BioSante Pharmaceuticals (Nasdaq: BPAX) is trading down 77% today, and its Antares Pharma (AMEX: AIS) drug-delivery partner is down 33% as well, after announcing that LibiGel failed to raise sexual desire in women.

At least on a statistically significant measurement, it didn't.

LibiGel actually performed as expected. It raised testosterone levels in the women and increased the number of days with a satisfying sexual event compared with the time before patients were given LibiGel. The problem, as I warned about back in July, stems from the placebo effect, which complicated the results. For instance, in one of the two trials reported yesterday, LibiGel increased the number of satisfying sexual events by 83%, but taking placebo increased it by 65%. The difference wasn't close to being statistically significant; there's a 70% chance that it happened by chance alone.

That's the danger in measuring a subjective outcome; even if the drug works, variability in the outcome can mute the effect. Unfortunately, subjective outcomes can't be avoided for many indications, such as libido or pain management.

The subjective readout for lupus is one of the reasons that there was such a long gap in the development of a treatment. Human Genome Sciences (Nasdaq: HGSI) finally solved the problem by developing a composite endpoint to minimize the variability.

In terms of trying to boost female sexual desire, investors should have taken a clue from Boehringer Ingelheim, Pfizer (NYSE: PFE), and Procter & Gamble (NYSE: PG), which all abandoned their female sexual development drugs. Pfizer and Eli Lilly (NYSE: LLY) had it easier developing drugs for men, where tangible results can be more empirically observed.

I wouldn't necessarily encourage investors to give the cold shoulder to all companies running clinical trials measuring a subjective outcome -- Pfizer beat its extremely high placebo rate in a trial testing its rheumatoid arthritis drug -- but their chance at clinical success has to be discounted considerably.

It seems BioSante's investors didn't sufficiently take that into consideration when dreaming of biotech glory.

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