Zonagen Zones Out (News) August 10, 1999

Zonagen Zones Out

By Dave Marino-Nachison (TMF Braden)
August 10, 1999

Pharmaceutical developer Zonagen (Nasdaq: ZONA) zoned out today, losing some 30% of its value after the Federal Drug Administration (FDA) stopped the company from further clinical testing of its developmental erectile dysfunction drug Vasomax, once hotly anticipated, because of concerns about safety.

The FDA based its decision on information from Zonagen's ongoing two-year carcinogenicity study, which indicates that male rats getting long-term daily doses of phentolamine mesylate, Vasomax's active ingredient, appeared more likely than usual to develop brown fat tissue that might turn out to be dangerous to humans.

Zonagen executives weren't pleased.

"Phentolamine has been on the market for 50 years," said Zonagen CEO Joseph Podolski. "Given this and the fact that our previous trials showed no abnormalities, we believe we can provide sufficient information to the FDA to remove the clinical hold.... We believe we will be able to continue the clinical development of our phentolamine products for both men and women in a timely fashion." Zonagen's licensee for Vasomax, Schering-Plough (Nasdaq: SGP), will be allowed to finish a 12-week patient study already underway.

This is disappointing news for Zonagen. In May, the FDA rejected Vasomax, once considered the forerunner in the race to challenge Viagra for the dollars of [insert tasteless joke here] -- essentially halving the shares in one day. The company had hoped to win the government over with supporting clinical data rather than introduce new problems.

The news also affects Zonagen's Vasofem experimental treatment for female sexual dysfunction. Trials could be halted for as long as six months.

Zonagen has several other products in its pipeline, including two more for erectile dysfunction, but none were as close to market as the Vasomax pill, and they don't seem likely to help pull Zonagen toward profitability anytime soon.

The setback not as big of a deal for Claritin-powered Schering-Plough, a whopper of a company with $2.01 billion in 1998 revenues and a market capitalization of nearly $70 billion. Schering-Plough's shares moved back just slightly today on lighter-than-average volume. Even sales of Viagra, for all its publicity, have cooled and account for only about 8% of Pfizer's (NYSE: PFE) revenues so far this year.

But that's little consolation for Zonagen shareholders who stuck around since May, hoping better news was on its way.

Even if Zonagen can get this mess cleared up, things are likely to get worse before they get better. Other experimental erectile dysfunction drugs from companies like Abbott Labs (NYSE: ABT) and Eli Lilly & Co. (NYSE: LLY), once lagging Zonagen's in development, now seem set to hit the market before Vasomax.

Related Links:
Zonagen Corporate Site
Daily Trouble, 5/14/99
Fool Plate Special, 5/10/99, "Zonagen Loses Its Luster"

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