No Drugs, No Rally

It didn't take investors too long to do the math. One drug in late-stage trials minus one drug failure equals zero drugs. That last number is also the price that Sonus Pharmaceuticals' (Nasdaq: SNUS) stock approached Monday, when it shed a whopping 84% of its value.

Sonus is developing Tocosol paclitaxel, a reformulated version of Bristol-Myers Squibb's (NYSE: BMY) Taxol, for treating breast cancer patients. Unfortunately for Sonus, the news out of the phase 3 trial couldn't have been any worse than it was.

To gain marketing approval, the drug just needed to work equally well, but have fewer side effects, than Taxol. Or the drug could also have done well in the market if it had performed better than the standard treatment with similar side effects. Instead, the drug did worse in both categories.

Based on the results, Sonus expects its marketing partner, Bayer (NYSE: BAY), to drop it like a bad habit. The company is checking the data thoroughly to see if there's something different about the phase 3 trial that explains why it went so badly compared with the rather stellar phase 2 trial results. But I'm not holding out hope on that front; sometimes phase 2 trials just aren't big enough to give a true picture of the drug's effectiveness and safety.

The best chance for Sonus to find redemption in the stock market is a reformulated version of Camptothecin, based on the same Tocosol technology, in phase 1 clinical trials. Before the trial results were announced, the company had expected to have $22 million to $25 million in cash at the end of the year, but it should have more because it won't need to pay for the late-stage clinical trial. I'm not sure that will be enough money to get it through a phase 2 trial, so it will probably need to get a partner to take over the funding. I'd guess a dilutive financing is almost guaranteed at this point.

On the winning side of the trial results was Abraxis BioScience (Nasdaq: ABBI). The company makes Abraxane, an albumin-based formulation of Taxol, which has been competing exceptionally well against Bristol-Myers' Taxol and Sanofi-Aventis' (NYSE: SNY) Taxotere. Without the added competition, Abraxis should have an easier time with its plunder of the taxane market.