By Debbie Strickland

Upwards of 20 drugs have entered septic shock trials since 1980, and all have failed. This time the company hit hard is Celltech Group plc, whose stock sank 50 percent Tuesday on news that BAYX-1351 failed to beat placebo in a Phase III trial whose key endpoint was mortality.

With 1,900 patients, the company called it "the largest study ever undertaken in septic shock."

Half of the patients received "the best possible current treatment," and half received that treatment plus 7.5 mg/kg of BAYX-1351, given as a single infusion.

Previous trials, including a 420-patient Phase I/II European trial completed in 1994, had indicated "trends toward efficacy."

"We are saddened by this failure, but continue to be upbeat about the company," said Peter Allen, finance director for the Slough-based company. "Celltech is well funded."

The company has £41 million in cash, plus £10.5 million due at the end of the year from the £50 million sale of its Celltech Biologics manufacturing division to Alusuisse-Lonza AG, of Zurich. Celltech's burn rate is about £11 million.

Moreover, the company receives annual royalty fees of about £1 million and has ongoing collaborations with eight pharmaceutical and biotech companies, including an up-to-$48.8 million agreement with Merck & Co. Inc., of Whitehouse Station, N.J., to develop a phosphodiesterase inhibitor to treat asthma.

Allen called investor reaction to the bad news "excessive."

The company's septic-shock development partner is Bayer AG, of Leverkusen, Germany. Bayer originally licensed the compound--a monoclonal antibody that binds to and neutralizes tumor necrosis factor--from Chiron Corp. in 1989. Celltech sub-licensed marketing rights in the U.K., Ireland and France as part of a 1992 development and marketing agreement.

Celltech has received £15.7 million in support from Bayer, according to Allen, and the pharma company performed the Phase III trial.

Bayer and Celltech will likely abandon pursuit of the septic shock indication, though Celltech said it intends to continue trials of a second-generation related drug, BAY 10-3356, as a treatment for Crohn's disease, rheumatoid arthritis, inflammatory bowel disease and ulcerative colitis. The company has filed an investigational new drug application with the FDA to begin a Phase II study for Crohn's disease patients.

The relationship between the partners is now "under discussion," said Don Hyman, a spokesman for Bayer Corp., the company's Pittsburgh-based U.S. subsidiary, which was involved in the development and clinical trials of BAYX-1351.

Chiron, the compound's developer, emerged relatively unscathed, its stock (NASDAQ:CHIR) closing at $19.125, down $0.50.

"Chiron received a small up-front payment," said spokeswoman Kim Sankaran, "but didn't continue to invest in the product."

The Emeryville, Calif., company would have received royalties if the treatment had been commercialized, but those payments were not built into current or near-term revenue forecasts.

Septic shock usually arises as a result of severe sepsis following a bacterial or fungal infection. Mortality is 40 to 50 percent.

Worldwide, Celltech estimates there are more than half a million cases of septic shock annually, with 80,000 in the three countries where the company has marketing rights.

Though Celltech's stock took a beating Wednesday, analyst reactions were mixed. London's Greig Middleton firm even issued a "strong buy" report late in the afternoon.

"We believe the reaction to the trial failure has been overdone and below 400 pence we rate the shares as a strong buy," the report states. At one point the shares were trading at 305 pence.

Greig Middlton projects operating profits by 2000.

Analyst Ian Smith, of Lehman Brothers' London office, likewise projects profitability will be postponed by a couple of years.

"I don't see a lot of upside at the moment," he said. Though the stock's plunge left it undervalued, Smith said, his recommendation is "neutral."

With Bayer likely to pull out of the collaboration, the company may need to raise more money, Smith added.

Celltech could even be ripe for a takeover attempt if its shares don't recover, according to the Greig Middleton analysts, who speculated that Centocor may be a likely buyer.

"Centocor already pays license fees to Celltech on ReoPro, which is covered by Celltech patents," they wrote. "Centocor has an anti-TNF antibody in Phase III for Crohn's and Phase II for rheumatoid arthritis which is also covered by Celltech patents. Centocor would be very keen to get full access to Celltech's technology cheaply."

Ironically, Centocor, of Malvern, Pa., is one of a long list of biotech companies whose proposed sepsis treatments have failed in recent years:

* Xoma Corp., of Berkeley, Calif., and Pfizer Inc., of New York, in April reported a Phase III with the E5 monoclonal antibody for gram-negative sepsis.

* Cortech Inc., of Denver, failed in 1994 at Phase II with its Bradycor bradykinin antagonist.

* Immunex Corp., of Seattle, in 1994 failed at Phase II with TNFr, a soluble tumor necrosis factor designed to block a patient's immune response.

* Centocor Inc., of Malvern, Pa., in 1993 failed at Phase III with HA-1A, a monoclonal antibody to the endotoxin that causes an immune overreaction in patients whose blood is infected with gram-negative bacteria.

* Synergen Inc., of Boulder, Colo., in 1993 failed at Phase III with Antril, a recombinant interleukin-1 receptor antagonist.

Yet, the potential market continues to attract cautious interest:

* Galenica Pharmaceuticals Inc., of Frederick, Md., is developing a treatment based on the antagonistic action of plant bacteria lipopolysaccharide against gram-negative bacterial endotoxin. The company notes that the sepsis treatment is not its lead product.

* Vertex Pharmaceuticals Inc., of Cambridge, Mass., is at the preclinical stage with ICE (interleukin-1b converting enzyme)-inhibiting compounds that appear promising, but the company has stressed that sepsis is "not the primary focus" of the program.

Smith predicted biotech firms will back away from the confounding puzzle that is septic shock, leaving the development--or at least the bulk of the cost--to big pharma companies that can absorb the shock of a trial failure.

"The opportunity is still there," he said, "but I don't think many biotech companies are going to be interested." *