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Cos. Don’t Have to Pull the Plug After Clinical Trial Failures

Those in the science business must learn to roll with the punches when clinical trials flop, especially when the companies are public, and the failures are broadcast on a global stage, industry veterans said.

A few San Diego firms are nursing wounds after bad news reached shareholders this month, and recapturing confidence should be a high priority as they draft a game plan for recovery, suggested several seasoned executives.

Reeling after the failure of its “breakthrough” gene therapy for heart failure, San Diego’s Celladon Corp. announced this month that it will slash its budget and lay off half its staff.

A Top Prospect Hits Bottom

The company’s top prospect, Mydicar, failed to reduce hospitalizations, improve cardio survival rates or free patients from the need for ventricular-assisted devices and heart transplants, an across-the-board failure that decimated the company’s market value.

Now the biotech is scrimping to stay alive. Celladon is backing out of manufacturing agreements with Novasep and Lonza, and walking away from a loan agreement under which it would have taken on $15 million in debt.

Celladon wasn’t alone in the May meltdown. Just last week, San Diego drug developer Lpath Inc. said it would cut jobs and costs after its experimental eye drug failed a midstage study in patients with wet age-related macular degeneration, a leading cause of blindness in the elderly.

The biotechnology company’s shares fell nearly 80 percent, to $0.35 per share, after the news broke.

Lpath’s drug, iSONEP, did not show a statistically significant improvement in visual clarity in patients who had not realized enough benefit from prior treatments.

The company suffered a similar blow in March, when its kidney cancer drug failed a mid-stage trial.

San Diego’s medtech darling ResMed Inc. joined the misery when it was determined that one of the company’s medical devices may slightly increase the risk of cardiovascular deaths among patients with sleep apnea and chronic heart failure — the exact opposite of what it was hoping to discover.

“You don’t conduct a 5- to 7-year trial and invest $50 million for a neutral result,” said ResMed CEO Mick Farrell. “So yeah, it certainly did not achieve its primary endpoint and we were not expecting that outcome.”

Rising From the Ashes

A clinical trial failure doesn’t have to mean the end. The company’s position (and leadership) is everything.

Many San Diego companies have fully recovered from clinical trial flops, including Amylin Pharmaceuticals. The San Diego biotech all but collapsed in 2003 when the FDA delivered a deathblow to its lead drug, Symlin. Less than a decade later, the company was purchased by Bristol-Myers Squibb for a cool $7 billion in one of San Diego’s most famous deals.

Neurocrine Biosciences similarly experienced devastating clinical trial results in 2006 and watched as the company’s stock fell from about $70 per share to less than $3 by 2009.

CFO Tim Coughlin said Neurocrine had to cut its staff from 600 people to 60.

“You basically have to start over,” Coughlin said. “Some people lost 90 percent of their investment. There’s no way to rebuild but through hard work.”

It looks like the work paid off. After recalibrating the company’s drug focus, Neurocrine set to work on recapturing its investor base. Today, Neurocrine is currently trading for $43 per share and just completed a successful secondary offering of $270 million.

The key, Coughlin said, is to have many irons in the fire.

“You’re not in biotech unless you’ve had a failure,” Coughlin said. “Companies must be diversified. Not just diversified through depth, but laterally across multiple products.”

But it’s more than the pipeline, according to successful biotech exec Henry Ji, CEO of Sorrento Therapeutics. To him, it’s all about the cash.

“In this business, it’s all about money,” Ji said. “You don’t have revenue in biotech, so you rely on fundraising. If your stock crashes, then you will have a very difficult time raising money. You could be stuck for many years. Even if you have a cash runway of 2 or 3 years, you should always be raising money.”

Rebuilding

It appears that Celladon and Lpath are taking a page out of Neurocrine’s book. By cutting staff and slashing expenses, the companies can conserve resources as they develop a game plan for their remaining pipeline.

ResMed, the well-established medical device company, is in a very different position than an early-stage biotech.

“You’ve got to put things in perspective,” Farrell said. “For this particular trial, the impact was on around 2 percent of the devices that we’ve shipped in the history of ResMed. That option for growth will move to the side, and now we have the opportunity to work on other things. Having multiple options for future growth going at the same time is incredibly important. We’ve got a nice portfolio, and we’ll keep innovating.”

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