the FDA¿s concerns, including training programs for their sales and marketing forces and a campaign to educate physicians about the approved uses of the drug as well as the need for extensive follow-up.

The company, whose earnings are expected to be reported today, will take a $50 million charge against first-quarter earnings to account for the potential settlement. Once the settlement is final, adjustments to the figure will be made.

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