The Genesis fall

Sunday 1st April 2001

Genesis Research's drug passes its test; Genesis stock falls. Go figure. By Fiona Rotherham

It should have been Genesis Research's Jim Watson's hour of triumph. He'd just announced successful trial results for his company's exciting drug treatment for psoriasis, the chronic skin disease. The result means that the drug, PVAC, may move into the final phase of the lengthy three-stage United States Food and Drug Administration (FDA) approval process. That's no mean feat for a New Zealand company researching a drug from scratch.

So why, then, did the stock prices for Genesis and its US partner, Corixa, take a hammering after the news? Corixa fell 30% on the Nasdaq, and Genesis plummeted 90 cents in one day, bottoming out at $4.90, its lowest point since its October listing of $6.00. Medicis, the US pharmaceutical company holding the North American licence for PVAC, also suffered a short-term share price hit, dropping about 5% on the New York Stock Exchange.

What's going on? Well, it seems that when it comes to drug trials, there's success and then there's success. US analysts are divided. On the one hand, biotech analysts covering Corixa argue the results failed because the drug worked effectively on first-time patients only, while many sufferers in the trial had had previous skin treatments. Prudential Securities analyst Peter Drake lowered his rating on Corixa from "strong buy" to "hold", telling Reuters the trial results altered his expectations for drug approval and PVAC's potential competitiveness with rival therapies.

On the other hand, the pharmaceutical analysts covering Medicis were more upbeat, saying phase two trials are more to do with safety and working out the right dosages, not efficacy - that comes in phase three. Even the analysts covering Corixa share mixed views. Andrew Heyward, analyst with Seattle-based Ragen MacKenzie, says the main point to note is the lack of side effects. "That's a big hurdle in itself for sale of the product."

After a recent New Zealand analyst briefing, JP Morgan downgraded its valuation on Genesis from $8.90 to $8.25, blaming a weakening in US biotech stocks. Solomon Smith Barney stands with its $9.10 valuation; $4.04 if PVAC isn't approved for sale.

Who's right here?

The facts, ma'am

Despite their market influence, the analysts are flying blind until the FDA releases the raw data. However, we know this much: The 12-week US trial involved 241 patients with moderate to severe psoriasis, a skin condition affecting around 3% of the world's population, including 100,000 New Zealanders. Patients were split into four groups with three receiving varying doses of PVAC, and a control group who received an injection of another chemical.

The best results were found in patients taking the middle-level 15 microgram dose of PVAC. In other words, giving them too little or too much was not as effective. But even at this dosage the results only bordered on what the FDA defines as statistically significant. In the final analysis, overall efficacy compared to the control group was not enough to show statistical significance.

As in the earlier successful phase one Philippines trial, the drug worked best on a small group of patients who had not previously taken immuno-suppressants, believed to weaken the immune system. In the 21 patients who had not had previous drug therapy, 43% showed a 50% or greater reduction in PASI score at the end of the trial. (The PASI score is an index that measures the area and severity of the disease on a patient.) As Watson says, that 43% result is significant. And he claims those requiring first-line treatment are the larger part of the psoriasis market. "In the US it is well recognised that the majority of patients have not had severe [immuno-suppressant] therapy."

In the Philippines trial most patients had only had the disease for three years, compared to an average 18 years among patients in the US trial, who had been exposed to more treatments. Genesis also believes more patients would have found greater improvement - from 50% to 70% reduction in disease severity - if the trial had lasted longer than 12 weeks.

One US analyst said that while the trial had limited success, it will help design another trial that might work. Corixa and Genesis plan to do just that. After further talks with the FDA, a "bridging" trial is likely, before they attempt to move to phase three trials at the end of the year. The bridging trial will focus on the successful 15 microgram dose, treating patients for up to 24 weeks.

Watson still has 2004 set as the target for gaining approval for sale, despite the need for another trial. Big money is at stake. The US National Psoriasis Foundation estimates annual out-patient costs for treating psoriasis are between $US1.6 billion and $US3.2 billion. PVAC, if finally licensed for sale, will be the first drug Genesis brings to market.

But the biotech company is not a one-hit wonder. So far, from its database of genes from human and plant cells, it has mapped potential cures for psoriasis, asthma and the genetic code for growing stronger trees. "It's important for us to develop something that brings in revenue but the company is not built on getting a single drug to market. We want to be successful in all of them," Watson says.

Fiona Rotherham
fiona@unlimited.net.nz

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