Regulus Therapeutics Inc. Clinical Hold: Should Investors Be Yellow-Bellied?

Image source: Getty Images.

When it comes to serious adverse events in clinical trials, one could be a fluke. But as Regulus Therapeutics (RGLS -7.91%) discovered, if the same side effect happens a second time, the Food and Drug Administration often breaks out the stop sign.

On Monday after the close, the biotech announced that the FDA put its lead drug RG-101 on a clinical hold after a second case of jaundice occurred in a patient taking its long-acting hepatitis C drug RG-101. The disease, caused by high levels of a cellular breakdown product called bilirubin, turns the skin yellow, but it can lead to more severe complications.

Patient with jaundice.
Image source: James Heilman, MD via Wikimedia.

As in the first case, there are extenuating circumstances with this case. The patient had end-stage renal disease and was on dialysis, which could have been the cause of the jaundice. Bilirubin is supposed to be excreted by the liver, so jaundice can occur in patients with livers that aren't functioning properly.

In fact, the patient's doctor said the jaundice was unlikely related to taking RG-101. The patient developed jaundice 117 days after receiving a single dose of RG-101.

Nevertheless, the FDA isn't taking any chances and put the program on hold. RG-101 works by down-regulating a microRNA in the liver called miR-122 that is essential for the stability, replication, and translation of hepatitis C virus.

Fortunately for Regulus, the three ongoing clinical trials have already enrolled and treated all the patients, so the hold only affects future studies. Regulus plans to present the results of the ongoing clinical trials once the patients have been in the trial long enough to know if they've been cured of hepatitis C.

What now?

Considering the patients' health, there's a good chance that the RG-101 isn't causing the jaundice. But proving that a drug isn't causing an effect is a lot harder than proving that it is doing something.

Regulus' management wasn't willing to speculate about what it'll need to do to lift the clinical hold, arguing that they shouldn't speculate since the formal FDA letter should arrive within 30 days. That may be prudent, but it adds uncertainty that investors generally don't like.

Best-case scenario is that the agency only wants additional monitoring of patients' bilirubin levels but allows Regulus to run other additional trials without any other restrictions.

While it's possible that the FDA would just shut down the entire RG-101 program, that seems unlikely, given that the rate of jaundice is about 1%. But the FDA could conclude that RG-101 is adding to the potential for jaundice and ask Regulus not to test the drug in patients with compromised livers, which could be problematic for Regulus' plan for RG-101.

Regulus is rather late to the hepatitis C drug market. Gilead Sciences (GILD -0.65%), Merck (MRK -0.90%), and AbbVie (ABBV 0.54%) all have already-approved cocktails that are capable of curing most patients. For Regulus to see meaningful sales of RG-101, it needs to find a niche that Gilead, Merck, and AbbVie aren't filling. Patients with end-stage renal disease often don't respond as well as healthier patients to the cocktails from Gilead, Merck, and AbbVie, so there's potential -- as long as the FDA doesn't take it away -- for RG-101 to treat those patients.

The other possibility is for RG-101 to be combined with another long-acting hepatitis C drug that could make the treatment into a single-treatment cure. Gilead, Merck, and AbbVie are taken orally, but they have to be taken for a few months, so a needle prick or two could trump the hassle of remembering to pop a pill every day for a few months. Regulus is testing a combination of RG-101 with an oral version of GlaxoSmithKline's (GSK -1.36%) GSK2878175, but GlaxoSmithKline is also developing a long-acting injectable version of the drug that could be used in later trials.

While a combination of RG-101 and GlaxoSmithKline's GSK2878175 might be able to compete with the current cocktails from Gilead, Merck, and AbbVie if it had similar efficacy, the potential for jaundice could cause doctors to shy away from the drugs, especially since the solution for treating many side effects is to stop treatment, but that isn't really possible for long-acting drugs that are only dosed once.

Considering the uncertainty, until we know Regulus' plan to get RG-101 off the FDA clinical hold, it's understandable that investors might be a little anxious and send shares lower.