The management team at Nivalis Therapeutics Inc. didn’t exactly pull the plug on lead candidate cavosonstat (N91115) after it flunked its first phase II experiment in adult patients with cystic fibrosis (CF) who had two copies of the F508del-CFTR mutation and were being treated with Orkambi (lumacaftor/ivacaftor, Vertex Pharmaceuticals Inc.). But investors were less forgiving, driving shares (NASDAQ:NVLS) to a historic low of $2.50 after top-line data showed the compound, dosed at 200 mg and 400 mg, failed to show benefit in terms of absolute change in percent predicted FEV1, the trial’s primary endpoint, or in sweat chloride reduction at 12 weeks.

Shares never recovered, closing Tuesday at $2.57 for a loss of $3.68, or 59 percent. More than 4.8 million shares were exchanged, or nearly 65 times the company’s three-month moving average.

No dose-limiting toxicities occurred and cavosonstat was well-tolerated in the trial, according to Nivalis, which reported the findings following Monday’s market close.

Jon Congleton, president and CEO of the Boulder, Colo.-based company, maintained during a conference call with analysts that Nivalis will defer a decision on next steps until receipt of top-line data from a second phase II study evaluating cavosonstat as an add-on therapy to Kalydeco (ivacaftor, Vertex) in adults with one copy of the F508del mutation and a second mutation that results in a gating defect in the cystic fibrosis transmembrane conductance regulator (CFTR) protein. Those findings are due in the first quarter of next year.

Developed internally at Nivalis, Cavosonstat works through a mechanism of action called S-nitrosoglutathione reductase (GSNOR) inhibition, which is presumed to modulate the unstable and defective CFTR protein responsible for CF. GSNOR inhibition is thought to restore GSNO levels, modifying the chaperones responsible for CFTR protein degradation. Preclinically, that stabilizing effect was shown to increase and prolong the function of the CFTR chloride channel and increase net chloride secretion.

The company, formerly N30 Pharmaceuticals Inc., was seeking to prove its thesis that cavosonstat can correct the CFTR misfolding that occurs in CF, potentiate chloride channel function and help decrease lung inflammation. (See BioWorld Today, May 7, 2013.)

But that premise did not translate into clinical benefit in the randomized, double-blind, placebo-controlled, parallel-group phase II study, however. The trial, dubbed SNO-6, enrolled 138 adults who were treated with cavosonstat (200 mg) plus Orkambi (n=44), cavosonstat (400 mg) plus Orkambi (n=48) or placebo plus Orkambi (n=46) for 16 weeks. The trial included a four-week withdrawal and follow-up period once patients completed 12 weeks of dosing.

The company said no significant differences in baseline demographics were seen across the placebo and two treatment arms, and the study had a low dropout rate.

Treatment did not result in improvement in lung function over the 12-week treatment period. A modest reduction in sweat chloride, consistent with CFTR modulation, was seen in the 200-mg cohort at four weeks and maintained at eight weeks, but the effect did not persist across 12 weeks and was not seen at the higher dose. On the call, David Rodman, the company’s chief medical officer, speculated that the finding may represent “some sort of auto-regulation at the cell level” but could offer no additional explanation for the difference in cavosonstat’s performance compared to preclinical data.

“The reason we do these studies in humans – and, ideally, in patients – is because that’s where the truth lies,” Rodman said.

Although Nivalis did not report pharmacokinetic data, Rodman noted that exposure was dose proportional, with no evidence that cavosonstat affected lumacaftor or ivacaftor exposure, or vice versa.

Of interest, a statistically significant increase in body mass index (BMI) was seen in patients treated with cavosonstat compared to placebo (0.17kg/m2 vs. - 0.09kg/m2, p=0.02). Although the company does not plan to advance cavosonstat to treat CF-related lung disease in F508del homozygous patients, the candidate’s gastrointestinal effect “may lead us in a different direction” in CF, Congleton conceded.

But, first, the company will await results from the phase II SNO-7 trial in Kalydeco-treated patients heterozygous for F508del and a CFTR gating mutation. The rationale for that trial was the clinical difference in the CF population and the use of an ivacaftor-only add-on, giving Nivalis “a cleaner way to test our hypothesis,” Rodman explained, since Kalydeco “might carry less baggage” than the Orkambi combination.

Officials said they expect Nivalis to have approximately $60 million in cash at year-end and about $55 million when the SNO-7 data read out.

H.C. Wainwright & Co. analyst Andrew Fein observed in his note that “it will be challenging for the company to continue leveraging cavosonstat for value,” declining to call the ongoing SNO-7 study.

“Instead, we are taking a step back to consider what (if anything) may still hold or unlock value if we take cavosonstat completely out of the picture,” Fein wrote. “In our view, a fair valuation would have to include cash (~$60M expected by year-end), as well as the company’s knowhow in CF development, which we have repeatedly highlighted as advanced compared to its peers. Specifically, cavosonstat may have been a faulty asset, but a better asset could have a better chance of success in the hands of the Nivalis team.”

That was the optimistic view. Christopher Raymond of Raymond James said he was “moving to the sidelines” following the findings from SNO-6, where “efficacy really [is] just not there,” despite a robust design “capable of providing a clear-cut go/no go decision.”

Cowen and Co.’s Phil Nadeau struggled even to declare the BMI finding a silver lining, downgrading the company’s shares to market perform from outperform.

“In contrast to the FEV1 and sweat chloride findings, both cavosonstat groups demonstrated trends in improved BMI at week 12,” he wrote. “Management hypothesizes that this may indicate oral cavosonstat therapy generated superior gut exposures leading to increased CFTR function gains in the gut relative to the lungs. Nonetheless, the magnitude of improvement is small and the clinical significance of the benefit is questionable. Therefore the data present no clear path to registration.”