SGX Down for the Count?

When a development-stage drugmaker's one clinical-stage compound looks like it might fail, expect bad things to happen to that company's share price. SGX Pharmaceuticals (Nasdaq: SGXP  ) suffered that fate last week, after announcing that its lead drug produced safety issues in phase 1 testing.

SGX's shares fell more than 60% last week after its phase 1 solid tumor MET kinase inhibitor drug candidate had to be discontinued from dosing in one study, and reverted to a lower (and presumably less efficacious) dose in another study. This drug, dubbed SGX523, was SGX's only clinical-stage compound; the company does expect to bring two other oncology-targeted drugs into the clinic later this year, with another two planned in 2009.

SGX523 would be one of SGX's first chances to show the productivity of its drug-discovery platform. Much like Exelixis (Nasdaq: EXEL  ) is often compared to an unproven version of Genentech (NYSE: DNA  ) , thanks to its extensive oncology-drug pipeline, SGX is akin to a very unproven Exelixis -- and now it's looking shakier than ever.

True, SGX523 isn't finished yet, since SGX is still testing the drug in solid-tumor patients. Other drugmakers, including Exelixis, have made comebacks after their lead drugs failed in clinical testing, but even finding a proper dosage of its first compound in phase 1 testing won't instill greater confidence in SGX investors.

SGX does have another, similar MET inhibitor set for phase 1 testing later this year; perhaps it will scrap SGX523 in favor of this other compound. With its share price in the gutter, an expected burn rate around $20 million this year, and cash and investments of less than $40 million, SGX doesn't have much time left to produce promising data.