If you didn't think things could get any worse for drug developer Northfield Laboratories (NASDAQ:NFLD), you were proven wrong yesterday.
Shares of Northfield were down more than 50% yesterday after the company announced even worse clinical trial results for its lead compound, potential red blood substitute PolyHeme.
Northfield originally released "top-line" data for the controversial blood substitute back in December. This data sent shares into a free fall after PolyHeme failed on the primary endpoint, showing noninferiority compared to the standard of care for trauma victims after an injury.
When those top-line results were released, Northfield threw investors a Hail Mary pass to grasp at, mentioning that some of the data might have been miscalculated and that it was asking its contract research organization to review all the data from the trial. Last month, Northfield announced that it would take another month for that data to be completed, and yesterday released the more finalized dismal data.
In the phase 3 trial, PolyHeme was being tested against the standard of care for trauma victims, which is a saline solution and donor blood when in the hospital. The primary endpoint of the study was whether PolyHeme could perform equally as well as these compounds in preventing death for these patients. Statisticians call this a noninferiority endpoint, and it can be measured using what are called confidence intervals.
As per the phase 3 study's primary endpoint, PolyHeme could be declared noninferior (and the trial a success on this efficacy endpoint) if the drug performed no worse than 7% of the upper limit of the control's (saline and blood) confidence interval. It is difficult to explain what a confidence interval is without getting into an in-depth explanation of statistics, but in slightly easier-to-understand terms, if PolyHeme was no worse than 7% outside the range of values that could be indicative of the control group's mortality, then the drug would be deemed noninferior.
In other words, patients treated with PolyHeme could do worse than saline-and-blood-treated patients up to a certain degree, and the drug could still be considered noninferior.
When the top-line PolyHeme study results came out in December, the drug failed this endpoint, exceeding the 7% noninferiority threshold by 0.3%. But after the reanalysis of the data that was announced yesterday, the drug appears to have failed even more -- it is now 0.65% outside this 7% threshold. So the data reanalysis by the contract research organization appears to have hurt Northfield's chances for approval, as well as costing time and money. Oops.
Investors shouldn't start thinking that exceeding the noninferiority threshold by a tiny amount like 0.65% is "close enough" for approval. The reason drugmakers have to pre-specify their study endpoints like this ahead of time is to prevent that kind of post-hoc analysis, where companies may try to spin "close enough" on the primary endpoint as a success.
Undoubtedly, when Northfield files its new drug application with the FDA, the agency (and most rational statisticians) will take a very dim view of Northfield lowering the bar on this already generous noninferiority threshold.
Efficacy is not the only problem nowThings got even worse for Northfield's chances with the FDA today, when the company released new safety data showing that the use of PolyHeme was associated with a statistically significant difference in chance for myocardial infarction compared to the standard of care.
In layman's terms, that means patients who were administered PolyHeme had an increased risk of heart attack. The negativity (and robustness) of these results is further heightened considering the fact that PolyHeme was associated with an increased incidence of serious cardiovascular adverse events in a previous study.
In perhaps one of the most ridiculous time-stalling moves to delay the inevitable, Northfield's management announced yesterday that it would have an independent panel of cardiologists review data on all patients in the study to see if a "uniform, consistent, and accurate approach" was taken to reporting the various cardiovascular adverse events in the phase 3 study. Umm, but didn't the contract research organization just go over the accuracy of the study's data? To this analyst, it sounds like Northfield's management doesn't know when to call it quits.
Really, this just sounds like more stalling to give Northfield more time for financing and to delay the upcoming marketing application and subsequent FDA rejection of the drug. Northfield's first stall tactic -- having the contract research organization review all patient data -- enabled it to delay the press release for six months, and I wouldn't be surprised if the cardiologist review of the data lasts until 2008.
Northfield's futureWith only $47 million in cash and investments on the balance sheet as of the end of February, Northfield's intermediate future is going to involve some sort of financing to get it through the cardiologist review and the wait for an FDA decision on the compound. This process could easily take until 2009, and if Northfield needs to have oncologists, urologists, or even proctologists reanalyze the phase 3 data, it could conceivably take even longer.
One-drug-wonder development-stage pharmas whose lead compounds fail in late-stage testing, like Northfield, Introgen (NASDAQ:INGN), Genta (NASDAQ:GNTA), or AtheroGenics (NASDAQ:AGIX), will rarely if ever admit their drugs have little chance of marketing approval. As long as they at least give the appearance of trying to advance their compounds forward, development-stage drugmakers can go on for years, always getting investor funding from somewhere.
I said recently that if Dendreon's (NASDAQ:DNDN) oncology compound were approved this go-round, it would be the least conservative action by the FDA in years. If Northfield's PolyHeme were to gain regulatory approval based on these efficacy and safety results, then it would be the least conservative action ever taken in the history of the modern FDA (since the agency was required to take a drug's efficacy and safety into account in its decision-making process). Investors should take this into consideration when deciding whether shares of Northfield are undervalued at this level.
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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.
