In another reminder of the volatility inherent to biotech investing, Adolor's (NASDAQ:ADLR) shares dropped more than 30% last week on news that its drug to treat post-operative ileus -- a post-surgery paralysis of the intestines -- failed to significantly treat the problem. This complication is very common after abdominal surgery and is a major cause of lengthened hospital stays.
In a classic example of the cure sometimes being worse than the disease, one of the major causes of post-operative ileus is pain-killing opioid drugs like morphine. Opioid drugs are the world's best pain killers, but they have boatloads of side effects, not the least of which is their paralyzing effects on a patient's gut.
However, this finding leads itself to an obvious solution -- block the action of opioids in the gut, while maintaining their pain-killing properties in the brain. And that was precisely what Entereg from Adolor was meant to do. Despite promising Phase II tests, the Phase III results just did not achieve statistical significance. Even more troubling was the finding that both the low and high dose produced similar results. It is more difficult to salvage a clinical trial when the researchers don't even know what dose to use!
While the news is bad for Adolor and its partner, GlaxoSmithKline (NYSE:GSK), trials for Entereg continue for other applications, such as painkiller-induced constipation and chronic constipation/irritable bowel syndrome. Early trial results for these indications look good, but as history shows, that's no guarantee of Phase III success.
As is often the case, what's bad news for one company is good news for its competition, and Adolor is no exception. Its competitors include Pain Therapeutics (NASDAQ:PTIE) in the irritable bowel field (which I discussed recently and since then has risen over 45%), and more directly, Progenics (NASDAQ:PGNX).
Progenics picked up a 20 year-old compound called methylnatrexone, which was known to block opioid action everywhere but the brain, and decided it was perfect to prevent ileus and opioid-induced constipation. The company's approach to the problem was the same as Adolor, but its researchers cut out the development time and money Adolor's chemists spent on formulating a completely new drug. Investors should appreciate the cost savings.Progenics trades at about $266 million in enterprise value, while Adolor trades around $340 million in EV. While Adolor still has Entereg in trials for other indications and the company still might rescue it for post-operative ileus, I would rather own Progenics and their pipeline, which also has investigational new drugs for HIV and prostate cancer.
Update:Last week, in discussing Vicuron's (NASDAQ:MICU) new antibiotic, dalbavancin, I mentioned that Cubicin from Cubist Pharmaceuticals (NASDAQ:CBST) was its main competitor in the field. I neglected to mention that Pfizer's (NYSE:PFE) Zyvox had been approved last October for skin and soft-tissue infections, including penicillin-resistant bacterial strains, adding another major competitor to the crowded field. Additionally, Pfizer is planning to file a patent extension on Diflucan (fluconazole), so I was too hasty in describing it as "recently off-patent."
David Nierengarten, Ph.D., works with a biotechnology venture capital fund. He often contributes to Fool.com and is an active member of the TMF community as DavidMN. He owns shares of GlaxoSmithKline, Pain Therapeutics, Vicuron, and Progenics. He appreciates your comments at [email protected] and on the Biotechnology discussion board.
