November 2006 Rule Breakers recommendation Panacos Pharmaceuticals (NASDAQ:PANC) has hit some rough spots during clinical trials of its HIV drugs. Rule Breakers' Charly Travers recapped some of the problems at Panacos in our September 2007 newsletter. Here, CEO Alan Dunton fields questions about the biotech company's leading HIV inhibitor candidate -- which appears to reduce viral loads as well as Gilead Sciences' (NASDAQ:GILD) Viread or Trimeris' (NASDAQ:TRMS) Fuzeon --  its plans for a fusion inhibitor, exciting developments on the way in the next few quarters, and more.

The Motley Fool: For those who aren't familiar with Panacos Pharmaceuticals, can you give a brief description of the company and your top candidate, bevirimat?

Alan Dunton: Panacos is engaged in the discovery and development of prescription medications for serious viral diseases, with a focus on products that act by new mechanisms. Our lead product candidate, bevirimat, represents a new way of fighting HIV called maturation inhibition. Resistance to currently available drugs is one of the most pressing problems in HIV therapy and the leading cause of treatment failure. By creating drugs that work by novel mechanisms, you can combat this resistance and drive down the amount of virus in the body. Maturation inhibition is the first new HIV target discovered in a decade that has been validated by a drug with potent activity in patients, and it is a target that we at Panacos discovered. As a result, we are working to obtain broad patent rights in this area.

The Fool: Is there a precedent of other oral antiviral agents having the same bioavailability issues that bevirimat might have and then being reformulated successfully after mid-stage testing?

Dunton: Bevirimat itself is very orally bioavailable, as proved by our work with the liquid formulation we are currently using in our dose escalation study. The issue that we had in December was not with the bioavailability of bevirimat but specifically with an experimental prototype tablet formulation we were using at the time. We are now working on new liquid and solid dosage forms that would be suitable for long-term clinical trials and eventual marketing. These reformulation issues are commonplace during development of drugs in all therapeutic areas.

The Fool: What caused the delay in developing a long-term liquid formulation of bevirimat, and why can't the phase 2 liquid formulation be used in the longer-term studies?

Dunton: There really has not been a delay in developing a long-term liquid formulation of bevirimat. The formulation work on bevirimat is going well, and we plan on having a suitable dosage form for an extended-dosing (more than 90-day) study once we have explored the dose-response curve.

The liquid formulation we are currently using in the two-week dose escalation study is unsuitable for long-term dosing for two reasons: It is delivered to the pharmacy as a powder in a bottle, which then has to be measured out and mixed by a pharmacist before a patient can drink it; and the current formulation contains a compound called betacyclodextrin, which is not approved by the FDA for dosing longer than a month. Since the current dose escalation trial we are running has a two-week design, this formulation is fine to use while we simultaneously develop formulations for long-term use.

The Fool: What are your plans for partnering bevirimat? Are you looking for a worldwide partner or only outside the United States?

Dunton: We haven't taken a decision on partnering; with HIV, you can field a sales force of 80 to 100 people for the U.S. market, which is completely feasible for a small company like ours. So conceivably we could go it alone in the U.S. with an ex-U.S. partner. However, we talk to potential partners on an ongoing basis and are open to the idea of partnering as a way to maximize the market for bevirimat. In the long run, the decision to partner or not will rest on the quality of the deals offered and what is best for Panacos and bevirimat's development.

The Fool: Panacos' fusion inhibitor -- a class of HIV therapies with only one approved compound -- is in preclinical testing, with human clinical trials set to begin next year. Will the fusion inhibitor follow a similar development timeline as bevirimat?

Dunton: When we started the development of bevirimat, Panacos was a private start-up with very limited resources and a very small staff. At this stage in our development, we are a very different company, with significantly greater resources at our disposal. We would anticipate seeing a more compressed timeline with follow-on products such as the fusion program, where we aim to pick a lead candidate this year and have it in the clinic next year.

The Fool: Trimeris is another biopharmaceutical company with a fusion inhibitor program. What advantages do you have over competing products?

Dunton: The approved Trimeris-Roche product, Fuzeon, provides proof of concept for HIV fusion inhibitors, but its market is limited because it has to be injected twice a day, causing injection site reactions, and it is very expensive to manufacture. In contrast, our fusion inhibitor program has generated small-molecule, orally available fusion inhibitors that could have significantly greater potential for broad use in HIV treatment. In addition, our fusion inhibitors have a different molecular target to Trimeris' Fuzeon, and as a result they have activity against some Fuzeon-resistant HIV isolates.

More broadly, it should be recognized that HIV is an interesting space; since you need multiple active drugs taken together to combat the onset of resistance, the HIV marketplace is less of a zero-sum situation than many other therapeutic areas. Combinations of novel-target drugs could actually be a great new therapeutic paradigm, and since there are a few novel-target drugs that are either recently approved or on the threshold of approval, Panacos could potentially be an important part of that paradigm with bevirimat and the other drug candidates in our pipeline.

Bevirimat's clinical profile is very appealing: It is oral, once a day, has been well tolerated in clinical trials to date, and has broad antiviral activity. Additionally, it has shown no clinically significant drug interactions with other HIV drugs -- many HIV drugs have significant interactions with other HIV drugs, and this makes treatment difficult for both patient and clinician.

The Fool: Where do you see Panacos in three to five years?

Dunton: In that time frame, I would expect to see bevirimat on the market, with our second-generation maturation inhibitor and fusion inhibitor programs moving effectively through clinical trials. Our pipeline would likely be broader-based on additional products identified in-house or possibly from in-licensed programs. We are also always on the lookout for strategic opportunities to create additional value.

The Fool: Any final takeaways for investors and others interested in Panacos?

Dunton: In the next three quarters or so there will be a significant amount of news. We will be seeing data from the next few cohorts in our dose escalation trial; we expect to enter extended dosing in HIV patients; we will see more news on solid formulation development; and we will pick a lead fusion inhibitor. It's a busy, exciting time at Panacos.