Renovis Tries to Right Itself

It's just a fact of the industry that, inevitably, every year several development-stage biotechs implode after their lead compounds fail to pass muster in clinical trials. Unfortunately for shareholders in drug developer Renovis (NASDAQ:RNVS), it became one of those biotechs last year, after its lead drug failed in a pivotal phase 3 clinical trial.

If you recall, Renovis and partner AstraZeneca (NYSE:AZN) reported phase 3 results from their SAINT II clinical trial back in October for candidate NXY-059. The drug failed to show a statistically significant reduction (p-value of 0.33) in stroke-related disability compared to placebo, and it also missed its secondary endpoints. Considering the more than 3,000 patients in the trial, it's probably fair to say that these results were most likely not due to the trial being underpowered.

Investors had high hopes for NXY-059 after an earlier 1,700-person phase 3 trial, titled SAINT I, succeeded in the same primary endpoint (with a p-value of 0.038) but failed in its secondary endpoints. Either something went wrong with the second SAINT trial compared to this one, or else these first results may have been a statistical fluke. Remember, a p-value of 0.038 means there's nearly a 4% chance that the results could occur by chance. That's why the FDA almost always requires two successful phase 3 trials for a drug to gain marketing approval.

On Tuesday, Renovis partly outlined the steps it was taking in light of the failure of its stroke treatment NXY-059. It announced a 40% reduction in its workforce to conserve its $105 million in cash and equivalents, and also reiterated its commitment to the compounds in its pipeline. Really though, what other choice does Renovis have?

Barring an acquisition -- a possibility to which Renovis seemed open in its third-quarter financial release -- the company also guided for its cash stockpile to last it until "at least" the end of 2009. Considering that all the drug candidates in Renovis' pipeline are in the preclinical stage -- except for a partnered pain drug with Pfizer (NYSE:PFE) that is just entering phase 1 testing -- this rate of cash burn sounds reasonable.

It's way too soon for me to make any judgment on the value of Renovis' pipeline, since none of the compounds have any clinical trial results attached to them. By 2008, Renovis expects to have three drugs in phase 1 testing. If there is any meaningful value in these compounds then shares of Renovis might be a deal right now, just considering the breakup value of the company.

As of last year's third quarter, Renovis had net cash and equivalents of approximately $105 million. Even with a couple of million dollars in cash burn for the fourth quarter, it's now barely trading above its cash level. Considering the other opportunities out there in this sector, though, it's tough to generate any interest for a biotech whose products have so many unknowns attached to them.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy.