2005 - [AXYX] The Placebo Effect
A MIND IS A terrible thing to waste, and so is a Phase III clinical trial.
Shares of Axonyx (AXYX) plummeted 63% to a two-year low of $1.81 Monday after Phenserine, a drug developed by the biopharmaceutical company to battle Alzheimer's disease, did not perform significantly better than a placebo in a late-stage study.
"It's not a good sign for a company if they can't meet the primary endpoints," said Ron Garren, editor of the online newsletter BioTech Insight. "This drug was expected to be a blockbuster." Garren should know: He's among the Axonyx investors taking a bath on the news.
But New York-based Axonyx is not giving up, saying that its six-month trial was tainted by an unusual improvement in patients receiving a placebo.
"It's not a failed drug but a failed trial, and we will tweak it to get to where it works," says Colin Neill, Axonyx's chief financial officer. "The drug worked, but those not on the drug did much better than we thought they would."
Neill says Alzheimer's patients can markedly improve when they're given increased mental stimulation, such as the attention a patient receives by participating in a trial. Typically, patients on a placebo eventually lose those gains, slipping to their baseline levels. In this trial, that didn't happen.
Phenserine is an acetylcholinesterase (AChE) inhibitor that breaks down a neurotransmitter in the brain important in memory and cognition. When signals jump over the synapse between a nerve and muscle cell, the signal moves via a neurotransmitter, such as acetylcholine. According to Protein Data Bank, the enzyme acetylcholinesterase patiently waits in the synapse, and as soon as the signal passes, breaks down the acetylcholine into its two component parts, acetic acid and choline. This stops the signal and allows the chemicals to be recycled and rebuilt into new neurotransmitters for the next message. The entire process takes just 80 microseconds, which means it can be repeated 12,500 times in the course of a second.
People with Alzheimer's disease lose nerve cells as the disease progresses. Axonyx is trying to curb the disease's symptoms by partially blocking the acetylcholinesterase. This raises the level of the neurotransmitter, strengthening the nerve signals that remain.
Unlike other acetylcholinesterase inhibitors, which only suppress the enzyme's activity, Phenserine has been shown to also inhibit the synthesis of beta-amyloid, a protein thought to cause brain-cell death.
The recent unsuccessful trial recruited 384 mild to moderate Alzheimer's patients from 16 sites in Spain, United Kingdom, Croatia, and Austria. While Phenserine-treated patients performed better on the two cognitive evaluation scales that served as the study's primary endpoints, the drug's advantage over the placebo did not prove statistically significant.
"I don't know now, but it might have been the selection criteria," says CFO Neill. "If you pick people with cases too mild, the placebo group may respond better. Meanwhile, none of the other acetylcholinesterase inhibitors on the market had 100% success with their trials. They were tweaked and eventually got it right."
Matt Kaplan, an analyst at New York investment bank Punk, Ziegel & Co. agrees. "In central nervous system indications you'll have trials often where eight out of 10 fail, but you use the two that worked for approval," says Kaplan. "With Namenda by Forest Laboratories (FRX), three out of its four trials didn't work." (Kaplan doesn't own Axonyx shares, but his employer does have an investment-banking relationship with the company.)
Axonyx needs all the encouragement it can get, since it doesn't have any drugs on the market and all its other candidate compounds are in preclinical stages of development. For the third quarter, the company posted a net loss of $6.7 million, or 13 cents a share, compared with a net loss of $1.8 million, or seven cents, in the year-earlier quarter. Research and development costs grew to $6.1 million from $986,000 in the third-quarter of 2003 because of the clinical trials' costs. While Axonyx didn't make any sales, it did post revenue of $954,000 for the third quarter. This comes from Oxis International (OXIS), a biotechnology company in which Axonyx acquired a 52% stake in January 2004.
As of Sept. 30, Axonyx had $87.7 million in cash. This was the remainder of $100 million raised during the previous 15 months through private placement deals. The CFO says the company burned through $24 million in 2004. He offered no prediction for 2005.
Currently, the company has two larger ongoing studies of Phenserine, one that should be completed by the end of 2005, and the other in 2006. The drug is also undergoing a Phase IIB trial to evaluate its ability to lower levels of beta-amyloid precursor protein and beta-amyloid, which is a plaque suspected of causing Alzheimer's. Results are expected before the end of March.
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"Phenserine had a clear treatment effect," says Kaplan of Punk, Ziegel. "The question is, how marked was the difference between the placebo and treatment? Did it miss significance by a hair or was it a mile off? The full analysis of data would help give the answer as to whether it's dead in the water. As of today, we don't know. I think it's wait and see. I can't say it's a buying opportunity, but when we see more color on this Phase III data, it might be an outstanding money-making option. It's too early to tell."
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