Bad news is out this afternoon from Trubion Pharmaceuticals (Nasdaq: TRBN).The Seattle-based biotech company said yesterday New York-based Pfizer (NYSE: PFE), has decided to quit investing in Trubion's lead drug candidate for rheumatoid arthritis, in favor of a next-generation treatment further behind in clinical trials.

Pfizer, which inherited its collaboration with Trubion last year through a megamerger with Wyeth (NYSE: WYE), pulled the plug on TRU-015 after looking at results from a midstage clinical trial that compared a couple different doses of the experimental treatment to a placebo. The Trubion drug appeared to be well-tolerated, but it failed to show a 20% advantage over the placebo on the key measurement of effectiveness that the companies wanted to see before they'd invest any further, Trubion said. The company said it saw a "higher than usual" response rate among patients in the study who only got the placebo.

Fortunately, Trubion has a reasonably credible fallback plan to soften the blow of this bad news. The company  developed its lead drug as an alternative to Genentech (a subsidiary of Roche) and Biogen Idec's (Nasdaq: BIIB) rituximab (Rituxan), a large targeted antibody that hits a marker on inflammatory cells known as CD20. The lead Trubion drug was supposed to be a "leaner and meaner" option, much smaller than original rituximab, which was thought to potentially be a more efficient way to hit the target. While that didn't pan out in clinical trials, Trubion had a backup second-generation molecule, SBI-087, designed to hit the same target, which still looks to have all the right properties. The backup drug is in the second of three stages of clinical trials the FDA generally requires before it will approve a new treatment for sale in the U.S.

Rituxan, a monster hit product for lymphoma and rheumatoid arthritis, generated more than $5.5 billion in worldwide sales in 2008, according to Signals magazine. So any drug that can take away even a small slice of market share could be a big seller.

"The goal of our collaboration with Trubion continues to be the development of best-in-class CD20 therapies, and we look forward to the results of the ongoing SBI-087 Phase 2 study," said Evan Loh, senior vice president of BioTherapeutics Research and Development at Pfizer, in a Trubion statement.

While Trubion is a public company, this news might only generate a smidge of interest. The company, with a market valuation of $74 million, closed today at $3.66 a share before the news release. Less than 2,000 shares changed hands today in regular trading, and there was no action after hours that I could find.

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