LONDON - KS Biomedix Holdings plc said it is dropping its lead product in inflammatory diseases, KSB302 for the treatment of rheumatoid arthritis, after a Phase IIb study failed to reach its primary endpoint.

However, the company, based in Guildford, also had good news in the form of a US$25 million Japanese development and marketing deal for TransMID, its treatment for recurrent high-grade glioma.

The share price fell 3 pence to 66.5 pence when the announcements were made on Monday. At the start of the year the company's share price stood at £1.15.

The failure of KSB302 comes just five months after KS Biomedix dropped its then-lead product, KSB301 for the treatment of osteoarthritis, after an inconclusive Phase IIb trial. That leaves the inflammatory diseases pipeline rather diminished, with three other products that all are at the preclinical stage.

CEO Steven Powell told BioWorld International, "It is disappointing; terminating a program is never a happy occasion. But at the same time it is absolutely the right thing to do. There is a trend in the data, but it is not good enough, particularly in a competitive market such as arthritis, for us to make further investment."

The Phase IIb study of KSB302, a small molecule, involved 335 patients in four treatment arms receiving doses of 10 mg, 15 mg, 20 mg and 40mg, and a placebo control arm. The primary endpoint was joint pain. The 15-mg group was the only one to show a difference in pain, and had the lowest number of swollen joints, but unlike in the Phase IIa trial, the difference was not statistically significant.

"Although we are surprised and disappointed that we were unable to duplicate the statistically significant efficacy results of the Phase IIa study, this is not an unusual occurrence in the development of drugs for arthritis, particularly where pain is the primary clinical endpoint," Powell said.

Powell obviously was more upbeat about the Japanese deal, with Sosei Co Ltd., of Tokyo, saying it illustrates the significant global potential that exists for KS Biomedix in brain tumor markets. "We have a good position in Western countries and needed to push forward in Japan, which represents 20 percent of the worldwide market for glioma treatments. We are pleased to announce the deal with Sosei, which values the product highly."

Under the terms of the deal, KS Biomedix will receive an up-front payment plus development and sales-related milestones of up to $25 million and royalties on sales. It will also get revenues from the sale of TransMID materials. Sosei is applying for approval for a pivotal trial and for orphan drug status, and Powell said he expects the study to begin in the second half of 2004.

TransMID already has orphan drug status in the U.S. and Europe. A pivotal trial is expected to begin in the second half of this year, with marketing submission anticipated in 2004. The product is based on the transferring-mediated delivery of a modified diphtheria toxin, which is capable of selectively killing cancer cells. KS Biomedix acquired TransMID when it took over the Canadian company Avicenna Inc., of Edmonton, Alberta, in May 2001.