Washington Editor

Insmed Inc. watched its stock take a nosedive Tuesday after informing the Street that poor results from a Phase II study of INS-1 in Type II diabetes and polycystic ovary syndrome patients forced the company to terminate further development of the product.

Insmed's stock (NASDAQ:INSM) closed Tuesday at 57 cents, down $1.34 or 70.2 percent.

In a conference call Tuesday, Geoffrey Allan, president and CEO of Insmed, explained that while INS-1 appeared to be safe and well-tolerated, the candidate failed to achieve statistical significance on its primary efficacy measures.

"We had very well-defined endpoints and obviously we are very disappointed that the drug - albeit safe and well tolerated - did not meet the efficacy expectation that we would have liked to have seen to justify taking the product into Phase III development," Allan told analysts, reporters and private investors during the conference call.

But his explanation of how a biotechnology drug might fail was inadequate for a couple of private investors listening in on the call.

A participant in the call questioned the credibility of the company, saying Allan was optimistic about INS-1 several months ago during a second-quarter financial conference call. So what had happened?

Allan responded that at the time of the earlier call, the Phase II trial remained blinded. "This is a high-risk business and product failures do occur," he said. "We are in a business of executing well-designed clinical trials, and in the last conference call we had those trials in progress and we were feeling confident that the body of evidence and the weight of evidence to date was going to suggest that this product should move into Phase III."

He did not attribute the failure to the quality of the trial.

"The sheer, unadulterated fact is that the product was not robust enough to warrant further investigation," he said. "I can't control that - all I can do is the best technical development, and hope and pray that the scientific decisions we are making are justified and worthy," he said. "And by the way, I'm not alone in product failure - this is a routine activity in this business."

INS-1 is an orally active insulin sensitizer that looked like a promising prospect for the small company located in Richmond, Va.

In June, the company reported Phase II data showing INS-1 improved lipid profiles in patients with Type II diabetes and synergistically improved lipid profiles in patients receiving statin therapy. In a Phase II trial in patients receiving sulfonylurea therapy, an analysis of lipid profiles showed patients receiving INS-1 with statin therapy experienced even greater improvements in total cholesterol and LDL cholesterol, as well as improvements in apolipoprotein-B, compared to patients receiving INS-1 but no statin treatment.

Quite an improvement over preliminary data from a Phase II trial two years earlier in which the intent-to-treat analysis showed that Type II diabetics treated with INS-1 in combination with sulfonylureas showed no statistical significance from placebo. Insmed's stock tumbled 42 percent to close at $3 on that news. (See BioWorld Today, Nov. 28, 2000.)

"When we analyzed the data from that study, we saw that there was a profile of patients who were responsive to the drug, therefore we had high expectations," Allan told BioWorld Today. "This trial was designed to corroborate that trial, and it just didn't."

While he didn't have a specific explanation of why the Phase II failed, Allan said the expectations didn't come to fruition when INS-1 was exposed to a larger population.

But on the flip side, Allan reported some positive data for the polycystic ovary syndrome (PCOS) patients in the treatment arm of the study. While an overall increase in ovulation rates was not achieved, an increased number of pregnancies occurred. (PCOS patients have difficulty getting pregnant.)

"Regarding this data, probably the most rational choice the company can make is to entice someone from the women's health care arena to capitalize on these findings and possibly explore them further," he said. "That's probably the most rational choice we can make in light of the cash resources we have available."

At the end of the second quarter, Insmed had $36 million in cash. "It is difficult for me to say what the cash burn precisely would be [going forward] because we need to thoroughly evaluate the impact of the discontinuation of the INS program," Allan said in the call. "Clearly, that was a program that was set to have a lot of money spent to bring it into Phase III."

But Allan told BioWorld Today said that at the close of the second quarter, the burn rate had been between $2 million and $2.5 million per month. "We want survivability of 18 months to two years so that we can make progress," he said. "We're not fixed on wondering what the burn rate is, what we're saying is, we want to make progress in other areas and we want to be in business long enough to do that. We'll make the burn rate whatever it takes to get that progress."

With the issues surrounding INS-1 out of the way, the company can focus on developing SomatoKine and BP3.

SomatoKine, which recently received FDA orphan drug status for growth hormone insensitivity syndrome, is a therapeutic composition of insulin-like growth factor-1 and its primary binding protein, BP3. The product also has shown safety and efficacy in Type I and Type II diabetes. Additional Phase II studies in the diabetic population are planned for next year.

Regarding BP3, Allan hopes to file an investigational new drug application next year for use as a possible antitumor agent.